I’m not asking for a huge amount, just $5K, and I’m going through my credit union, with whom I have an established history. I have a list of questions I am going to ask, and I plan to buy a car under $18K. (I’ll be able to put in more than half of that on my own…definitely $13K, maybe more, plus I am trading in a car, too.) So the car loan will just take care of the shortfall. I could easily pay $200 or $250 a month, which would put me at about a 2 year loan. And of course months that it’s feasible I’ll pay more, which will help.
It’s the first time I’ve ever gone to the bank for a loan. I generally don’t buy things on credit, but it’s about time I got a new car; I always got a hand-me-down.
Any advice people can give is appreciated. Have I thought of everything? I sure as hell hope so.
It should be straightforward enough, especially with the credit union.
If the rates aren’t that much higher, consider asking for a 3 year loan; that’ll lower the required payment and give you some wiggle room in your budget, but you can always pay it down as if it were a 2-year loan.
If you’re buying from a dealership, be prepared for them to be pretty pushy about using their financing - which will come with a higher rate, and a lot more profit for them. I had one dealer push that even though I said I already had financing lined up from the credit union; he took me to their finance guys, who listened to the rate I already had and flat-out said he couldn’t match it.
The logistics, when we’ve bought:
We pre-apply at the credit union and get approved for xx dollars (obviously contingent on the car - if we asked for a 30,000 car loan and bought a Honda Civic, they wouldn’t write the loan for the full 30,000).
We go to the car dealership and strike a deal
We sign a lot of paperwork there including a promissory note that says “we’ll pay the balance of the car within 3 days or you can start charging us 20% interest or repo the car”.
We take that paperwork to the credit union (or fax it).
the CU cuts a check - I forget whether it’s made out to us or the dealership.
We take the check to the dealership.
They mail the car’s title to the CU.
We make payments for a while until it’s paid off.
The CU mails us the title, which we then put in the safe deposit box.
Good point. I have a vague memory of hearing that GMAC tended to do that!!
Just for fun I looked at my CU’s car rates - right now they’re 1.99 percent for a 2 year loan, and 2.24 percent for a 3 year loan (or something like that, it might be a 4 year loan that triggers the higher rate). Pretty affordable all around.
Is the interest rate pretty much what they say it is, or do I have room for flexibility? What I mean to say is, do I just not even bother negotiation for that, and accept what they give?
It’s worth going in with your pre-approved rate from the credit union and then at least hearing the dealership out about their financing. I’ve twice had dealerships beat the deal that my credit union was offering.
Well, so…if I get pre-approved from the credit union, I can just say No, if I get a better deal? And what if it comes out that I don’t need all $5K or whatever?
The two cars I’m looking at chiefly are the Hyundai Accent, which has an MSRP of $15,505, and the Honda Fit, which MSRPs at $16,745.
If I pay $13K from my pocket, and even get $2K for my 2001 Toyota Corolla with 108K miles on it, I will be within swinging distance of the Accent and just a little bit underneath the Fit.
However, I am working on the assumption that I will get absolutely no money for my trade-in. That’s obviously not going to be the case but I don’t want to rely on that money at all. I want to be able to afford the car without it, and that will be sort of a bonus on top.
I just applied for a car loan with my credit union yesterday. That was my first question, “I’m just applying, right, so if I decide not to close, there’s no penalty?”
That was correct, with my credit union. There was a $10 application fee, which I assume I forfeit if I decide not to close.
If you don’t need the whole 5K, they can adjust the amount at closing to the exact amount you want to borrow. Or, you could borrow the whole 5K – and let’s say you only need 3K – and the very next month, pay 2K down on the car note. That’s kind of how I plan to handle the sale of my old car. I’m just not figuring that into my transactions anywhere. I’ll get the new car (I’m buying from a friend who’s pregnant with twins and now needs a minivan instead of a cute little Fiat), and then, whenever I get my car sold, I’ll just apply the proceeds to my new car loan as one big fat payment.
AFAIK, there is not much negotiation in terms of which interest rate you get – that is driven by your credit rating. The only negotiating you get is what the terms would be, i.e., the length of the loan. I’m going for a stupidly long term to keep the payment where I can afford it, for now. I plan to pay off some credit card debt and will refi the car in a year or two and get that down to a shorter term. First I need to free up the payment money.
This is just the car loan today. Car is going to be over the weekend. We already went around with my dad to look, who has bought many cars…and we’re doing LOTS of research. I think we’re prepared.
I wouldn’t completely rule out the dealer financing; they might be offering low rates as an incentive and it doesn’t hurt to see if you’ll qualify. Check the rebates and incentives page at Edmunds for a rundown of who’s offering what. At a quick glance, I see 1.9% on the 2012 Accent. That might beat what your CU can do. Or if your CU has a similar rate, you can use that as a bargaining point with the dealership. It looks like Nissan has 0% on the Versa and Sentra, which are close to your price point, so you might consider them.
You sound like you have a good handle on this, but I can’t stress enough - do not clean out your savings account. Leave at least six months of emergency funds and finance the rest. You can always pay the loan off early when things are good, but it’s impossible to go back and get that loan if something goes sour.
of course by the time you’re ready to refinance the car, the rates might be such that it’s worth sticking with the older loan, and accelerating the payments or whatever; you’ll be better able to judge what’s best when that time comes.
I actually refinanced my current car’s loan. I took out a 5 year loan when we bought it in late 2006, and had been prepaying a few dollars every month, then about 2 years later the credit union’s website kept popping up “REFINANCE YOUR CAR LOAN” whenever I went there (not targeted specifically at me, they were looking to get people who were NOT with them, to finance through them). The rate was 3.9% then vs my current 4.9. They insisted I take 500 dollars cash out, apparently when refinancing their own loan, that was the policy, however of course I immediately paid that 500 against the loan. And the new loan had a term of 3 years vs. the 2.5 remaining on the older one (though of course I paid it off quite a bit sooner).
I wouldn’t necessarily do the “borrow the 5K when you only need 3K”, unless there’s something going on with your cash flow, as Dogzilla mentions in her situation. You’d wind up with a 5,000 loan, say the payment is 200 a month, vs. a 3,000 loan where the payment is 120; then you prepay the 2,000 - so your balance is now 3,000 but you have to pay 200 a month (they wouldn’t adjust your payment downward). Of course, by continuing to pay the 200 a month you’d be rid of it that much faster, but you can accomplish the same thing by taking the 3,000 loan to begin with.
So yeah, the bank would adjust the actual loan proceeds to match what your car’s purchase price turns out to be.
But beware that they may be less flexible when negotiating prices, if you go for the promotional financing. It is a good idea to find out what their deals are (as SmellMyWort and others have noted, they just might be better), but do weigh the tradeoffs.
I guess I just don’t trust the dealers much. They’re selling me the car, why on earth would they give me a good deal? But I promise I will try and look with as open mind as possible.
I got the loan, btw. It was very painless.
As to the type of car I really really really want a hatchback.
Do you know anyone who wants a decent car for a teenager? $2k sounds low for a 2001 Corolla with less than 10k mileage/year, unless it’s in poor condition. You’d likely do better selling it privately.
You shouldn’t. At all. But they can make more money if you finance with them than if you don’t, and that’s some incentive for them to offer you a decent deal. Just, as others have said, make sure you know all the terms of any finance offers.
