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.
Car loan questions
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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.
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.
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.
Use a credit union for lower rate.
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
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
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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......
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......
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!
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!
You would think. But a lot of people don't. I guarantee you that the salesman across from you cares a whole lot more about his quota then he does about your credit score.
Read the fine print and look for "simple interest"... this is what you want. "Rule of 72" you don't. Once you sign for a "Rule of 72" you own all the interest even if you pay it off early.
If things are going well in negotiating the purchase price etc the dealer is waiting in a dark back room to stick it to you with interest.
If things are going well in negotiating the purchase price etc the dealer is waiting in a dark back room to stick it to you with interest.
i have not finance a car since 1989 until last year when i bought my kids hyundai. they were giving $500 back to finance it with hyundai credit. $500 is $500 so i did it . paid it off in 2 months.
everytime i look at vehicle they ask if i am financing. i actually have sales people walk away after telling them i am paying cash. They make money on financing and much prefer a buyer do so. also , a lot of people that finance also buy the extra crap and it goes into the loan. i also believe that many people that finance will not be able to negotiate as good a deal as if they were paying cash. usually they look at your credit score and can tell if you are desperate for a vehicle. if you have bad credit you will usually get hosed
everytime i look at vehicle they ask if i am financing. i actually have sales people walk away after telling them i am paying cash. They make money on financing and much prefer a buyer do so. also , a lot of people that finance also buy the extra crap and it goes into the loan. i also believe that many people that finance will not be able to negotiate as good a deal as if they were paying cash. usually they look at your credit score and can tell if you are desperate for a vehicle. if you have bad credit you will usually get hosed
Here's what my son did.
He got preapproved for the full loan amount by his credit union which happens to be Navy Credit Union. He mentioned nothing about financing at the dealership. He was ready to pay cash but I advised him get some credit history by financing then just pay it off rightaway.
Subaru Finance had 1.9% financing on 2020 Impreza but at first claimed he did not qualify.
Then he said OK fine here's your cashier's check for the full amount. The loan was 2.49% from Navy.
Subaru dropped its price another several hundred off the already very low price and offered him the 1.9% too.
He got preapproved for the full loan amount by his credit union which happens to be Navy Credit Union. He mentioned nothing about financing at the dealership. He was ready to pay cash but I advised him get some credit history by financing then just pay it off rightaway.
Subaru Finance had 1.9% financing on 2020 Impreza but at first claimed he did not qualify.
Then he said OK fine here's your cashier's check for the full amount. The loan was 2.49% from Navy.
Subaru dropped its price another several hundred off the already very low price and offered him the 1.9% too.
Your son is smarter than a friend's 50 year old son who owned (outright) a 2017, low mileage Dodge Challenger.
I just happened to move a piece of furniture with him and offered to team up and change his oil etc.
The offer was acknowledged and he thanked me.
The next weekend he took the car to the dealer for an oil change. He came home with a NOS 2018 Dodge Challenger Hellcat
....and a 7 year loan on $50,000. What a fool.
MATH:
List price in 2018....... $75,800
lowered to.................. $59,000
trade-in allowance........$9,000
$50,000 financed........No telling what the total will be as I don't know the terms etc.
I'll bet the salesman hasn't lost a wink of sleep.
Remember, he has to carry (pay for) full insurance for the life of the loan.
It's expensive to be poor has a handmaiden....A fool and his money are soon parted.
I just happened to move a piece of furniture with him and offered to team up and change his oil etc.
The offer was acknowledged and he thanked me.
The next weekend he took the car to the dealer for an oil change. He came home with a NOS 2018 Dodge Challenger Hellcat
....and a 7 year loan on $50,000. What a fool.
MATH:
List price in 2018....... $75,800
lowered to.................. $59,000
trade-in allowance........$9,000
$50,000 financed........No telling what the total will be as I don't know the terms etc.
I'll bet the salesman hasn't lost a wink of sleep.
Remember, he has to carry (pay for) full insurance for the life of the loan.
It's expensive to be poor has a handmaiden....A fool and his money are soon parted.
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