Financing / Purchase terms - Looking for Advice

[Ericv1980]

Looking for some advice on this deal. I'm in Canada.

- 2021 Ram Sport, financed at 0%
- MSRP $82k after options, etc
- Employee discount, down to $75k
- Freight & HST takes final price to $88k

I'm coming to the deal with $6k in equity so the amount to be financed would be around $82k

I plan to drive it for 3-4yrs and see myself putting 40,000km on it per year (25,000 miles per year) so 120,000-160,000km at the end of 3-4yrs (75,000-100,000miles)

Since I'm financing at 0% and am starting with some equity and discounts ($14,000 between my $6k equity from current deal combined with employee discount) my hope is that by the 3-4 year mark, the truck will be worth more than I owe on it and I'll be able to continue to build equity in the next deal, and the next, etc.

If I finance for 96mos and trade at the 36mos mark (with 120,000km), I would owe $55k. If I trade after 48mos (with 160,000km) I would owe $45k. Basically the 96month term has be paying off roughly $10k/year.

If I finance for 84mos, I'd owe $50k at 36mos with 120,000km on it and $45k at 48mos with 160,000 on it.

So I guess my question(s) are:
(1.) generally, what are opinions on this strategy?
(2.) If I go with the 96mos term and plan to trade after 36mos - owing $55k, what are chances that I will protect and grow the $6k in equity that I have in the deal?
(3.) Is this just a stupid strategy that'll never work with such long finance terms? (84/96mos)

 

[ExtinctBird]

These are just my opinions, since you asked. I find it amazing that someone is offering 8yr/0% financing. I have not heard of that. Heck, I am not sure any US lenders offer 8yr financing on a vehicle.

I see 3 concerns with your strategy, however.
1. You are planning to put a lot of miles per year on the truck. The depreciation will be higher than normal, given twice the "normal" amount of miles.
2. With an 8 year loan, you are paying down slower than normal. Couple that with #1 above, I would not expect you to have any equity.
3. It looks like your freight and HST (tax?) costs are $13K on the new truck. That puts you immediately in the hole $7K, after factoring in your existing $6K in equity. You are not likely to make that up, especially with payments spread over 8 years and high miles.

Who knows? Maybe all the new cars/trucks offered up in 4 years will be EV, and our gas guzzling dinosaurs will be collector's pieces. I wouldn't count on it though. Good luck.

 

[Nukegm426]

If your looking to maximize equity down the road, pay more than your payment... if your payment is 750, pay 8-850 every month. Either let them take the extra of the following months payment and that will slowly get you a few months ahead on payment or have them put the excess towards the principal. Being a 0% loan technically it’s the same for you but the strategy is a good one for any loan.

 

[Ericv1980]

These are just my opinions, since you asked. I find it amazing that someone is offering 8yr/0% financing. I have not heard of that. Heck, I am not sure any US lenders offer 8yr financing on a vehicle.

I see 3 concerns with your strategy, however.
1. You are planning to put a lot of miles per year on the truck. The depreciation will be higher than normal, given twice the "normal" amount of miles.
2. With an 8 year loan, you are paying down slower than normal. Couple that with #1 above, I would not expect you to have any equity.
3. It looks like your freight and HST (tax?) costs are $13K on the new truck. That puts you immediately in the hole $7K, after factoring in your existing $6K in equity. You are not likely to make that up, especially with payments spread over 8 years and high miles.

Who knows? Maybe all the new cars/trucks offered up in 4 years will be EV, and our gas guzzling dinosaurs will be collector's pieces. I wouldn't count on it though. Good luck.

Thanks for the response, opinion. I’ve reached a similar conclusion. 96mos is out of the running in terms of options I’m considering. Limiting things to 84mos will improve the situation but with that amount of miles/yr, won’t eliminate the issue entirely.


thanks for taking the time to respond

 

[Ericv1980]

If your looking to maximize equity down the road, pay more than your payment... if your payment is 750, pay 8-850 every month. Either let them take the extra of the following months payment and that will slowly get you a few months ahead on payment or have them put the excess towards the principal. Being a 0% loan technically it’s the same for you but the strategy is a good one for any loan.

Thanks for your thoughts on this. Good strategy for sure.

appreciate you taking a few minutes to respond.