Is now a good time to finance a car?

In My Humble Opinion
1

Or would later be better? Dealers are desperate to move their aging vehicles of the lot, so you’d expect there to be low rates available to facilitate this. On the other hand, with loan defaults up and an uncertain economic future, maybe they are waiting for some good news before they drop rates.

I have observed that most domestic cars seem to have 0% available, whereas most foreign ones have low but not spectacular rates, like 2.9%. Do you think patience will be rewarded here, or have rates bottomed out?

2

I think now is a very good time. Rates have pretty well bottomed out. Of course, it was vary- some car companies were offering 0% years ago, others never seem to do so.

3

For qualified buyers, the rates now are as good or better than ever. There are some factors that will affect the rate though.

Your FICO Beacon score - above 720 and you will be A-OK and qualify for the best rates available. Under 620 and you are going to be SOL in most cases. In between 620 and 720 expect to have to pay higher rates unless the manufacturer is offering an incentivized rate that you can qualify for.

Loan to Value Ratio - under 90% is ideal. This means that you are financing less than the value of the vehicle. Rolling your negative equity from your trade-in is much harder now than it was a year ago. Above 130% is almost impossible and the banks send a call back that requires enough money down to get under that in most cases. For new cars the value is based on the invoice, not the MSRP (and in a lot of cases, they are using the invoice minus any available incentives for the value). For used cars, the value is usually based on the trade-in value of the vehicle, not the retail value.

Age of the Vehicle - the older the car the higher the rates are.

Length of Term - the longer the term, the higher the rates are.


I have the current rate sheet from (Insert Name of Large Bank) here...for example:

Tier 1 (730+ Beacon) with a maximum LTV of 130% for 60 months rate on a 2009 vehicle is 5.49%.  If the amount financed is above 30K, they have a .25% discount, and if the LTV is under 90% they give another .15% discount.  This weekend they are running President's Day special of another .50% off, which can get the rate down as low as 4.59%.  If you need to stretch your payments out to 84 months on this Tier, your base rate goes from 5.49% to 7.39%.

Conversely Tier 5 (640-659 Beacon) has a maximum LTV of 105% and a base rate of 9.89%.  To encourage money down they offer a 1.00% rate drop for an LTV below 90% for this tier, but no big ticket discount, and no President's Day special for this Tier.  If you need to stretch to 84 months, you are SOL as they won't do more than 72, and the rate for that is 10.49%.

This example is just from one of the many banks I deal with on a daily basis, for this particular region of the country.  I'm not your finance manager, and I'm not procuring auto financing for you.  Your rates may vary.

The point is, that good rates are available if you are a well qualified buyer, and even if you have one or two speed bumps on your credit report, financing is out there.

Finally, 0% is not always your best option if it is offered in lieu of cash rebates. Often the cash rebates are greater than the amount of interest you will pay over the life of the loan, and you will pay back less money in the long run. Let your finance manager run both scenarios for you and show you which is better for you. 0% is not the end all and be all it’s made out to be.

Here is a real example of the difference using a car I have on the lot right now.

Selling Price of $20320 plus tax tag and doc fee = total amount financed of $21400.06. At 0% interest, the monthly payment is $356.67.

OR

Selling Price of $20320 plus tax tag and doc fee MINUS available rebates of $3250 = total amount financed of $18150.06. At 5.49% interest the monthly payment is $346.61.

You save $603.60 over the 60 months of the loan, plus you owe less money on the car from the start. If you wanted to trade it in 36 months, you are in a better equity position if you take the money off instead of 0%. On higher priced cars, the 0% then becomes a better option, but when you are shopping, don’t be focused on just the interest rate. Look at the overall deal, then make a decision.

4

The vehicles in question might be a calendar year old in design, but if you look at the odometer and the milage on an 07 or 08 may not top 1000 miles , you are getting a new vehicle.

It will have the same warranty as an 09, plus you have better resources to check how those vehicles did over the course of their lives.

Declan

5

Also something to keep in mind:

Should the big stimulus pass and get signed, if you purchase a new car this calendar year you can write off the interest you pay and the tax you pay on the car on your tax return next year.

Now is a great time to purchase. GREAT time.

Edit: The new Fords and Chevys are great looking, affordable, and get good gas mileage. This stigma that they don’t hold up as well as a Toyota or Honda is complete nonsense. I’ve always bought American and I always drive them for hundreds of thousands of miles with no real problems. American cars are just as reliable and will serve you well.

6

Thanks for the responses.

JiminatorI’m not saying American cars are bad, there’s just none that I want right now. I did not know about the provisions in the stimulus bill, that would certainly be welcome.

**Declan **My point about the ‘aging’ vehicles is that regardless of the warranty or mileage, every passing day brings you closer to the arrival of the new model year vehicles, which will inevitably reduce the sale price of the old model year vehicles on the lot.

**Hockey Monkey ** Good examples on the financing. When I checked my credit with Transunion recently, the ‘score’ reported was above 800, which I thought was the upper limit of FICO scores. I suspect they were reporting some other kind of score entirely. How do I get the real thing that the bankers use? As to the 0% vs. rebates, I see your point, but none of the cars I’m looking at have rebates. And, according to the dealership, they simply cannot do better than 2.9% for anybody.

7

Most banks here on the East Coast use Equifax most frequently, and then Transunion to get the score. If you are over 800 on either one, you don’t have anything to worry about. :slight_smile:

8

What cars are you looking at?

9

Subaru, mostly.

10

Subaru is offering a 0.0% rate on many 2008 cars for a 24 month.

If you go here:
http://www.edmunds.com/incentives/RebateController?step=1&setzip=10001&tid=edmunds.n.incentivesindex.incentives.1.1.*
and enter you own ZIP, you’ll find all the incentives offered. There are a LOT of 0.0%

Which Subaru, the Forester?

11

No, a WRX. They have great deals on the 08, but that was the first year after the redesign and it has 41 less HP. I suspect those factors will really hurt resale value.