Help me make sense of financing

[Tdavid]

Hi,

I'm embarrassed to admit that I'm confused about best way to structure my financing deal, asking for the wisdom of who has done it before here (I am sure many have).

I paid cash for my current rig in 2016, around $24k, owe nothing on it.

Private sale retail, when spring comes, I think I can get around $17k for it.

I have a $60k fifth wheel on order, due in Feb.

My dealer is offering $13.5k trade in value.

If I am doing my research correctly, it makes a lot more sense to do the following:

Finance the total amount of the new fifth wheel, sell my old rig privately, and then apply the proceeds towards the new rig's loan as a principal reduction.

Here is what I am seeing:

I plan on financing for 180 months, to keep cash flow as attractive as possible. However, I plan on only keeping the rig for maybe 48 months.

Using the $17k as a principal reduction on the financed amount allows me to jump ahead on the amortization schedule, and I will have more equity at 48 months vs allowing the trade-in to reduce my financed amount, or using the $17k as a downpayment (should I sell my current rig before the new one comes in).

Using the $17k as a principal reduction also means I have paid less interest at 48 months vs the other two scenarios.

Bottom line, if I am doing my research correctly: don't use the cash from my current rig's equity as a downpayment (or trade-in). Sell it privately and use the proceeds as a principal reduction on the new rig's loan.

I plan on using GoodSam, and they do not have a prepayment penalty.

I realize that I can reduce my tax burden on the new rig by trading in my old one, but the savings is only about $800.

Risk here is that I don't sell my current rig for a while, but even if I fire sale it at $13.5k, the trade in amount, I am still better off as a principal reduction on new one?

Am I missing anything?

Thanks,

Dave

[riven1950]

Grit Dog wrote:
And putting the money towards principle doesn't reduce the interest you pay unless you see out the loan. Or refinance to knock down the beginning balance.

If I understand what you are saying, this is not true.

Most loans today are simple interest loans. So paying a large principle payment will surely reduce the overall interest payment over the term of the loan, because you are paying interest on less principle each month.

It will also reduce the term of the loan ( if the lender does not change your payment after the principle pay down ) because with the higher original payment you will be paying more principle and less interest each month due to the extra principle payment.

Two questions to ask the lender. 1- Is this a simple interest loan? 2- Can I pay extra principle payments?

[Ralph_Cramden]

Tdavid wrote:

wrgrs50s wrote:
Why not just tell the dealer you'll meet in the middle and it's 15K for my trade in or I'll go elsewhere and be done with all the figuring. Any way you skin it, it all comes down to what you want to do.

If your prepared to walk, most likely you will get a call within a few days that the management decided to work the deal. it's difficult when you find something you really want, but you'll be surprised with the outcome from a stern negotiation.

Just recalled a complication with this scenario. The $13.5k trade in keeps me just above $50k balance, which is a lower rate from GoodSam.

Below $50k and the rate jumps about 3/4 of a point. I remember running those numbers and seeing that keeping it above $50k is like free money.

Don't assume the 3/4 point rate drop at 50K as shown on the charts at the Good Sam finance site to be golden. Read the "important disclaimers". When you submit the app, they run the credit, and have all the other pertinent info that's when they will tell you the rate they will offer. It's seldom as rosy as they advertise.

FYI, I have always been able to get a better rate elsewhere than whoever it is that underwrites Good Sam financing. That held true 4 times carrying a score near 800.

[Grit_dog]

And putting the money towards principle doesn't reduce the interest you pay unless you see out the loan. Or refinance to knock down the beginning balance.

[Grit_dog]

Tdavid wrote:

wrgrs50s wrote:
Why not just tell the dealer you'll meet in the middle and it's 15K for my trade in or I'll go elsewhere and be done with all the figuring. Any way you skin it, it all comes down to what you want to do.

If your prepared to walk, most likely you will get a call within a few days that the management decided to work the deal. it's difficult when you find something you really want, but you'll be surprised with the outcome from a stern negotiation.

Just recalled a complication with this scenario. The $13.5k trade in keeps me just above $50k balance, which is a lower rate from GoodSam.

Below $50k and the rate jumps about 3/4 of a point. I remember running those numbers and seeing that keeping it above $50k is like free money.

Not knowing your exact numbers, this ^ still says you're not looking at this right.
Unless it's less overall interest payment it ain't free money and if it is, it's not much and you still are paying off more principle at some point.
Amortizing your original scenario
60k financed, assumed 4%
48 months you'll pay $9k or so in interest and pay off about 12k in principle.
Assuming you'll dump the 17k from the sale to principle, you'll owe about 30k after 4 years.
If you take the loan for 43k putting 17k down, you'll still owe a few thousand more but pay about the same amount less interest. So not much different either way, not taking into account inflation or time value of money.....not huge only 4 years.
Going by the 50% salvage value at 4 years, you're about break even either way.

Either way, you're money ahead to sell private based on your numbers. Will make more difference than when you spend the proceeds.

[riven1950]

You likely will get a better / lower purchase price without a trade.

I was not financing, but last year I had three trade offers on my 2014 TT, purchasing a 2017 new unit. The place that gave me the best cash price also gave me the worst trade in price. They get their money one way or the other.

Not a lot of money involved in the deal but I bought outright at the best deal. Then listed my TT on CL at a great price and sold it in less than 2 weeks and got the amount of the best trade offer. Could have done better if I had waited till Spring. Figured I saved about 3000.00 on a pretty small deal, but still took a beating on the 2014 depreciation. You will usually lose $$ on a trade unless you have a trade in the dealer really wants / needs. Whether it is worth the hassle is another question.

On the financing question. If you pay down the principle after selling you RV yourself you will certainly reduce the interest you pay long term, although your payment will not normally be reduced because of the extra principle payment, unless the lender reworks the loan.

[Tdavid]

wrgrs50s wrote:
Why not just tell the dealer you'll meet in the middle and it's 15K for my trade in or I'll go elsewhere and be done with all the figuring. Any way you skin it, it all comes down to what you want to do.

If your prepared to walk, most likely you will get a call within a few days that the management decided to work the deal. it's difficult when you find something you really want, but you'll be surprised with the outcome from a stern negotiation.

Just recalled a complication with this scenario. The $13.5k trade in keeps me just above $50k balance, which is a lower rate from GoodSam.

Below $50k and the rate jumps about 3/4 of a point. I remember running those numbers and seeing that keeping it above $50k is like free money.

[time2roll]

I would sell the old RV myself and finance 100 percent of the new RV over the 180 months. You can apply the full sales price to the new loan at your convenience. Either way I would be making monthly payment to have the loan paid in 48 months, 60 max. If I could not easily make that payment I would not make the trade.

[fj12ryder]

In Missouri, if you sell your vehicle and use that money as a down payment on the purchase of another vehicle, you only will pay taxes on the amount paid minus the down payment. If I sold my trailer for $17,000 and put that toward a down payment on the new trailer it would lessen my sales tax over $1300.

[Tdavid]

Thanks for the suggestion, I already tried that.

In the end, it was most important to me to have a local and cooperative dealer with whom I could establish a relationship (warranty). Initially, they were not the most competitively priced. Stern negotiations got them to be on par with the other local dealers (and far below even the most aggressive price found online).

I guess I could give them one more shot right as I take delivery of the new unit, to see if they are hungry for a nice trade at the time, but walking away is not an option at this time (they have my deposit).

[wrgrs50s]

Why not just tell the dealer you'll meet in the middle and it's 15K for my trade in or I'll go elsewhere and be done with all the figuring. Any way you skin it, it all comes down to what you want to do.

If your prepared to walk, most likely you will get a call within a few days that the management decided to work the deal. it's difficult when you find something you really want, but you'll be surprised with the outcome from a stern negotiation.

[Tdavid]

Guys, thanks for the advice (even though I wasn't soliciting most of it).

I'm aware of the depreciation curve, and I am comfortable with financing as an option to acquisition.

I redid my analysis and saw what I was missing: the difference in monthly payment between the two scenarios. The principal reduction approach comes with about a $100 more higher monthly payment, which is why my payoff at 48 months is better in that scenario. But I pay for that equity either way.

Since, in worst case, I can sell my current rig privately for $13.5k and come out about the same at 48 months, regardless of the tax liability reduction, I think I am going to roll the dice and wait til spring and sell it privately when the market (literally) heats back up, and I should be able to sell it for significantly more than $13.5k.

Because I paid cash for my old rig, I have the option to wait and sell. Should I have financed it, it would be more difficult to pull that off.

[jmtandem]

However, I plan on only keeping the rig for maybe 48 months.

If you are concerned about finances purchase pre-owned. Find a coach that is four or five years old and you can get it for about 55-60 percent of new as it will have suffered extensive depreciation since new. Then you are financing a little more than half the new price and you can use your trade-in money to buy down equity or should you sell it outright the money could be used for other things. In the long run you can save a ton of money, get a relatively late model unit, and when you sell it you will not eat new coach depreciation.

[ksg5000]

RV's are a luxury/money hole and many like me aren't a fan of financing them.

Just read an article that says that 85 percent of people pay significantly more for their new RV's than their worth. Yikes. That article seems to indicate that the person buying your rig 5 years down the line may get a pretty good deal since your eating most of the depreciation.

[mich800]

Jayco-noslide wrote:
Consider having a goal of becoming debt free as soon as possible. It makes a huge change in the way one looks at purchases plus frees up more money eventually to invest or to pay cash for purchases. We paid $23000 cash for the used MH we bought several years ago, the used Chevy we tow and will pay cash for a replacement car next spring. Not wealthy and income is way under 6 figures. I know I'm bragging but mostly proud and hope to pass on the huge benefits of debt free for others to consider. Beware of the financial people who encourage us to delay paying for stuff we can't afford.

No "financial Person" would ever recommend purchasing something you cannot afford. You are confusing different strategies to maximize ones dollar with respect to taxes, interest and risk.

[Jayco-noslide]

Consider having a goal of becoming debt free as soon as possible. It makes a huge change in the way one looks at purchases plus frees up more money eventually to invest or to pay cash for purchases. We paid $23000 cash for the used MH we bought several years ago, the used Chevy we tow and will pay cash for a replacement car next spring. Not wealthy and income is way under 6 figures. I know I'm bragging but mostly proud and hope to pass on the huge benefits of debt free for others to consider. Beware of the financial people who encourage us to delay paying for stuff we can't afford.