‘I don’t know if there’s any tax issues’: Should I pull money from my investments or finance a car through a bank?

Hey Car Dilemma Dude,

So my wife and I are in the market for a bigger ride because our fam is growing and we need an SUV with that extra row. We’ve got our eyes on a 21-22 Honda Pilot, low miles, and the price tags are between 33,500- 38,000 bucks. We’re both teachers pulling a solid income and have a decent savings we dip into during the summer break. Plus, we’ve got a sweet investment pot from when I sold my house a while back. No student loans, no credit card debts, mortgage is chill, and we’re almost debt-free except for that 10k on wifey’s ride.

So here’s the big Q – do we dip into our investment piggy bank or go the bank loan route for the SUV? Check out the scenarios I’ve been mulling over:

1. Borrow 26K at 5.59% for 60 months, pay $497 a month, toss in 6K from savings, and snag a rough-looking SUV with 55,000 miles for 32K out the door.
2. Same loan amount and rate, pay $497 a month, save up 10K for a down payment, and score a better ride with low miles and a clean carfax.
3. Again, borrow 26K at 5.59%, pay $497 monthly, throw in 6K from savings, borrow 5K from investment, pay it back within a year.
4. Skip the bank, take 30K from the investment account, add 6K from savings, pay it back over 5 years.

Wondering if we’re gonna bump into any tax hiccups tapping the investment or if we should just let it grow. What’s your take on the smartest and most money-wise way to get a new whip?

Thanks for the tips, Car Guru!

Response from THE MONEY MINDER:

Hello There,

Congratulations on your expanding family! It sounds like you and your wife are in a stable financial position, which is great to hear. When it comes to purchasing a newer car, it’s essential to weigh your options carefully and make a decision that aligns with your long-term financial goals.

Considering your scenarios, here’s a realistic approach you might want to consider: Given that you both are teachers with a stable income, using the bank to finance the SUV might be a more financially sound choice. Opting for a loan at a reasonable interest rate allows you to preserve your savings and investment account, which can continue to grow over time.

Scenario 2, where you save for a few months to increase your down payment, could be a prudent move. A larger down payment may lower your monthly payments and interest costs over the life of the loan. Additionally, choosing a vehicle with a clean history and lower mileage can potentially save you maintenance costs in the long run.

While scenario 3 and 4 involve tapping into your investment account, it’s essential to consider the potential tax implications and the impact on your overall investment strategy. It might be more beneficial to leave your investment untouched and continue to let it grow.

In conclusion, taking a loan from the bank, with a reasonable interest rate, and building a solid down payment could be the most logical approach to buying a newer car while preserving your financial health and stability. Remember to budget for ongoing expenses like insurance and maintenance to ensure that your SUV purchase fits comfortably within your financial plan.

All the best from THE MONEY MINDER.