car loan question

[teachermom2834]

First of all, I know many people here will tell me not to finance a car purchase and to only buy what I can pay cash for.  I understand and appreciate that line of thinking but that is not what I am looking for here :)

 

We recently bought a house and my husband recently started paying on a student loan that was in deferment.  We have good credit and had no glitches financing our home purchase.  We need to get a car in the next few months and are considering different options including financing a newer car if we got a good deal.  I am wondering if we would get more favorable terms if we wait a few months to buy the car.  We so far have made two mortgage payments and four student loan payments. Would it make any difference in our ability to get a good rate (possibly the advertised 0% apr special) to have a few more months of payment history on these two loans?  I am not that familiar with credit scores as we haven't had any problems in the past.  Just wondering if having 4 or 5 months of on time mortgage payments and another couple on time student loan payments would improve our situation or not.  

 

Also, I am under the impression that we should not apply for financing while just browsing as it would be a ding on our credit report just having it pulled before we were really ready to buy.  

 

Do banks financing auto loans did into all the details of your credit report or are they really just using the score?  Not sure it matters at all.  I just got tired of feeling so exposed and and having people in all our private financial business during our home purchase and don't feel like doing that again right now.  

[LifeLovePassion]

They will probably look at your score and debt to income ratio. Car loans are a lot simpler.

 

I am not sure if waiting would help. I know the credit bureaus used to lag in their reporting and we're a couple of months behind.

 

Sometimes it is a better choice to take the rebate and pay interest on the loan and you will come out ahead financially.

[Joanne]

Car loans are much "easier" - if you were asking in reverse order the mortgage would be affected.

 

I got decent rates on both "my" cars and I not in nearly as good of shape, although my income is high.

 

I want to post in support of your decision to utilize a loan for reliable transportation. I GET the other choice but I am not a believer in it as the only viable or financially responsible choice.

[gardenmom5]

whatever you end up doing - do NOT finance through a dealership.  (they make a lot of profit from people financing through them.)

 

your bank or credit union can help you with a car loan before you even go car shopping.

[Mergath]

It might be worth it, depending on what your credit score is. If your credit score was 698, for example, it might be worth it to make a few payments and wait until you're above 700. I would talk to your bank. They should be able to tell you if you're close to a number that could bump you up to more favorable terms.

[SparklyUnicorn]

Try a credit union.  Their terms are usually way better than most banks and definitely better than dealerships.

 

 

[AmandaVT]

My friend had good luck financing through the credit union. She got great terms with them and because her checking account and savings accounts are already with them, it makes paying the installments as easy as transferring money from one account to another, which is helpful. 

 

I'll also post to offer support in taking a car loan on occasion. We tried the DR way, buying beaters and keeping them as long as possible. It didn't work for us, at all. We ended up with hundreds and thousands of dollars in repairs on a regular basis and I had to scramble to even get to my aunt's funeral 5 hrs away because I didn't have a reliable vehicle to get there. We ended up renting a car for that and a few other trips before we gave up on the DR car way. We now happily pay our car payments to have reliable cars.

[teachermom2834]

Thanks for the support! I don't mind driving beaters. This will be a third car for our family (we have 3 drivers and will be adding a 4th in the next year). Our current cars are a 2005 and a 2008 both with over 160000 miles on them. We will drive them into the ground but the idea of purchasing a 3rd car that is a beater is not appealing. Would rather have one very reliable car for my breadwinner to get to work and not have to replace them all at the same time in a few years. Prefer to buy newer and then run them into the ground. Actually looking at this purchase as a likely car for my dd someday (she is 7yo now :))

 

But trying to be as economical as we can.

[ksr5377]

whatever you end up doing - do NOT finance through a dealership.  (they make a lot of profit from people financing through them.)

 

your bank or credit union can help you with a car loan before you even go car shopping.

 

And yet when we bought our last car the dealership gave us a better loan than our bank or my credit union.  So it's good to look at your options.  This worked out for us because we had talked to our bank and credit union prior to walking into the dealership and knew what our options were, as is recommended above.

 

We are also car loan people - we regularly travel 2-3 hours away on average twice a month.  Sometimes DH is with me and the 4 children, sometimes it's just kids and I.  I do not want to risk being stranded and I don't want to miss out on time with our extended family.  We're willing to pay the interest rate to have both things.  Neither of us know how to repair vehicles and neither of us are planning to learn. 

[Tess in the Burbs]

I will say this...don't cut out financing through a dealer.  We got a car loan last fall through a credit union that the dealer used for financing.  They had their own, but they also use this local credit union.  We 1.8% interest loan on the car from the credit union we weren't members of.  My other option was 3% preapproved.  You really have to ask questions and get all the details.  That said....I think waiting to do the loan b/c of other purchases is wise.  Your debt ratio is the most important, so if you can show you have been good at paying, you might be able to talk them into a loan even if that ratio is nearing the high end. 

[NoPlaceLikeHome]

whatever you end up doing - do NOT finance through a dealership.  (they make a lot of profit from people financing through them.)

 

your bank or credit union can help you with a car loan before you even go car shopping.

I do not know if this is necessarily true since we got a very low interest rate thru Honda for our car which we just paid off. I would check to see what the going rates are so that you can decide whether the rate is fair or not.

[Susan C.]

We have 3 older cars... 97, 98, 00. But all Toyotas so all reliable. When we bought one of them new, I called the bank, but didn't apply. I asked what the car loan rate was. The dealer offered to beat it, but I already knew we could get a loan at the bank. I also talked the dealer into a 5 yr. note which helped keep the payment lower. I don't know if it is still true (its been awhile) but the older a car is, the higher the rate. So, with the 2nd car that we bought 8 yrs. old, I used a credit card offer, a 24 month 0% and made sure it was paid off before the 12% kicked in. I just took loan balance, divided by 24, and paid it. It paid down faster w/0% interest. We also sold a very old car, I put proceeds toward the credit card before figuring the "payment." The 3rd was for the kids to use, was cheap, we just paid for it.

[NoPlaceLikeHome]

We have 3 older cars... 97, 98, 00. But all Toyotas so all reliable. When we bought one of them new, I called the bank, but didn't apply. I asked what the car loan rate was. The dealer offered to beat it, but I already knew we could get a loan at the bank. I also talked the dealer into a 5 yr. note which helped keep the payment lower. I don't know if it is still true (its been awhile) but the older a car is, the higher the rate. So, with the 2nd car that we bought 8 yrs. old, I used a credit card offer, a 24 month 0% and made sure it was paid off before the 12% kicked in. I just took loan balance, divided by 24, and paid it. It paid down faster w/0% interest. We also sold a very old car, I put proceeds toward the credit card before figuring the "payment." The 3rd was for the kids to use, was cheap, we just paid for it.

I think there may be a risk in this in that credit card companies can raise your rates at any time to penalty rates of about 30% even for a late payment on a totally different credit card or loan last I heard. Hopefully the new Consumer Financial Protection Bureau created under President Obama either will fix or fixed this problem but I don't know. 

[BlsdMama]

Why not pull your score from My Fico? Personally I'd pull one and see where it sits but make sure it's Fico.

 

The mortgage may actually help you once it starts showing paid as the bureaus like to see various kinds of credit. You get an initial ding and then a rise.

[ErinE]

Definitely talk to a credit union or other financing institution before going into the dealership, but don't rule out the dealer as a source of credit. We got a dealer loan that was 2% lower than any other offer.

 

The dealer looked at our score, but not our credit report. I don't think a few months of good financial behavior would push the score up very much.

 

Also consider a certified pre-owned vehicle, if you can find a good one. A car a year or two old has been hit with "driven off the lot" depreciation, but may still be under warranty.

[SparklyUnicorn]

Thanks for the support! I don't mind driving beaters. This will be a third car for our family (we have 3 drivers and will be adding a 4th in the next year). Our current cars are a 2005 and a 2008 both with over 160000 miles on them. We will drive them into the ground but the idea of purchasing a 3rd car that is a beater is not appealing. Would rather have one very reliable car for my breadwinner to get to work and not have to replace them all at the same time in a few years. Prefer to buy newer and then run them into the ground. Actually looking at this purchase as a likely car for my dd someday (she is 7yo now :))

 

But trying to be as economical as we can.

 

Something I learned years ago.  This may vary by state, but I was told that interest rates are not capped on used car loans, but they are on new.  So you might even be better off with a new car.  At the time I bought my first car I did not have good credit.  So my options were to pay 14% (ouch) on a new car or even higher on a used car!  So I bought a new car.  It turned out well.  I had that car for 15 years.  I recently bought a new car (and I'm happy to report I got a 1% interest rate this time).

 

My comment is not to suggest you have bad credit BTW.  Just that there are odd factors you might not know about. 

[Norah]

Financing through a dealership isn't always a bad idea. If you're buying a used car, a credit union is probably cheaper. However, if you're buying new, dealerships often have both incentives and financing affiliated with the car company at really low rates. My truck was financed with 0% interest and a $500 incentive for financing. It would have literally cost me $500 more to pay cash for my truck than to finance it, and I have the option of paying it off early if I want to. My husband's car we financed a few years ago with 1.9% interest. Even if you have the cash upfront, if you can secure financing at a low enough rate, it's worth considering. You can always invest the money elsewhere while paying off the loan. Or if you don't have the money upfront, paying a few percent to have a new car that you don't have to worry about breaking down on the side of the road might be worth the peace of mind. If you're paying 15-20% interest on a car loan, then you might want to wait or buy something cheaper while you save up. If you have a good credit score, you most likely won't be paying that kind of interest on a new vehicle.

 

If you are financing through a dealership I'd wait until there's a good promotional offer on the vehicle you want. Waiting a month or two might make the difference of a percent or two on the loan for the car you want. Or an extra $500 or more in incentives when financing the car you want.

[Arcadia]

We were offered 1.9% car loan through Toyota Financial for our new Corolla in 2006, the same month we took out a mortgage for our home. We had no credit history then and no DMV IDs either :lol: Hubby had an international driver's license.

 

Even now the dealers would have offered a better loan rate at 0% financing compared to the banks for new cars. We are not a member of any credit union.

[SparklyUnicorn]

Financing through a dealership isn't always a bad idea. If you're buying a used car, a credit union is probably cheaper. However, if you're buying new, dealerships often have both incentives and financing affiliated with the car company at really low rates. My truck was financed with 0% interest and a $500 incentive for financing. It would have literally cost me $500 more to pay cash for my truck than to finance it, and I have the option of paying it off early if I want to. My husband's car we financed a few years ago with 1.9% interest. Even if you have the cash upfront, if you can secure financing at a low enough rate, it's worth considering. You can always invest the money elsewhere while paying off the loan. Or if you don't have the money upfront, paying a few percent to have a new car that you don't have to worry about breaking down on the side of the road might be worth the peace of mind. If you're paying 15-20% interest on a car loan, then you might want to wait or buy something cheaper while you save up. If you have a good credit score, you most likely won't be paying that kind of interest on a new vehicle.

 

If you are financing through a dealership I'd wait until there's a good promotional offer on the vehicle you want. Waiting a month or two might make the difference of a percent or two on the loan for the car you want. Or an extra $500 or more in incentives when financing the car you want.

 

Although I was under the impression those incentive deals through the dealer were for top tier credit ratings.

[SparklyUnicorn]

We were offered 1.9% car loan through Toyota Financial for our new Corolla in 2006, the same month we took out a mortgage for our home. We had no credit history then and no DMV IDs either :lol: Hubby had an international driver's license.

 

Even now the dealers would have offered a better loan rate at 0% financing compared to the banks for new cars. We are not a member of any credit union.

 

We weren't a member either.  They still gave us a loan.  Not only for a car, but also an unsecured personal loan we used to redo the roof. 

[rmtzc2009]

Keep in mind that interest rates offered by the dealer are negotiable.

[Arcadia]

We weren't a member either. They still gave us a loan. Not only for a car, but also an unsecured personal loan we used to redo the roof.

The credit union nearest to us has no membership fees for residents but we need to be a member to use its services.

[SparklyUnicorn]

The credit union nearest to us has no membership fees for residents but we need to be a member to use its services.

 

Basically you become a member by getting the loan.  They open up an account and keep a few pennies in there.  We didn't have to use them as our regular bank.  Although I don't really have a problem with that except, as you know, it's a pain to switch everything over.

[SparklyUnicorn]

Keep in mind that interest rates offered by the dealer are negotiable.

 

Yep which is why it is particularly good to go in knowing your credit score ahead so they can't claim your score wasn't high enough.

[MomtoCandJ]

We purchased a 2013 certified preowned Ford Fusion in April. We got our loan through our credit union because the interest rate was lower for us. The total loan was for $23,000 as we didn't have a down payment and we also rolled a warranty in with it that will cover major repairs on car until it's paid off.

[NoPlaceLikeHome]

Our loan from the Honda was for a used car and it was a good rate.

[Happy]

whatever you end up doing - do NOT finance through a dealership.  (they make a lot of profit from people financing through them.)

 

your bank or credit union can help you with a car loan before you even go car shopping.

 

I got a zero down, zero percent interest rate for my Toyota. My bank could not compete with that.

 

We usually buy used cars, but the deals and incentives on new made it worth my while to buy new.

 

Buying at the end of a quarter (March, June, etc.) can be a great time to make a deal with a salesman or dealership who needs just a sale or two more to meet a quota. The car companies usually have as good a deals as they ever get during those times, too.

[The Girls' Mom]

Definitely don't rule out dealership loans.  We just bought a Nissan.  Although we were pre-approved for a good rate through our credit union, the dealership was able to offer 0% financing for 6 years.  Payments are low, and we still have the option to pay it off early.  

We've not had a car payment in nearly 10 years, so it hurt a little to have one again.  BUT the ability to have a car that has no repair bills is worth it to me.  We buy beaters for the kids and for dh to knock around in (he works from home, so doesn't drive much), but we've always tried to have at least one newer car.

[BlsdMama]

I get the new car smell ;) but the fact is, even at ZERO percent interest you're taking a HUGE hit because, as Dave would say, things with will depreciate.

 

And they depreciate BADLY. 

 

You're better off paying a slightly higher interest rate and buying a car that is 3 years old.  

 

https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/car-depreciation/

 

 

So, for an ACTUAL example, my credit union is offering 1.99% financing on 2011 cars and newer.  

 

Using the example from the article:

 

New car price: $32k

Three year price: $16k

 

Let me just say that paying the 2% on the 16k pricetag will never ever equal the additional $16k of the new car sticker price. ;) KWIM?

 

 

Now, that said, this is what we do:

 

 

Know your FICO score.  (It doesn't matter which report - TransUnion, Experian, or Equifax.  They USUALLY are not widely different.)

You can pull one from MyFico. com

Get your lender lined up.

 

The fact of the matter is that if you walk into a dealership without financing, you will discuss price differently.  You just will.  If you know you have your financing ready then they have to barter on the sticker price.

 

Figure out what vehicle you're looking at or for.

Figure out what the ACTUAL price you should be shooting for - Edmunds.com

 

THEN go test drive a few at a few  different places.  Do NOT take the checkbook.

Sleep on it.

Go buy your vehicle.

 

A car dealership wants you to make a gut purchase.  Don't do that.  And don't buy the first vehicle.  I don't begrudge them a profit but I'm trying to get as close to the Edmunds price for private sale as possible, keeping in mind they have the costs of the dealership (building, employees, keeping lights on) as possible.  They deserve a profit.  But it's good to know what they most likely paid for it as a trade-in too.  ;)  That way you both can be fair.

[teachermom2834]

I get the new car smell ;) but the fact is, even at ZERO percent interest you're taking a HUGE hit because, as Dave would say, things with will depreciate.

 

And they depreciate BADLY. 

 

You're better off paying a slightly higher interest rate and buying a car that is 3 years old.  

 

https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/car-depreciation/

 

 

So, for an ACTUAL example, my credit union is offering 1.99% financing on 2011 cars and newer.  

 

Using the example from the article:

 

New car price: $32k

Three year price: $16k

 

Let me just say that paying the 2% on the 16k pricetag will never ever equal the additional $16k of the new car sticker price. ;) KWIM?

 

 

Now, that said, this is what we do:

 

 

Know your FICO score.  (It doesn't matter which report - TransUnion, Experian, or Equifax.  They USUALLY are not widely different.)

You can pull one from MyFico. com

Get your lender lined up.

 

The fact of the matter is that if you walk into a dealership without financing, you will discuss price differently.  You just will.  If you know you have your financing ready then they have to barter on the sticker price.

 

Figure out what vehicle you're looking at or for.

Figure out what the ACTUAL price you should be shooting for - Edmunds.com

 

THEN go test drive a few at a few  different places.  Do NOT take the checkbook.

Sleep on it.

Go buy your vehicle.

 

A car dealership wants you to make a gut purchase.  Don't do that.  And don't buy the first vehicle.  I don't begrudge them a profit but I'm trying to get as close to the Edmunds price for private sale as possible, keeping in mind they have the costs of the dealership (building, employees, keeping lights on) as possible.  They deserve a profit.  But it's good to know what they most likely paid for it as a trade-in too.   ;)  That way you both can be fair.

I get the depreciation of a new car and I would never go for more expensive just for the new car smell.  That isn't really a thing for me.  Honestly, a 3 yo car with less than 50,000 miles would be plenty new car smelly for me.  That would feel brand new in my world.  But, I just want to point out in regards to that article that not everyone buying a new car is paying an extra $16000 for it.  If you are buying a budget car on the low end price wise you are not spending $32000 even new.  So, as you go down in price the margin between the new car and the 3 yo car shrinks significantly.  I am probably going for the 3 yo car as I do believe that is usually the best choice but not everyone that finances a new car for 0% is overpaying just for the new car smell. 

[AngieW in Texas]

We generally buy new and then drive our vehicles into the ground. Our first three vehicles were all purchased through the fleet financing deal at our credit union and were great deals. All were driven into the ground at over 150,000 miles and were at the point that the costs to keep the cars running for one year were higher than the cost of a new vehicle.

 

Our last three cars have all been financed through the dealerships, but they were offering better deals than the bank (we moved away from the credit union).

 

It definitely helps to know your credit score. We have a very good credit score, so the dealership was easy to deal with. 

 

We need to have cars we can rely on. We started off buying beaters, but we were getting slammed with a ton of repairs and got stranded a lot. We gave up on having two beaters and went to one beater and one good newish used car on a 3-year note and then as soon as that was paid off bought a new car to replace the beater. Since then we have mostly bought new, but have bought one other car that was a certified pre-owned on a full warranty.