Pete the Planner

Email question: Should I choose cash back or 0% interest when buying a car?



My wife and I are looking at buying a new car. We've weighed the pros and cons of buying new vs. used and to make a short story long we decided to buy a new car based on a couple of different things.


1. The same model cars that are one or two years old are currently only $1500-$2000 less than the new ones ($18000 new or $16500-$17000 used).

2. The new cars have an offer of $1500 cash back or 0% financing for 60 months.


I had read your article regarding "cheap" money and was wondering if I could get your thoughts on this situation.


We currently get 2.5% back on our checking account (really this is our our savings account but the savings account gets bupkis% so we leave little in there) and have $10,000 to put towards a car. We can get a car loan from our bank at 2.2% so there is still have margin if we got the loan from our bank.


My question is would it be better to buy a new car and get the $1500 cash back (making the purchase price similar to a used car) with a small loan from the bank or finance the entire car at 0% for 60 months and let our $10k grow?


Much appreciation,


Hey Alex,

Great question! I can tell from your "short story long" that you and your wife are intelligent people making smart choices.

From the information you provided, I agree with you that in this case buying a new car instead of a used car is the smart choice. This is not the standard case though. By my math there is only an 8% difference between the new car and the slightly used car you mentioned, this is very low and uncommon. So again, I agree with you, but only in this case.

As far as the $1,500 cash back versus the 0% financing for 60 months goes, we'll need to dig a little deeper. Here are a few factors you need to keep in mind:

- Your checking account earns 2.5% interest (which is amazing by the way, where do you bank??), which means if you left the 10k in your account it would earn about $250 this year. You are actually using the "cheap money" argument correctly, since the interest rate you would earn on your 10k is more than the interest you would pay for a car loan, but…

- Using the 10k as a down payment and taking the $1,500 cash back would lower the amount you would need to borrow to $6,500. Which in theory you could knock out pretty quickly. 

- Another option would be to use the 10k as a down payment and do the 60 months with 0% interest option. But really it all comes down to…

- Your motivation. What are you and your wife going to aggressively work on accomplishing? If you use the 10k as a down-payment, are you going to work hard to re-save the money? Or would you work harder to pay off a car loan? Would a 60 months deadline light a fire under you? Knowing what motivates you will play a role in how you make this decision.

- Also it's worth asking, if you decide to use the 10k on a car, will it wipe you out entirely? I've found many people work super hard to save for a down-payment or car and then clean themselves out to make the payment. This is never a good idea. You need emergency reserves on top of any down-payment you make. If you have excess beyond the 10k then use the 10k to make a large payment, and get a loan for the remainder.

- I'm aware I didn't cleanly answer this question. It's a complex one and in all honesty you can do any of the above and you'll be fine. Two responsible people like you and your wife are going to do fine whatever you choose. 

I also answered your question on The Pete the Planner Radio Show this week on WIBC, listen below to hear a fuller answer. 


Students are uneducated about student loans

Hopefully the irony of the title isn't lost on you. Students are incurring tens of thousands of student loan debt and yet, they are completely uneducated about the financial ramifications of the loans. This is unacceptable. Thankfully, one financial institution is attempting to fill this gap in knowledge. 

"Indiana University has been able to assist students in making better financial decisions by making the student loan process a bit more transparent and informative. Students were provided with potential loan repayment information at the beginning of the borrowing process, and the students were provided their total student loan balance, prior to taking on more loans. And to no one's surprise, borrowing fell 11%. Sadly and expectedly, the success of this transparency was met with criticism." (courtesy of the Indy Star)

Among the many criticisms of this new practice is the thought that if students are alerted to the realities of student loan debt they will hesitate to borrow the funds necessary for a decent education. Also, there are people who feel like 18 year olds should know enough about loans to know what they are getting into. On both of these counts I heartily disagree. For starters, I did a study in 2012 where I researched college education costs in the state of Indiana. I found that 52% of college expenses go to non-tuition related expenses. 52% of the cost of college is for living expenses, meal plans, and other incidentals. Yeah, you read that right, 52% of your student loans were for cafeteria mashed potatoes and living in a cinderblock dorm room. By reducing non-tuition expenses, students can have their cake and eat it too. 

As for the second criticism, well I have major issues with that one, so allow me to get ranty. You say 18 year olds should know about the dangers of taking on so much debt, but how would they ever learn this? From their parents? The same parents who have a car loan and a mortgage and a credit card and a medical bill payment plan? Of course they aren't going to think twice about paying for college with borrowed money! It's all they know! There are some parents who have instilled financial wisdom on their offspring, but they are a very, very small minority. 

My other big issue with student loans is this:

"Imagine the following scenario in which you saunter off to buy a $125,000 home. To begin, you have no job, no credit history, no income, no education, no assets, and no current means of making future mortgage payments. And before you know it, the loan officer smiles, hands you the keys to the house, and informs you the bank will send you your first payment notice in four years. Oh, and they'll tell you what your payment amount is, four years from now as well. Yep, that's not gonna work. Welcome to the world of higher education loans. Now you know why there were rampant reports of unemployed Americans enrolling in college classes when the recession hit. While some students were there for the education, many others were there for the ridiculous loan underwriting standards." (courtesy of the Indy Star)

I know it get soapboxy about student loans a lot, but you've got to admit I have good reason. Mostly I want to highlight a school that's actually doing something about the problem. And in full disclosure, I do have a consulting relationship with the Department of Financial Literacy at Indiana University, but I'm highlighting their initiative because I believe it's smart. Most students are barely 18 when they enter college, and student loans are their first major financial decision. Unfortunately, it's one which impacts their financial lives for the next 10-20 years.

Read my full column here.

Lower your utility costs to free up cash

Your utilities are a necessity, which is often why they are the budget category that gets the least attention. Necessities tend to equal an "it is what it is" attitude in people. For many it's easier to cut costs in the less necessary categories like gifts and entertainment, but I want you to rethink this attitude. There are actually plenty of ways you can lower your utility bills, and most of them are free. Just because you need water and electricity doesn't mean you have to pay huge chunks of money for them each month. 

Consider doing any of these 5 things to lower your utility costs:

1. Turn off lights when you leave a room

I'll start with the most obvious one. Seriously, if you aren't turning off lights when you aren't using them, you need to get yourself together. Change your habits now because your carelessness is costing you. The same goes for outdoor lights. Lighting a backyard for 12 hours at night isn't the best use of money. Switching to a motion-detecting light will save you money and fulfill the same purpose of detouring intruders. 

2. Conserve water

Conserving water gets a bad rap. I'm not asking you to cut down your shower time or to stop watering your yard (although doing both of these would cut your water costs), there are other, less invasive ways you can lower expenses. The easiest option is to invest a few bucks in low-flow faucet aerators and low-flow shower heads. The best part isn't the money you'll save, it's how you won't notice a difference in the water pressure. It's the same pressure, just less water. Wrap your head around that one. 

3. Check for air leaks around windows and doors

Even newer homes aren't immune to air leaks. Walk around your house with your hand around the doors and windows. Do you feel drafts? If so seal it up. There are plenty of easy and inexpensive ways to seal air gaps. You are paying to heat and cool your house, so assuring that the conditioned air stays inside is a priority.

4. If you're cold, do what your mom told you and put on a sweater

You want your house to be a place of comfort, but sometimes it isn't worth the extra cash. You may like a warm and cozy home, but the higher your thermostat is set, the more you'll spend. So put on a sweater or turn on a fan in the summer. Keeping your thermostat set a few degrees outside of your comfort zone will mean lots of savings on your next bill. 

5. Install a programmable thermostat

Buying a programmable thermostat is taking #4 to the next level. A programmable thermostat may cost a few bucks, but being able to keep temps at a more energy efficient level when no one is home just makes sense. If you can't afford a programmable thermostat, don't sweat it, just get yourself in the habit of lowering or raising the thermostat before you leave for work. Your house may be a little warm/cool (depending on the season) when you get home, but your system will catch up to your desired temp quickly. 

Don't let utilities become a "fixed" expense in your budget. What you do impacts your utility spending. Making small physical changes as well as creating new energy-efficient habits means you can reduce your utility expenses. Another common utilities concern is how unpredictable and uneven your bills are throughout the year. Many utility companies offer a budget option which usually means you pay a flat rate throughout the year based on your past year of expenses. At the end of the year you either get a reimbursement check or a bill for the difference. It can be a great program, but do your research and determine if it's the right thing for you.

Don’t underestimate the budget-friendly staycation

Staycations get a bad rap, mostly because of the atrocious mashed-up name. Someone called me an edutainer the other day. What? No. Anyway, the staycation. Bad name, bad image, but great for your budget. That's why people take them, right? Because they can't afford a "real" vacation. Here's the truth about staycations, they aren't crappy, your attitude about them is crappy.

I just said this yesterday, but I'll say it again, most people's verbal priorities don't line up with what they are actually doing. You say your kids' education is the most important thing, but when it's summer and you need a break, going on a tropical vacation is your #1 priority. Don't get me wrong, I understand. I want to go reset at some luxurious destination as much as the next person, but if my finances don't justify the expense, no amount of desire can bridge the gap. Although, this doesn't mean you don't deserve some sort of break from working. This is where a staycation can meet both your personal needs and those of your budget. 

A staycation means you not only save on lodging costs, but also traveling expenses. Think of it this way, your house is the staycation epicenter and there's an invisible radius around your house which extends an hour or two out. This is your staycation playground. You'll have gas and food expenses, but you'll come home every night. Also, can we talk about how nice it is to sleep in your own bed on vacation? Actually, the kids being in their own beds is the true cause for celebration. 

Here are 4 tips for making the most of the best-financial-decision-you've-ever-made staycation:

1. Change your attitude

I hear this excuse a lot, "my kids just really want to go to the beach." No they don't, you want to go to the beach. Adults ruin staycations, not kids. You control what your kids want, you are the rudder. By changing your attitude about staying in town to vacation, you can influence those around you. 

2. Make a plan

Just taking time off work to stay home isn't a staycation. A staycation requires a plan. It's the ultimate test of resourcefulness. Do research on what attractions are in your extended area. Better yet, go to a big truck stop or a local hotel and grab a bunch of those tourist brochures. You'll be surprised by how much there is to do within driving distance of your home. And guess what? Those new and cool things you discover on your staycation? They are close to your home which means you can do them any time you want. 

3. Get others involved

One of the bonuses of a staycation is you're near friends. Rope them into your adventures. Most people never get the chance to vacation with friends, staycations give you the opportunity. 

4. Do vacation-like things

What's a dream vacation for you? Swimming? Boating? Taking in the sights? Then do it. Find a way to satisfy all your vacation desires close by. It is possible. 

Staycations can be dirt cheap, and if you do it right, they can satisfy all your vacation desires. Your biggest obstacle is your attitude. To hear more, listen to this segment on The Pete the Planner Radio Show on 93 WIBC.

Inside Look: A startup brewery

Are you ready for more bearded brewing buddies? Okay that sounds gross, but it'll be great. A week or so ago I shared my first conversation with them and now I'm back with an update from Jake Koeneman and Josh Hambright who are starting their own brewery. I had them in studio again this week to share new details and next steps. In this segment we're talking branding, locations, and where you can find their beer right now. Listen to my latest chat with Jake and Josh on The Pete the Planner Radio Show on WIBC here. Oh, and bonus, they reveal the name of their brewery!

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