new bike and money question

[PsychoMike]

Need some advice. Im thinking of getting a new bike in about a year and had some thoughts for paying for it. If the payments are 200$ a month and I saved 2400$ before buying it, would it be better to put that 2400$ as a down payment or use it for my monthly payments. I dont know if this makes sense to anyone else. lol

[JonnyD]

If you're already putting away $200/mo, a year from now you'll have the $2400 AND be used to a $200/mo payment. I'd use it for the down payment then. I'm not one to talk though, last bike I bought I didn't put any down! But I'm comfortable with $177/mo for 4 years - but I'll probably pay it off in 3.

[Spiderman]

Use it as a down payment.

If you were to save that $2400 and use it for your monthly payments, not all of that money would be going to cover the principle, some of it (possibly a good portion of it, if you didn't have a good interest rate) would be going to pay the interest, so basically you'd be giving that money to the bank.

If you use it as a down payment, all of it is going toward the principle, and none toward interest. This will result in 1 or both of the following:
1) reduce the term (number of months) that you have to have the loan
2) reduce your monthly payment

[asp_125]

Not an accountant but I went to an online loan calculator:

Say the bike costs $10K, and you're able to get a 5% loan over 4yrs. Your total P&I (priciple + interest) will be $11054.08 (IOW borrowing 10K is going to cost you around a grand). Meantime that $2400 can sit in an interest bearing account and be drawn down over 12 months, earning half a percent interest at most? What is net.. I would guess it's still costing close to a grand.

Reduce the $10K with a $2400 down payment. Resulting loan cost is $8401.08 on $7600 or a cost of ~$800. But.. your monthly payments also go down to $175, meaning you can either save $25/month over 4yrs, or pay off the loan early by keeping it at $200/mo.

[SOCAL4LIFE!!]

It really depends on the interest rate you get for the bike. Say you get the 1.99% that Suzuki is currently offering right now (and most likely will offer again next year). You can currently lock in a 5 yr CD at 2.25% (roughly). In this case your money would do you better justice in the CD. There are many different ways to look at your situation. I go through them all every time I am buying a new vehicle. Sometimes even if it costs you a couple dollars a month but you have that $2,400 in a savings account for a just in case situation it is better than depleting your account and not having a back up plan if something goes wrong.

[Bueller]

No question that the down payment is the way to go. Don't pay interest on money you already have. Plus a larger down might get you a better finance rate.

[PsychoMike]

cool, thanks guys