Shopping Auto Loans

My auto dealer is offering me 3.88 percent interest on a 5 year auto loan for 20,000. My credit score is in the 800s. Can I do better? Where should I look? Thanks!

 

Welcome to the forums.

How about your bank ?

 

PJ is correct about trying the bank first. However, looking a little deeper, $20,000 over 5 years seems like the car will cost you a lot more. Is that a new or used car? I wouldn't take that deal on a used car.

 

Sorry PJ, I'm kinda new at this...call me young and stupid. But I thought banks only offered loans on houses.

I thought dealers were the main places that offer auto loans. I use BoA so i will see what they say.

 

Shorty, if its a used car, why would it be different than a new car? Educate me. Thanks,

 

My credit union is offering 2.99 on car loans. With an 800+ credit score, you can easily do better than 3.88. Well, now let me say, that's in Louisiana. But credit unions are your best bet.

 

DoItAgain: The reason is that a 5 year loan plus interest isn't worth paying on a used car. The car may not out last the payments where as a new car has a much better chance.

 

My credit union also charges higher interest rates on older cars. So in addition to the higher costs of ownership, you pay more for the loan itself.

 

Ok, thanks for the advice everyone. This has been very very helpful. I've got my work cut out for me this week. I look forward to sharing the results.

Best,

 

3,88 seems high to me if your credit is as good as you say. Have you contacted your insurance company? Mine has a buying service which includes financing. FWIW, the dealer beat their rate the last time I bought one....

 

So I checked a credit union(and another local credit union) since I am not a member of one at the moment and I found that they were offering 2.99 and 2.94 as the lowest rates they offer. I went ahead and applied through the company offering 2.94 percent and turns out I qualified. So I'm never very quick to make a decision but I think I'm leaning towards going through them.

They also offered a longer term (84 months) so I figured why not stretch out the loan term longer which really reduced my payments more. This raised my interest rate to 3.24 which didn't seem extreme to me. And even though its a used car, its low mileage so I'm not worried about the car lasting that long. All in all, by getting the better rate and the longer term, that saved me about $100/month if my calculations are correct.

My bank wasn't able to match the rate. They were about 50 percentage points higher than the credit union. Thanks everyone for directing me in the path I should go.

 

Have you calculated how much additional interest you will pay on the longer term loan?

 

OMG - financing a used car for 84 months?

I'm speechless at the concept.

 

OP: Since you seem to be new at the car-buying thing, what others are telling you is this -- the longer the term, the more you pay in the long run in interest. Your principal (the cost of the car) is a constant. The amount you pay on the loan (the interest, as expressed in the percentage rate) is higher, as is the length of the loan, which means you are paying the higher percentage rate for a longer period of time.

Simply, there is no way that you will pay less over the course of the loan. Your monthly payments may be lower, but the overall cost of the loan (principal and interest combined) over those 84 months will be more than if you had a shorter term.

For example looking at your two scenarios, a $20,000 loan at 3.24% for 84 months will cost $22,381 over the course of the loan. - $266 a month.
A $20,000 loan at 2.94% for 60 months will cost $21,530 over the length of the loan. - $359 a month.

So, your monthly payments are about $100 lower, but your total out of pocket is $851 more over those 84 months.

The other concern is whether or not the car will last 7 years. If it dies after 5, and you decide to junk it, you are still responsible for those last 2 years of payments -- even if you don't actually have the car.

I cast no judgment. Everyone's financial situation is different, and frankly we don't even know what kind of car it is. We just want you to make an informed decision.

 

Thanks for challenging my thinking there. I am certainly new at this, but my thought was that that would allow me to save more money elsewhere. Then if the car ever did junk out I could take that money and just pay if off, which it only has 15,000 miles and its a Honda so I've heard those will run forever. I know there's always a bad apple somewhere. I'm am really very open to any other thoughts so thanks for helping me think through this.

 

When you find a good loan rate, that that back to the dealer ship and see if they can do better. My credit union always has very good rates on car loans but when I told the dealer my rate they just lowered theirs (well, the bank that was backing the loan) with a swipe of the pen.

Shop at your bank as well. Just because it is not a credit union, you might get a better rate because you are a customer.

 

Something seems hinky here. If you are saving $100 out of pocket per month, then in 9 months, after you've set aside the $851 difference, you could put that $100 in an account of some sort. If you had the willpower to do that, at the end of the loan you's have a presumably still good condition car and at least $7500 in your account. Actually seems like a decent deal.

Not that I'll ever have a car loan or likely a car less than 10 yrs old, ever again.

 

A new car is just a money loosing purchase, haven bought one since 1984 and that was a specialty car that I kept for 30 years.

Buying a 2 year old car is the way to go, low miles, still under warranty, and the prior guy took the depreciation hit.

Oh, buy from private owners and always pay cash!

 

I agree, Gunguy, it does seem odd. I actually ran the provided numbers through several online calculators because it looked so odd and I got the same results from each. If the numbers are correct, then it actually does seem like a good deal.

The one thing I would advise the OP is to actually use some of that money he saves towards regular maintenance. 15,000 miles on a used Honda is nothing (provided the previous owner didn't run it into the ground in those 15,000), and Hondas have a fantastic reputation for reliability, but they do need to be maintained (like any car).