Car Loans

For the first time in my adult life I'm finally at a place where I'm looking to buy a vehicle from a dealership. It'll be used, but new to me! I've been looking into the best way to get a loan and some say go through a dealer for financing while others say to get pre-approved through the bank or a credit union. Thought I'd turn to my older and wiser BOTL for advice.

From your own personal experience which is better? My credit is young (5 months) but in good standing. I only have the one card and it's a capital one secured with a very small credit line of $290. Your wisdom is welcome and appreciated!

Find more posts tagged with

Comments

0patience

I always check with my bank and then I have some leverage with the dealer's financing.
This last car for my wife, we ended up with 3.4% interest.
Our bank offered 4.2% interest, so the dealer was able to get us a better interest rate.

It varies so much, it's best to cover your bases.

Patrickbrick

^^^^^ what Tony said. Don't be afraid to shop the best rate.

peter4jc

Can you find a way to seek out private sellers? Dealerships make it more convenient as their inventory is all on one lot, but it'll be very hard to pay close to what a car is actually worth. Dealers take cars in trade and mark them up so much it'll make your head spin, and then come down a bit off their asking price to make you think you're getting a deal but you're really getting taken.

If we were sitting down at a lounge w/ a stick and a beer, I'd want to find out why you're wanting to buy, how you set your budget and decided what you can spend. Then I'd tell you to save up and not borrow money for a depreciating asset.

Willy_MN

@Markwell Will you be trading a vehicle in, and do you have any cash to put down? Definitely check with your bank so you have a clearer view, and some leverage like Tony said. I had to basically start over five years ago after my now ex-wife had destroyed my credit, so I know how it is having the young credit again. Good luck and keep us posted on how it goes!

Rhamlin

Better to just save up and pay outright.

TruDog

Rhamlin said:

Better to just save up and pay outright.

....HeLL Yes, straight money.

Markwell

So here's where I am with current transportation. I inherited my grandfather's 1998 Pontiac when he died and have been driving that for almost 10 years. It's been in the family since it was new but is beginning to fail. I've replaced the entire cooling system and now the transmission is going bad. The car is very tired. I don't want to get rid of it because it was my grandfather's. I hope to keep it as a collector, but I can't continue using it as a daily driver. Everytime I turn around it's something else. I'm having to borrow my mother's car in the meantime.

As for my financial status, some poor decisions in my past screwed up my life for a good few years. I'm finally seeing light at the end of the tunnel and I've got my credit established at last. Only recently have I got a decent job and I'm able to put aside about $300 from each check, when paired with donating blood plasma twice a week as well. I've been saving it for a down payment. If I were to wait and pay out of pocket I'd be waiting another year at best supposing nothing else breaks on the Pontiac. That's just not an option. Thus I have to turn to a loan or financing.

Looking at my budget I can afford a monthly payment of roughly $200, setting aside the other $100 for unseen emergencies and the raised insurance coverage I would need to pay. That puts me in the total purchase range of a $10,000 financed vehicle.

I'm looking at the 2002 - 06 Jeep Wranglers because I am a Jeep nut and seriously need 4x4 up here in the winter. The engines in those are the everlasting 4.0L I-6 which run like a swiss watch. My previous vehicle was a '99 Cherokee.

0patience

Inline 6's are pretty much indestructible engines.
Any inline engine is harmonically more stable than a V engine.

Trish

Just went through this last week, get pre-approved. If you bank with a credit union even better as you tend to get lower interest rates. You can also try Capital one pre-approval as a comparison, still better rates than the dealer and you can find your car online from what I'm told. If you walk in with your approval amount/rate cuts haggling time in half. Good luck and happy shopping.

Hawkeye

Definitely get pre-approved at a credit union and look around online as well. Usually the dealerships will offer a financing option OR discounted price, and the discounted price with external financing is almost always the way to go.

I've got my truck at 1.74% interest and the wife's car at 0%. Not always easy to find the good financing but it's worth it!

Also - try and go for the shortest term financing you can, it'll save you $$ in interest as well as give you freedom sooner.

edit: from a quick check locally it looks like 4% is around what the current used auto loan rates are in my area at least.

Martel

We bought our first new, new car almost exactly 2 years ago. My wife totaled one (everybody okay) due to a diabetic incident. Scary. After it was all sorted out, she finally got tired of me driving her everywhere and was ready to drive. We got a pre-approval at the bank. It was something like 2.5% so we thought we were in good shape, especially with no trade-in.

The dealer gave us 0%. That won't be possible on preowned. But my point is there was a willingness to work with us.

I think we could have gotten the price lower with the other loan, but not enough to match the interest over time.

President's day 0% offers from the dealer are around, but disappearing. Looks like they're just special financing, maybe as low as 1.5 on select models this year.

We were thinking about upgrading this year, sometime, to something that can pull the family and a camper (we're getting old and soft). Nothing in the class of Tahoe/Pilot/Ascent/Atlas had great financing, but there were all kinds off deals on Silverado Trucks when they were getting rid of the model year, so that's an option to consider, too.

I don't know if I want to go back to pre-owned unless it comes with a warranty. I've had a couple things go wrong with this car, and it's great to drop it off and not have to pay anything else. Sometimes, they even rental car me if it will take a while. Or chauffeur me to the B&M a block from the dealership. I'm happy with that, too.

Sasquatch

Navy Federal probably has the best rates right now--- DoD member?

State Employees credit union and/or a large company may have another credit union you could join. As others have said, shop around and know the rates/terms offered around your area before you look at dealer financing. Depending on what promotions are ongoing, your best deal could be either...

peter4jc

Good on you, Mark, for asking for advice.

Just make sure you can separate out some of the emotion from the process. I'm not saying you're doing this, but I've seen it in myself and others when they're thinking about replacing a vehicle; I'm sick of what I have / It's costing me too much to keep it up / I need something newer - and I tell myself I have no other options.

You don't need a 2006 Wrangler, but wanting one may have convinced you that you need that. I'm an oldfart that went down that road more than once. Looking back I wish I would've stayed out of debt and learned what I needed vs. what I wanted. Winter will be winding down soon. Chances are you can milk the Pontiac through spring summer and fall, then find a low-mileage 10 year old Accord or Camry, pay cash, put some Blizzaks on it for next winter and you're golden.

I don't know just how old you are, but start thinking about retirement now. You'll be 60 before you know it, and whatever money you can squirrel away now will multiply 3, 4, or more times by the time you're my age. A $10K loan (I know, you'll have a down payment, but just assume it's $10K) plus interest over 3 years is going to cost, let's say $12K. Your Jeep will then be worth $6K. But $10K saved and put into a Roth IRA or a similar tax-deferred account will double every 7 years at the typical/historical rates the stock market have returned. If you're 25, it will have doubled 5 times by the time you hit 60... $10K becomes $20K when you're 32, $40K when you're 39, and so on, $320K at 60. I wish someone had told me that when I was 25 - I probably would've blown them off, but maybe not.

Yakster

I don't remember the last new car we bought. I bought the Highlander off my folks when my dad retired and they no longer needed two cars and we've bought older Hondas because they run forever and people just get tired of driving the old car around and want something newer. My latest acquisition was my Mom's Prius when she decided to give up driving.

silvermouse

^that is good advice.

Yakster

peter4jc said:

Good on you, Mark, for asking for advice.

find a low-mileage 10 year old Accord or Camry, pay cash, put some Blizzaks on it for next winter and you're golden.

Dang, I've been taking Peter's advice without even knowing it. What's a Blizzaks?

Patrickbrick

I agree with Peter, don't get caught up with a specific vehicle. Look for price reductions when shopping around. If there is a price reduction shown on the internet that usually means, that particular vehicle has been on the lot for 30 days and you have a better chance of a deal. Never lay down price and try not to buy the first time in. As stated debt sucks, especially tight debt so be careful in your decision. Good luck, buying cars is the worst.

Hawkeye

Yakster said:

peter4jc said:

Good on you, Mark, for asking for advice.

find a low-mileage 10 year old Accord or Camry, pay cash, put some Blizzaks on it for next winter and you're golden.

Dang, I've been taking Peter's advice without even knowing it. What's a Blizzaks?

Blizzaks are really good winter/snow tires. I know people that throw those on RWD sports cars in snowy areas and get around just fine.

Markwell

Woof...you guys are a plethora of information. This is why I love this forum. It's about so much more than simply cigars. Thanks for all the feedback.

@Trish I currently bank with a medium sized bank and have capital one for my credit. Waiting to hear back from the latter...I did the online thingamajiggy. Going to get some suggestions from my bank next week.

@Sasquatch I'll have to look into navy. I'm not a member of the DOD nor do I have any family in the service.

@peter4jc you're not wrong in saying there's a certain level of emotion attached to this. I'd say it's more towards my refusal to get rid of the Pontiac as use for a down payment. A few friends say get rid of it while others say they understand my desire to keep it for a later restoration.

You're also correct in saying I've convinced myself into getting a Jeep. I could survive with another make or model. Part of my thought is with all the dirt road traveling I do with the railroad stuff/photography I have really been beating the car and needing something more substantial. The rest is just material desire for that type of vehicle.

I really, truly appreciate your advice on squirreling away my money and getting myself prepared for retirement - it's wise advice. I am 27 btw.

To everyone else, thanks for your advice as well. Perhaps I should take a step back and look at this again before jumping in head first. You guys and gals are a fountain of good advice.

Hawkeye

I will say, as much financial sense as everyone else is making... driving something you truly enjoy is pretty priceless and worth the cost sometimes. I was car poor out of college because I jumped right into a car I had no business buying... but 12 years later I still own it and wouldn't change a thing looking back.

peter4jc

Hawkeye said:

I will say, as much financial sense as everyone else is making... driving something you truly enjoy is pretty priceless and worth the cost sometimes. I was car poor out of college because I jumped right into a car I had no business buying... but 12 years later I still own it and wouldn't change a thing looking back.

There's plenty of time for driving what we love - in our 20's isn't the smartest time to be doing it. Deferred gratification is one of the toughest things to get right - for anybody - but it's worth it.

Just by nature of this hobby we all enjoy and the costs involved, I'd guess most of us know our way around our finances and we budget accordingly. But when I hear the latest stat about 80% of Americans living paycheck to paycheck, and that 40 percent of US adults don't have enough savings to cover a mere $400 emergency, it makes me think why doesn't everybody get it? Why doesn't everybody deny themselves a little more today and think more about tomorrow? I wrote this next thing on my office whiteboard a long time ago...

Do what you have to do today
So that you are able to do
What you want to do tomorrow

skydiverD

I am a firm believer in not having debt. I also subscribe to the save and buy in cash theory. Not easy to do when all my friends are driving nicer vehicles, etc. But, totally worth the financial piece of mind being debt free gives. This said, it is difficult when you don't have a rapid influx of extra cash. Without knowing the condition of your current vehicle, to stab a guess at how much longer you could drive it, I'd keep socking away that extra $300 month and buy with cash. That may mean lowering the bar on a vehicle as well. Depends on how much you have and how long you can save, etc.

Think of it this way - that extra $300 month then becomes only an extra $100 month when strapped with a $200 car payment. That leaves very little buffer for error, or unexpected expenses, emergencies......or, unexpected reduction in income for any reason. You could be one missed paycheck from total disaster. I did this when younger also and spent many years digging out of a hole. Never again. Now I drive pre-owned and haven't made a car payment in quite some time. Only debt is my mortgage and it feels good. Frees up money to do experiences with, as experiences are worth way more than possessions.

silvermouse

CNBC:

A record number of Americans are 90 days behind on their car payments

More than 7 million Americans are at least 90 days behind on their auto loans, according to the New York Fed.

Trish

Markwell said:

Woof...you guys are a plethora of information. This is why I love this forum. It's about so much more than simply cigars. Thanks for all the feedback.

@Trish I currently bank with a medium sized bank and have capital one for my credit. Waiting to hear back from the latter...I did the online thingamajiggy. Going to get some suggestions from my bank next week.

Good on you, unfortunately I was forced to make a purchase due to my engine blowing up, still trying to digest a car payment 🤨
This was my last view of the ol girl when I went to pick up my belongings

0patience

I'll agree and disagree.
I bought my SS a couple years ago.
I bought it on payments, because I didn't want to pull $13k out of my bank.
It is paid off.
Had I paid cash, it would have used reserve money meant for something else. Did I need the SS?
Could I have bought a cheaper truck that would have done the job? Yes.
Once it was paid off, we bought momma's Highlander. And in about 2 years, it will be paid of, if we don't trade it in first.

If a person budgets money for a car, they can do well.
Where I live, you have to have a decent vehicle. There is no uber, lift or any of that here.

Sleddog46

@Markwell, here's another suggestion, if at all possible why not try to get a part time job and bank all that money for your car. Then you can invest the $300.00 as Peter said for your retirement. If you could manage it you'd be looking at a nice nest egg for your future.

dirtdude

Yakster said:

I don't remember the last new car we bought. I bought the Highlander off my folks when my dad retired and they no longer needed two cars and we've bought older Hondas because they run forever and people just get tired of driving the old car around and want something newer. My latest acquisition was my Mom's Prius when she decided to give up driving.

You didn't happen to park in the visitor parking at @IndustMech worksite?

Markwell

Call it divine intervention if you will, but my credit lender turned me down for a pre approval loan today. Guess maybe I should keep working on the longevity of my credit while keeping the Pontiac in working order. Maybe I'm trying to rush things. It takes time.

That really sucks about your old car @Trish. Hope things are working out for you.

I currently have 3 outlets of income @Sleddog46. Working full time at the gas station, running an ebay store, and making about $100 per week donating plasma. I had a second job for about 3 months but kept experiencing schedule conflicts between the two. In the end I was making more money and eating up less of my time/gas by quitting the one and focusing on the other two forms of non taxable income. Managing all of that plus a day or two at the railroad where I'm trying desperately to get a foot in the door. I do have a railroad retirement account going, but have not paid into it since losing my previous job in 2011.

So for the time being I need a new transmission, new suspension all around, and a few other odds and ends if i want to keep driving my current car.

peter4jc

I'm not sure if this would apply to you, Mark, but I used to suggest people w/ no credit to follow this plan...

go to a bank/credit union
get a promissory note (don't know if they still use that term or not) for whatever amount they will give you for 3 months.
don't cash the check until the week before the 3 months are up.
take the cash (along w/ extra cash for the interest) to the bank and pay off the promissory note.
go to the bank a week or two later, get another promissory note, this time for a larger amount - they'll trust with more because you paid off the first one.
lather, rinse, repeat - after a year (or less) you will have established a decent credit rating and all it cost you was some time and the interest on the notes which won't be much.

Markwell

peter4jc said:

I'm not sure if this would apply to you, Mark, but I used to suggest people w/ no credit to follow this plan...

go to a bank/credit union
get a promissory note (don't know if they still use that term or not) for whatever amount they will give you for 3 months.
don't cash the check until the week before the 3 months are up.
take the cash (along w/ extra cash for the interest) to the bank and pay off the promissory note.
go to the bank a week or two later, get another promissory note, this time for a larger amount - they'll trust with more because you paid off the first one.
lather, rinse, repeat - after a year (or less) you will have established a decent credit rating and all it cost you was some time and the interest on the notes which won't be much.

Yeah our bank does something very similar to this except they call it a CD. You pick an amount and make monthly payments. At the end once you've reached the goal you get everything you've paid into it back plus getting a credit score.