Hi r/pf,
My wife was in a car accident this week and her car was totaled. We're going car shopping later today and I was wondering to myself if it made more sense to pay for the difference between the insurance payout out of pocket or through financing.
Here are the details:
Cash: $38K. Of that, $31K is in a savings account with 1.85% interest. The rest is in a checking account. $25K if the savings is an emergency fund. The rest is set aside for other goals.
Car: The cars we're looking at are in the $15-$18K price range. Her insurance payout is $10K. She still owed about $2K on the totaled car, so we're probably looking at net cash out the door of $7-$10K. Each of the cars we're looking at are 2013 or newer with around 70,000 miles or less. I understand the optimal scenario here is to purchase a car for less than the insurance payout, but the search for a car that checks off all of our boxes (she wants a bigger car with certain features), this search would probably prove fruitless, particularly given our time horizon.
Financing: my credit union offers 3-year financing for 2.24% APR.
Bearing all of this in mind, I'm leaning toward financing the difference and maintaining the balance in my emergency fund. The 0.4% APR difference over that time is probably less than $100 and it gives us more flexibility in the case we encounter an emergency we can't borrow against. But, I wanted to make sure my logic was sound.
Thanks in advance!
Submitted October 20, 2018 at 11:43AM by tdpdcpa https://ift.tt/2ysdFrz
