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alex
alex UberDork
4/8/18 12:42 p.m.

I know nothing, because I’ve always paid cash for my clunkers. But this is for my girlfriend, who owns a house and has good income.  She’ll start by hitting up the bank that holds her home loan, but I’m wondering if there are better options on the market.

Explain like I’m five, because I’ve never done a bank loan for anything in my life.

nutherjrfan
nutherjrfan SuperDork
4/8/18 12:50 p.m.

I used to work for a credit union that took maybe a half or full % off the loan if you put 50% principle down.  I'm not much into loans either as I weirdly like roadworthy but could do with minor fixes cars and am always aware that I could lose my job with every table I wait on. smiley

John Welsh
John Welsh Mod Squad
4/8/18 1:03 p.m.

Recently, I wrote quite a bit about borrowing from Pen Fed on my Prius. 

I too always paid cash for cars.  I even paid cash for this Prius.  It wasn't until after I owned the car that I borrowed on it.  I'm sure it would have been similarly easy if I had borrowed first rather than borrowed after buying.  

I am over a year into it now with Pen Fed and all has been great and easy.   Note: rates are no longer 1.99% but rather 3.75% 

 

The PenFed site list these 3 points:  

  • Rates available on all model years up to 60 months.
  • 72-month terms available from 2013 - 2018.
  • Preapproved auto drafts available to qualified buyers.

#1: They will lend for 60 months (5 years) on even older cars.  Imagine, as an example, you can borrow for 5 years on a $35k '88 BMW M5!!!

#2: Borrow for even longer (6 years) if the car is less than 5 years old.  

#3: a pre-approved draft is like Pen Fed saying, "your approved to $20k now go shopping and call us when you find one" or imagine them giving you a blank check that you can write for up to $20k

mtn
mtn MegaDork
4/8/18 1:09 p.m.

Call PenFed. Tell them what you need. They'll get you a good rate. As long as she has seen an American flag before she'll qualify (seriously, if you don't qualify you can join an organization that will let you qualify. I qualified because my grandpa was in the Army in WWII, even though he was deceased. No one ever checks AFAIK. 

 

Oh, and I got a $5k loan for a 14 year old car that wasn't worth more than $2000. Rate in April 2017 was 2.24%

Sonic
Sonic UltraDork
4/8/18 1:19 p.m.

Yup, stick to credit unions.  I have loans on 2 cars with mine with one at 1.5% and the other at 2.5%, hassle free.  At that rate i specifically chose to finance even when I had the cash to spend as the money was so cheap, then I can use my cash elsewhere. 

Kylini
Kylini Dork
4/8/18 2:16 p.m.

Another vote for PenFed. I have a 3% loan on my used Prius for four grand. 

Klayfish
Klayfish PowerDork
4/8/18 4:22 p.m.
Sonic said:

Yup, stick to credit unions.  I have loans on 2 cars with mine with one at 1.5% and the other at 2.5%, hassle free.  At that rate i specifically chose to finance even when I had the cash to spend as the money was so cheap, then I can use my cash elsewhere. 

Yep, I do the same.

NGTD
NGTD UberDork
4/8/18 4:42 p.m.

She owns her house? Line of Credit then. That's what I did and paid 1/2% over prime. Way cheaper than a car loan and no lien or anything like that.

frenchyd
frenchyd Dork
4/8/18 5:20 p.m.

In reply to alex :

 

This will seem wrong to you buyt it’s the truth  first you will need transportation the rest of your life.  

Used car loans cost more than new car loans.  

You need more down payment on a used car than a new car  

Used car loans are harder to qualify for than new car loans. 

Used cars are more expensive to insure  than new. 

If you add in the cost of delayed maintenance  or wear on the used car  the payments will be cheaper on new than used.  

Yes it’s cheaper to buy new than to buy used.   

Don't worry about depreciation.   a new car should last you 15-20 years.  Just don’t trade in your new car ever.  Run it until the wheels fall off. 

 Now if you get bored with a car easily then don’t follow this advice.   

Example. I bought my oldest daughter a Saturn Ion. With nothing down my payments were a little over $100 a month.  6 years interest free. 

That car is almost 18 years old  with over 300,000 miles on it.  She drove it through college, and to and from work. It still has the original clutch and the most expensive repair has been new tires when the old ones wore out. 

She hasn’t made a car payment in  almost 12 years.  I’d call that cheap transportation wouldn’t you?  

DirtyBird222
DirtyBird222 UltraDork
4/8/18 7:38 p.m.

Like others have said above, go with a credit union. I took a loan out with a credit union when purchasing my 12 year old (at the time) S2000. Got a great rate and it took all of 5 minutes to apply and be approved. 

Floating Doc
Floating Doc Reader
4/8/18 10:39 p.m.

I'm going to have to begin to update the fleet. My "new" cars are my wife's sienna and my lancer Ralliart wagon, both 04s. 

The lancer is solid, but the van needs to be replaced. I can afford to spend 12k or so cash, but but would rather put six or eight down and get her a better car.

The problem is, we both went bankrupt in January of 2012 when I lost my practice. Haven't borrowed $0.02 since then. So my credit rating is about 640. 

I think I'll stop in to the credit union tomorrow and at least have a talk.

old_
old_ HalfDork
4/8/18 11:15 p.m.

Look into lightstream as well

ultraclyde
ultraclyde PowerDork
4/9/18 7:02 a.m.

I've been a member of my local credit union for...nearly 30 years.  They are one of the few that don't have good rates on older cars. If it's older than 2010 or more than 125k miles (that's the hard part) then you get the signature loan rate, which is 8% right now. And that's if you have GOOD credit.

 

I may have to check into PenFed....

WonkoTheSane
WonkoTheSane Dork
4/9/18 7:58 a.m.

My credit union (PSECU) makes this about as painless as getting a new car from a dealership..  Like everyone else, I'd talk to them first.

edizzle89
edizzle89 Dork
4/9/18 8:23 a.m.

if you go through a dealer go to/call whatever bank you want to get the loan from and do it yourself, dont let the dealership set up your loan. when we go my wife's van the dealer, who used our bank for all their loans, gave us the numbers and the interest rate was ridiculously high. I went into my bank the next day, again the same bank the dealer uses, and they gave me an interest rate about half of what the dealer was able to offer.

 

nutherjrfan
nutherjrfan SuperDork
4/9/18 8:26 a.m.

now I've got the PenFed jingle in my head.  It's on radio a lot here. My insurance told me the rate 'can' be better on a new car. smiley

Duke
Duke MegaDork
4/9/18 8:29 a.m.

DD#1 just bought the first car where she did all the shopping and financing on her own.  She shopped loans at the bank where she has her accounts (and used to work), online sources, and a couple of local credit unions.  Far and away her best deal was at one of the local credit unions, and all she had to do to join was start a small savings account there.

She's 25 and has not much debt - her student loans were not excessive and she prioritized paying them off rapidly after she got out.  I don't know what her credit score is, but I doubt it is bad even though she doesn't have a ton of history.  Her APR on a 5-year-old used car was under 3% for 4 years.  They offered her a lower rate for 3 years, which I recommended she take, but she was worried about cash flow.

I've always financed through our credit union as well, because typically they've offered the best rates, except for 2 times that we got better financing through the dealer / manufacturer.  Can't beat 5 years at zero percent interest.

John Welsh
John Welsh Mod Squad
4/9/18 8:43 a.m.
ultraclyde said:

I've been a member of my local credit union for...nearly 30 years.  They are one of the few that don't have good rates on older cars. If it's older than 2010 or more than 125k miles (that's the hard part) then you get the signature loan rate, which is 8% right now. And that's if you have GOOD credit.

 

I may have to check into PenFed....

When I got my 1.99% loan from PenFed my local, long-time Credit Union was offering 5% on the same car.  

Yes, shop a Credit Union but even all of them are not the same.  

WonkoTheSane
WonkoTheSane Dork
4/9/18 8:47 a.m.

If you're buying from a dealership, you may be able to get a better loan through the dealer since you can negotiate on that.. 

 

When we bought our last car there, I had already been approved by my credit union (this was three years ago, I think it was 2.25% on 25k?), we gave that to the finance guy and said "if you can beat this, we'll get our loan through you."  We got 2%. 

John Welsh
John Welsh Mod Squad
4/9/18 8:48 a.m.
edizzle89 said:

if you go through a dealer go to/call whatever bank you want to get the loan from and do it yourself, dont let the dealership set up your loan. when we go my wife's van the dealer, who used our bank for all their loans, gave us the numbers and the interest rate was ridiculously high. I went into my bank the next day, again the same bank the dealer uses, and they gave me an interest rate about half of what the dealer was able to offer.

 

The dealership is not bound to offer you the lowest interest rate that you qualify for but rather the lowest rate you will accept.  

The dealership makes a commission (gets paid) by the bank or lending company for "signing you up".  The higher the rate, the more they get paid!  

You wrote, "...about half of what the dealer was able to offer."  More correct could be , "...about half of what the dealership was willing to offer."

Furious_E
Furious_E SuperDork
4/9/18 1:35 p.m.
WonkoTheSane said:

My credit union (PSECU) makes this about as painless as getting a new car from a dealership..  Like everyone else, I'd talk to them first.

Yup, PSECU is awesome. They'll give you a 36 month loan on anything worth at least $3k, regardless of age, and at damn good rates to boot. 

stuart in mn
stuart in mn UltimaDork
4/9/18 1:38 p.m.
NGTD said:

She owns her house? Line of Credit then. That's what I did and paid 1/2% over prime. Way cheaper than a car loan and no lien or anything like that.

This is what I did the last time I bought a car.

crankwalk
crankwalk SuperDork
4/9/18 2:38 p.m.

NGTD said:

She owns her house? Line of Credit then. That's what I did and paid 1/2% over prime. Way cheaper than a car loan and no lien or anything like that.

__________________________________________________________________________________________________________________________________________________

 

Currently, Prime is at 4.75%. That's not great for a car loan especially on an older car.

 

Personally, if a car is worth less than $10K, I am not paying a penny of interest on it (much less for 3-5 years) because it has likely depreciated to <30% of what it was new.

 

Has she considered just buying a new car? Honestly, I'd rather pay 0% for 5 years on a NEW Corolla with a warranty than even 3.9% interest on a 7-10 year old vehicle that will need repair out of pocket along with the payment.

 

BoxheadCougarTim
BoxheadCougarTim MegaDork
4/9/18 2:42 p.m.
stuart in mn said:
NGTD said:

She owns her house? Line of Credit then. That's what I did and paid 1/2% over prime. Way cheaper than a car loan and no lien or anything like that.

This is what I did the last time I bought a car.

I wouldn't. If your loan is secured on your vehicle and E36 M3 hits the fan, you'll get the car repo'd and hopefully have enough money for the mortgage. If your loan is secured on your house and you can't make that payment, you get to sleep in your car...

Floating Doc
Floating Doc Reader
4/9/18 2:56 p.m.
BoxheadCougarTim said:
stuart in mn said:
NGTD said:

She owns her house? Line of Credit then. That's what I did and paid 1/2% over prime. Way cheaper than a car loan and no lien or anything like that.

This is what I did the last time I bought a car.

I wouldn't. If your loan is secured on your vehicle and E36 M3 hits the fan, you'll get the car repo'd and hopefully have enough money for the mortgage. If your loan is secured on your house and you can't make that payment, you get to sleep in your car...

Yeah, I recall this same advice from a few years ago to avoid using a line of credit. I wouldn't do it. 

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