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Car loan questions #5351522 02/16/20 09:52 AM
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pbm Offline OP
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I've noticed that rates on used cars are generally higher than on new cars. It also seems that taking a loan will often get you a 'better deal' than paying cash. (I assume they give a better deal because they make more in interest). I took a loan out on a new car a few years ago to get the rebate given by the manufacturer (it was either $500 or $1000..I can't remember)....I then paid the loan off after the 2nd payment (this was recommended by the salesman). Can used car loans usually be paid off right away after getting the best deal? I ask because I see a good deal on a 2018 (at a dealer)..but the APR is over 6% for 72 months.


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Re: Car loan questions [Re: pbm] #5351545 02/16/20 10:10 AM
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As long as there is no pre-payment penalty noted in the contract, you can pay it off anytime. If you are going to pay it off right after taking the loan, why not just pay cash now? Or is it a new 2018 with a factory rebate attached to the financing? You can also pre-arrange your own financing with your bank, credit union, or other loan sources and walk in with a check from them.


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Re: Car loan questions [Re: pbm] #5351549 02/16/20 10:14 AM
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ALWAYS read the fine print of the loan contract. There will be a statement about loan prepayment penalties.
Most loans don't have prepayment penalties but some do.
And typically dealers that push high APR loans are the ones with other terms that are unfavorable to the buyer.


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Re: Car loan questions [Re: pbm] #5351550 02/16/20 10:15 AM
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Mr Nice Offline
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Use a credit union for lower rate.

Re: Car loan questions [Re: pbm] #5351561 02/16/20 10:28 AM
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The OP is asking if he will get a better deal on the sale price by financing a used car through the dealer’s lender vs paying cash or financing through his own lender / credit union.

I would think not as much as a new car unless there is a substantial originating bonus by the dealer’s bank. The new car incentives are coming from the manufacture not the local lender which is often used for used cars.

And of course , never take a loan that has a early payoff penalty!

Jalop’s Tom McParland covers this in some of his posts. E.g,

https://jalopnik.com/is-it-still-possible-to-get-a-cheap-car-loan-1831865533

Last edited by WagonWheel; 02/16/20 10:28 AM.

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Re: Car loan questions [Re: pbm] #5351575 02/16/20 10:45 AM
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Yes, you can get a better deal by financing at a large dealership. This isn't just due to interest, though that's certainly a driving factor if you finance through the brand's financial institution. Always read the fine print, but in the time I spent selling cars, I've never seen any instance where there was blow back from someone paying off their note early.

Re: Car loan questions [Re: pbm] #5351580 02/16/20 10:49 AM
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The terms on many auto loans obtained through a dealer require you to keep the loan for six months. I feel the best deal is to take the best available loan at the time of purchase and refinance the loan through a credit union down the road. My credit union now offers loans as low as 2.67% on newer used cars.


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Re: Car loan questions [Re: pbm] #5351617 02/16/20 11:27 AM
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I haven't seen a loan with a early payoff penalty in over 30yrs, but I suppose it depends on the lender, credit score, etc.

Some credit unions and banks still consider a one year old previously owned vehicle as being new. The only way I finance through a dealership is if they can beat what I can find locally.


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Re: Car loan questions [Re: pbm] #5351636 02/16/20 11:43 AM
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The 3 ways car dealers can make their money are the sale, the trade in and the loan.
The loan is generally through a bank or credit union; the dealer sells the loan to the lending company.
There are also manufacturer loans which can be really low, even zero percent. Free money, if you will.

So play your hand carefully. It is possible to get a better price if you take out a loan.
My BIL got an extra price deduction by taking the Ford loan on a gorgeous F-150; he paid off the balance right away.
Remember you have the power; they have to make a sale to make money.
As others have stated, make sure there is no prepayment penalty.
Good luck.


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Re: Car loan questions [Re: pbm] #5351651 02/16/20 12:01 PM
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Aredeeem Offline
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Just read an interesting Wall St. Journal article. Seems there’s an uptick in what’s called “Kicking the Trade.” Dealers encourage potential buyers who have existing car loans to simply stop paying them and have their cars repossessed. They make more money arranging new financing then they make on the new car sale itself or the trade in. The lender of the first loan is left holding the bag.

Re: Car loan questions [Re: pbm] #5351653 02/16/20 12:03 PM
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Originally Posted by pbm
It also seems that taking a loan will often get you a 'better deal' than paying cash. (I assume they give a better deal because they make more in interest).
Yes, what happens is the dealer will shop for a loan and pick one that's, say 4.5% and then present the loan to you as being for 5.5%. The lender doesn't care and in fact, they're in the game with the dealers. The dealer gets that 1% additional amount in interest. Now, the part I don't know about is a) do they get the 1% add'l each month for the term of the loan or b) does the lender cut them a check in a few weeks or a month for the add'l amount that would be paid over the term ? I presume it has to be the "b" option.

Originally Posted by pbm
I took a loan out on a new car a few years ago to get the rebate given by the manufacturer (it was either $500 or $1000..I can't remember)....I then paid the loan off after the 2nd payment (this was recommended by the salesman).

My Mom did the same thing recently. In fact, she stated multiple times that she intended to write a check for the cost of the vehicle but they were offering some deals that were tied to financing so she took it, then paid the loan off within the first 30 days.

Re: Car loan questions [Re: pbm] #5351654 02/16/20 12:04 PM
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Kira Offline
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72 months is way too long.
Finance people cite car loan lives of 5, 6 and 7 years (60, 72 and 84 months) as a bad indicator one's economic health.
And, more and more, people are opting for these terms.
Not good.

Re: Car loan questions [Re: Aredeeem] #5351660 02/16/20 12:07 PM
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Originally Posted by Aredeeem
Just read an interesting Wall St. Journal article. Seems there’s an uptick in what’s called “Kicking the Trade.” Dealers encourage potential buyers who have existing car loans to simply stop paying them and have their cars repossessed. They make more money arranging new financing then they make on the new car sale itself or the trade in. The lender of the first loan is left holding the bag.


That is scary....you would figure the person would be upset about their credit getting screwed up after that......


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Re: Car loan questions [Re: Kira] #5351665 02/16/20 12:11 PM
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daves87rs Offline
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Originally Posted by Kira
72 months is way too long.
Finance people cite car loan lives of 5, 6 and 7 years (60, 72 and 84 months) as a bad indicator one's economic health.
And, more and more, people are opting for these terms.
Not good.



One would think a used car would be a much better idea that having a car one would still being paying off.....

I kept a friend from making that mistake....wanted a new Chevy Blazer, ended up with a good deal on a 2017 Chevy Malibu.

39k to 14k.....much smarter plan! :-)


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Re: Car loan questions [Re: pbm] #5351669 02/16/20 12:12 PM
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pbm Offline OP
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Thanks guys....for a lot of good info. If I decide to pull the trigger I'll probably offer cash and see what happens...


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