Car Purchase Financing

[Feruk]

So I need to buy a vehicle. Have looked around and am probably gonna buy a used SUV in the 2-3 year range. I'm hoping for some feedback on which option to take to finance car:

1) I can pay cash
2) Dealership financing (assumes I go through a dealer)
3) Unsecured LOC
4) HELOC

What's the best strategy? I don't really want to fork over $25K - $30K at these low interest rates... What kinda rates can I expect from dealer vs unsecured LOC vs HELOC? Let's assume I have good credit and am not leveraged to the hills. Can I use a HELOC to finance a vehicle?

Also, for down payment can I use a credit card? If I'm gonna have to pay some money down, I might as well get some points for it. :)

[ExtraSlow]

On used vehicles, typically dealership financing rates are brutal. It doesn't hurt to ask, but if you have a HELOC, generally that's the lowest interest rate you can access for this type of purchase.

Although I'm a big fan of paying cash if you are able.

[max_boost]

I think you can deposit up to $5k on credit card.

What's heloc at now? 3-4% range? heloc is probably easiest and can pay at your own pace.

I think it just depends what you want to do.

[Buster]

Do you have something better to do with the cash?

[roopi]

Dealership Financing - Since it is a used vehicle most likely the rate will not be that good. Also they won't give you a rate until you submit a financing application to determine your credit.

Unsecured LOC - Do you have a LOC right now? If so what is your rate? LOC's can very from prime to over 10% depending on the type of customer you are. If you have one in the 3-5% range then this will most likely be a better option then dealership financing.

HELOC - If you have a HELOC setup currently then this is probably your lowest rate out of the options. If you don't have one setup then with many banks there are fees associated with setting it up (house appraisal). So take that into consideration. I'm not sure what the actual fees are.

Cash - If you can finance/HELOC in the 3% range then invest the cash elsewhere and finance the vehicle.

[shakalaka]

The only way it makes sense paying any interest is if you got better things to do with the cash like investing it elsewhere for more interest rate than you'd be paying for the car. If you're just gonna have cash sitting in the savings doing nothing then you might as well use that.

[ExtraSlow]

Or if you are going to just end up spending it on frivolous stuff, like a lot of people, then pay cash for the car for sure.

[tonytiger55]

If its used... Cash.
No cash... no buy. Simples.

[HiTempguy1]

Usually the banks offer 3.5% on used cars 4 years old or newer.

I bought my enclosed trailer that way. Would have been silly to not have done that :dunno:

[Feruk]

Originally posted by Buster
Do you have something better to do with the cash?
I won't know for sure until about a month after I buy the car. About 50/50 whether I'll have a place to put the cash. Most likely, other investment will be a significant drain on cash position, so having a spare $30K around adds value.

Also, I'd look for a loan that I can pay off early with no penalty should I find no home for the cash.


Originally posted by tonytiger55
If its used... Cash.
No cash... no buy. Simples.
Why?

[BavarianBeast]

Buy new and go 0% financing. Still some offers out there with GM/Ford.

[killramos]

I say 1,2, or 4 and all depends on which rate is most competitive. If you don't like any of the rates then you go with 1 :dunno:

[Feruk]

Originally posted by BavarianBeast
Buy new and go 0% financing. Still some offers out there with GM/Ford.
Going 2 years old cuts down $10K to $15K on asking price. Going new won't make that up even at lower rate.

[Masked Bandit]

Pay cash. Spending interest on a depreciating asset is a waste of money if you can avoid it.

[killramos]

Originally posted by Masked Bandit
Pay cash. Spending interest on a depreciating asset is a waste of money if you can avoid it.

I have never really understood where people get this mindset from. Spending money in general is a waste of money, not like its any worse than paying interest on anything else in your life.

It's not like we can write off interest against gains or something.

[max_boost]

Originally posted by killramos


I have never really understood where people get this mindset from. Spending money in general is a waste of money, not like its any worse than paying interest on anything else in your life.

It's not like we can write off interest against gains or something. I think everyone's view on money is bit different. personally I love leasing at low interest rates :D monthly payment vs paying the whole damn thing up front :D

[shakalaka]

If the interest rate is low enough and you have better ideas for the cash where you can earn more than the interest you'd be paying, I think it would be silly to not finance or lease.

[ercchry]

Any car loan or line of credit will be open (no penalty)

Secure line of credit is about P+0.5 to P +1

Used car financing will probably be in the 4.5-6% range, and unsecured line of credit will probably be 6%+

[leftwing]

When I bought new from Ford in Aug 2016 they let me pay $3000 via credit card.

On paper it would make more sense to keep the $30,000 and use credit/loan/loc to finance the car assuming you can get a good rate. Use online calculators to determine the interest you would pay over the term of the loan vs how much your money would grow depending where you keep it.

30k @ 3% and 3 year term you'd pay 1408$ in interest over the term.
30k @ 4% and 4 year term you'd pay 2514$ in interest over the term.

30K @ 2.5% GIC over 4 years you'd make 3115$...

In the end the difference is peanuts really, it depends on how you like to manage your money/debt.

[tonytiger55]

Originally posted by killramos


I have never really understood where people get this mindset from. Spending money in general is a waste of money, not like its any worse than paying interest on anything else in your life.

It's not like we can write off interest against gains or something.

It depends on many variables. But in short it comes down to financial planning, risk and cash flow/job security. A lot of these people don't have.

For example, my friends who are doctors lease their vehicles, they will always have a job, cash flow and cash flow reserves to deal with unexpected events and a financial planner to help with this.

I paid cash for my old vehicle, I was tempted to buy new and make payments. But ive lost my job in the last two years, dealt with a few life events and dealt with mini personal financial recessions. Ive not had the stress of loosing my vehicle as... its mine.
Its also a mindset. There seems to be a perverse obsession to pay Interest/give money away regardless of how low the interest rate is..when you can outright pay for the items.
Yes you can invest the money and make more in interest. But I would argue your average Joe (Or Jolene)is not in that position or has the financial know how.

Oddly enough most of my wealth clients had used vehicles and always paid cash.
Those that were in financial trouble had previously taken out a new vehicles and were making payments.

:dunno:

[ExtraSlow]

for "middle class" people I know, the ones who buy cars outright seem to be in better overall financial situations vs those who lease or do long finance.
maybe that's a chicken-and-egg situation, or confirmation bias or something, but that's what I see.

[Xtrema]

My philosophy is that don't buy a vehicle that you can't buy it with cash out right.

How you go about owning it will depends on what deals are on the table. But investing cash on hand that may/may not beat borrowing rate sounds a lot better than tying it to a depreciating asset. But for some cars, especially used, depreciation is not a big of a factor, so cash on them isn't that bad of an idea.

Sometimes there are killer CPO deals out there that give you excellent factory financing that will beat HELOC.


Originally posted by ExtraSlow
for "middle class" people I know, the ones who buy cars outright seem to be in better overall financial situations vs those who lease or do long finance.
maybe that's a chicken-and-egg situation, or confirmation bias or something, but that's what I see.

Because people paying cash knows what they are getting into. People who lease tends to overbuy which lead back to my original philosophy.

[Sonic]

Am I the only one that buys a car privately (never pay dealer markup) on a line of credit, then sells it a year later and only accounts for interest and depreciation, I been doing this since my 20s... With low interest rates and a low spread between purchase price and selling price, I've had vehicle cost me anywhere from $25 a month to $200 a month.. Even made money a couple of times.

[max_boost]

^^

it's just maximizing value and everyone does it on different things.

[Xtrema]

Originally posted by Sonic
Am I the only one that buys a car privately (never pay dealer markup) on a line of credit, then sells it a year later and only accounts for interest and depreciation, I been doing this since my 20s... With low interest rates and a low spread between purchase price and selling price, I've had vehicle cost me anywhere from $25 a month to $200 a month.. Even made money a couple of times.

Yeah, if you don't mind the time invested on these deals, they definitely has best bang for $.

[tonytiger55]

Originally posted by Sonic
Am I the only one that buys a car privately (never pay dealer markup) on a line of credit, then sells it a year later and only accounts for interest and depreciation, I been doing this since my 20s... With low interest rates and a low spread between purchase price and selling price, I've had vehicle cost me anywhere from $25 a month to $200 a month.. Even made money a couple of times.

That's not a bad idea, so long you have the time and know how.
I guess the interest your paying would be seem like rental payments.

[SkiBum5.0]

I'd go with dealer financing, ask for 50% of the dealer "holdback," pay off loan at first option - most dealers need you to carry for 3-5 months. Usually gets you the best purchase price, and you pay the minimum amount of interest.

[Xtrema]

Originally posted by SkiBum5.0
I'd go with dealer financing, ask for 50% of the dealer "holdback," pay off loan at first option - most dealers need you to carry for 3-5 months. Usually gets you the best purchase price, and you pay the minimum amount of interest.

This would only apply to new vehicles.

[zhao]

Originally posted by Sonic
Am I the only one that buys a car privately (never pay dealer markup) on a line of credit, then sells it a year later and only accounts for interest and depreciation, I been doing this since my 20s... With low interest rates and a low spread between purchase price and selling price, I've had vehicle cost me anywhere from $25 a month to $200 a month.. Even made money a couple of times.

I did that for a decade or so, but with cash.

And really you need to change out your car every 6 months or so. I also go one further and buy sports cars in fall, and sell them in spring. You also need to limit yourself to cars in the 10g range or under.

I'm so done with doing that now though. Way too many kijiji warriors out there to keep my sanity. Everyone wants to buy the cheapest car on there for 30% off, but only if it's perfect.

[HiTempguy1]

Originally posted by zhao


I did that for a decade or so, but with cash.

And really you need to change out your car every 6 months or so. I also go one further and buy sports cars in fall, and sell them in spring. You also need to limit yourself to cars in the 10g range or under.

I'm so done with doing that now though. Way too many kijiji warriors out there to keep my sanity. Everyone wants to buy the cheapest car on there for 30% off, but only if it's perfect.

Yep, just isn't worth it. Also you have to compete with jman mechanics that operate shops out of their acreages. I know a couple folks and all they do is buy/fix/sell Subarus. Makes them a significant living :nut:

[Sonic]

Originally posted by zhao


I did that for a decade or so, but with cash.

And really you need to change out your car every 6 months or so. I also go one further and buy sports cars in fall, and sell them in spring. You also need to limit yourself to cars in the 10g range or under.

I'm so done with doing that now though. Way too many kijiji warriors out there to keep my sanity. Everyone wants to buy the cheapest car on there for 30% off, but only if it's perfect.

I'm 37 now, I've done it since I was 25 when I really got into cars and started my career. Interest rates have been so low the past 10-12 years, I paid anywhere from 0%- 1.99% and only recently it's gone up to now 3.99% as the highest (MBNA Mastercard, non-stop balance transfer offers with a 30K limit, when the interest rate expired, I'd transfer the balance to my LOC and then transfer it back the same day back to MBNA for another low rate period).

I get what you mean though, I am so sick of Kijiji, it's a real shame. I'm happy with my 370Z now (I lucked out and the guy selling me it wanted my G37X as a trade+cash) and I think I might actually pay this one down till I owe nothing. :thumbsup:

I know quite a few people that would buy a beater for the winter, then sell it after the winter for a bit of profit or break even, I think it's a great way to get a chance to own all the different cars you've always wanted....any way you slice it, a vehicle is a losing cause financially anyways, might as well have fun, I've owned almost every single one of my favourite vehicles in the under $20,000 range. Best deal I did though was buy a Yaris for my wife, she hated it so after 3 months I sold it back on kijiji for a $1700 profit. :D Worse was when I thought it was a good idea to buy a slightly used Nissan Juke for $25,000 and then sell it a year later for $20,000 because I needed it off "my books" to apply for a mortgage for my first house haha didn't want the bank to see $25,000 on my LOC, so I sold it and bought a $4500 Mazda 3...

[SkiBum5.0]

Originally posted by Xtrema


This would only apply to new vehicles.

Wrong. All the banks give kick-backs on finances for used as well. Usually much more because rates are higher. I've done as I suggested for both M3's, and my current truck and the dealer was happy to split it.

[Xtrema]

Originally posted by SkiBum5.0


Wrong. All the banks give kick-backs on finances for used as well. Usually much more because rates are higher. I've done as I suggested for both M3's, and my current truck and the dealer was happy to split it.

Does that even ever give you anywhere close to HELOC or if you are doing the hold the loan for a month and pay it off?

[Zhariak]

Don't use any LOC of HELOC, interest rate is too high, and it's good to keep it unused for something else...

Either (again, this is for new vehicles):

a) Pay cash - Most manufacturers will provide a massive discount if you purchase the vehicle in cash. Make sure you PUSH for this as some dealers might tell you the discount doesn't exist (so they can pocket it instead). Once a dealer tried to take half of this manufacturer incentive for them self. Do research so you know what the discount is (maybe even call the manufacturer).

b) Use the dealerships financing department - Dealers regularly have awesome promo's on low interest rates or other incentives to purchase new vehicles. It's also very easy to get approved. Typically when you use the dealerships finance department, they'll apply you at numerous institutions and get your the best rates and easiest approval. North American vehicles you can usually get 0% financing, or near 0%. With imports you can get sweet deals, all probably lower than your LOC or HELOC.

[SkiBum5.0]

Originally posted by Xtrema


Does that even ever give you anywhere close to HELOC or if you are doing the hold the loan for a month and pay it off?

This strategy is predicated on paying the loan off after 3 months. Here is a real world example:

2015 GMC Sierra
$38,900 full retail price
60 month term, 3.99%
Total BoM holdback to dealership was $2180 - I took half

I'm not doing the math, but I bet that $1090 covers a big swing in rates and you get it immediately.

[Xtrema]

Originally posted by SkiBum5.0


This strategy is predicated on paying the loan off after 3 months. Here is a real world example:

2015 GMC Sierra
$38,900 full retail price
60 month term, 3.99%
Total BoM holdback to dealership was $2180 - I took half

I'm not doing the math, but I bet that $1090 covers a big swing in rates and you get it immediately.

Yeah, you get to keep $690 of that $1090 if you pay that off in 3 months. But even if you have to, 3.99% while not great, isn't that far off from most people's HELOC.


Originally posted by Zhariak
b) Use the dealerships financing department - Dealers regularly have awesome promo's on low interest rates or other incentives to purchase new vehicles. It's also very easy to get approved. Typically when you use the dealerships finance department, they'll apply you at numerous institutions and get your the best rates and easiest approval. North American vehicles you can usually get 0% financing, or near 0%. With imports you can get sweet deals, all probably lower than your LOC or HELOC.

Most of the time, manufacturer's rate will trump 3rd party since they actually have urgency/incentives to clear inventory.

LOC/HELOC are usually used on rare vehicles that has high factory rates (4%+)

[zehnd]

Any GM dealer that sells a Certified Preowned Unit can get you .99% for two years, 1.99 for three and 2.99 for four.

[Feruk]

Update: Went to dealer, asked for $3K off a $30K used car that's sat on their lot over a month. Offered cash. They said no. :confused: Found private seller for same car, getting it for $4K off dealer price. Decided I didn't wanna deal with getting a loan and am paying all cash.

[ExtraSlow]

Sounds like a win. Congrats.

[tonytiger55]

79079

[Ben]

My philosophy is that don't buy a vehicle that you can't buy it with cash out right.

How you go about owning it will depends on what deals are on the table. But investing cash on hand that may/may not beat borrowing rate sounds a lot better than tying it to a depreciating asset. But for some cars, especially used, depreciation is not a big of a factor, so cash on them isn't that bad of an idea.

Sometimes there are killer CPO deals out there that give you excellent factory financing that will beat HELOC.



Because people paying cash knows what they are getting into. People who lease tends to overbuy which lead back to my original philosophy.


Both my vehicles were CPO. Bought them used but were both latest model year with a few thousand k on the odometer. All the benefits of buying new and an additional year on the warranty, 0% financing, factory incentives costco discount etc and saved a good 10-15k on depreciation.

Its my preferred way to go. Its free money.

Anyhing under 3% in my opinion from the dealer is better than any loan from the bank or heloc type stuff. Paying cash outright only makes sense if you have LOTS of it. Id rather have it available for emergencies or invested and making me a return.

Lots of great finance rates out there from the dealers if youre not a roach.

[RX_EVOLV]

I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

[ercchry]

Not as drastic as a mortgage as full amortization on a vehicle loan is usually under 5yrs vs 25.... but as your payments are calculated off the initial loan and stay the same, and the annual interest is based off outstanding loan balance... yes, it’s similar

Vehicle loans are usually open though, so no penalty to pay off early. The real question is what else would you do with that money instead of paying it off? That’s what will tell you if it’s worth while or not

[rx7boi]

+1 with what erchhry said. Car loans are open so you can pay them off as quick as you'd like but it depends on what you want to do with the money. You bought a new vehicle which is a depreciating asset so right off the bat you're losing money in the long term anyway.

Assuming your OTD price is around $35000 @ 2.49% APR for 60 months and $0 down, you're only paying $2373 in interest over 5 years. Interest is calculated based on remaining balance.

There's always an advantage to paying a loan off early, like freeing up cashflow. I'd be interested in hearing other people's perspectives on paying off a loan early.

[tonytiger55]

I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?


Vehicle loans are usually open though, so no penalty to pay off early. The real question is what else would you do with that money instead of paying it off? That’s what will tell you if it’s worth while or not

I would say always avocate paying off your debit if you can. Ive seen too many former clients being held back at stages of thier life due to car payments. But look at your financial profile. Where are you in your age range, what are your future goals...? If you pay it off are you financially ok..?

Supposing if you did not pay it off and something happens? There is a important vairiable that is never calculated when talking about debit. Its metal health. The debit might be ok, but if a life event happens and you have this debit. Your mind and emotions start to control you.

Its a depreciating asset. I would say if you have the dosh, clear it off. Contact BMO, they should be able to tell you straight.

[Mitsu3000gt]

I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

Can you make more money using the money needed to pay off the vehicle elsewhere, such as investments, than it costs you in interest? --> Don't pay it off

If you can't make more than the interest you are paying on your loan by investing that cash elsewhere --> Pay it off ASAP if its an open loan

It should be a fairly simple calculation, just make a quick spreadsheet or something.

[Sugarphreak]

..

[Xtrema]

I don't want to start a new thread so going to ask a question here.

I bought my car new at VW and got it financed, which ended up being with BMO. To clean up the books a little bit and to save on interest cost, I want to pay off the loan early. Is there any advantage in paying it off early if I'm more than half way into the terms? is it like mortgages where the interest cost is front-end loaded, rather than divided evenly across all the payments?

Interesting that it's a BMO loan instead of VW Finance Canada.

Anyhow, it you think you can easily achieve 2x return of your borrowing rate, why pay it off early.

If you are 1/2 way thru, I assume you have around $24-$27K left. If you have room in RRSP and your income is high, that $27K could net you some serious saving from income tax.

On the flip side, if you DO have $27K left, and given 2016 Golf R has a street value around $30-$32K. If are not upside down on the loan and do have an asset worth more than what you pay for at this point. Than the lack of car payments can be diverted to cost average investing into your RRSP for similar effect.