Getting a car loan: bank, dealer, or other?

[Monkeyleg]

I don't know if I'll be buying a car this month or not, but I'm trying to figure out where I'll typically get the best deal on a used car loan. Some people say that dealers have such a vast network of lenders that they can shop around, while others say that dealers tack on a percentage point or two for themselves.

Does anyone know the real skinny on this?

[Gowen]

Save up and pay cash.  If you can't find something private party, try an auto auction in your area.

This is the Dave Ramsey school of thought.  Car payments are the mantra of the middle class.  I have not had a car payment in 12+ years.  The last car I bought was a 97 Dodge Dakota with 42k original miles for $5,000.  The little old man who owned it had to go to a nursing home and could not drive it anymore.  Make the car payment to yourself.

Sorry if this is not the popular way of doing things, but I would much rather put the $400 in the bank making interest for me and not to the loan company.

[Bogie]

What is wrong with your current vehicle? Take the money you'd use for a down payment, and fix it. If you are planning on using the vehicle for a down payment, step back, suck it up, and fix it.
 
At $300/month, a $1,200 problem is paid for in four months. Most cars won't have multiple $1,200 problems.
 
If your car is completely screwed, buy a very older Honda or Toyota, and spend a few bucks fixing the problems it will have.
 
Drive it until the wheels fall off.
 
My Mitsubishi probably books at under $2,000. Fine.

[BridgeRunner]

We financed a used car recently.  However, we were lucky to get any loan at all because I am not employed and my husband has only been full time for a few moths.  I suspect that our situation is vastly different from most people for those reasons, but we found the best deal--if one can call it that--through the dealer.  We did go to a very high-volume used car dealer.  We found some bank and CU loan options, but all required a larger down payment than we were prepared to make (think 35%).  Interest rates we about the same all around--high.

I'm not delighted at having a car payment, but it beats not having a car and it beats having the kind of unreliable, unsafe car we could've purchased for $1500.  Sure would've been easier if we hadn't dumped $700 into a dying car weeks before it started having other expensive problems.

[Standing Wolf]

Most cars won't have multiple $1,200 problems.

Not on the same day. Those $1,200 problems tend to show up on successive days. They're considerate that way.

[Lennyjoe]

We all have to make decisions based on our own finance situation. If your credit is good then your local bank or credit union. If the credit is ok then the dealership can give you more options. They shotgun out your credit app and get different options. Heck, if I could afford to pay cash then I would too. But I'm not the best at saving money. One good thing for me is I can fix almost any car, so used cars aren't an issue. Make the decision on what your credit and finances will allow.

[Jamisjockey]

I love that the first couple responses don't answer your question.

 :rolleyes:

Actually, you want to do both.  Get an approval through your bank, especially if you're in a credit union.  That is a barginaning chip in your back pocket when you go to the dealership, its pretty much the same as walking in with cash in hand.  And it gives them an incentive to get you a nice low rate.
Yes, some dealerships get a cut on the interest rate.
Right now you have all the power in buying a car. 

[charby]

Credit Union! also what JJ said.

If you got super good credit you maybe be able to get 1-3% financing at the dealership.

[Northwoods]

I'm of the pay cash or don't buy it at all mentality here.

That said, if you're going to finance the car, CU or local bank (i.e. not BofA) will probably give you a better rate than the dealer if we're talking used.  Sometimes they can beat the CU (e.g. Bridgewalker) but becuase they do inflate the actual interest rate they're hard pressed to do that. 

You'll only see sub-5% rates on new cars.  And even at 0% new cars are not a deal.  Depending on the car it'll depreciate by up to 30% as soon as it goes past the curb of the dealer's lot.  Even the least depreciating new cars (save a few exceptions like the Mini when it first came out, or exotics like the Ferrari Enzo) will go down 5-10% or so that first day.  And within 4 years it will have lost 40-60%.

I'm not delighted at having a car payment, but it beats not having a car and it beats having the kind of unreliable, unsafe car we could've purchased for $1500. 

I'm sorry, but that's just bogus.  There are plenty of sufficiently safe and reliable $1500 cars out there.  You just didn't look in the right places.  I sold my '92 Civic last year for $1000 and it was plenty safe and still ran very reliably with 200,000 miles on the clock.  And there's lots of others just like it out there for sale.  You just didn't want an old, ugly car and rationalized the payments on the false premis of safety and reliability.  Sorry if that sounds harsh, it's not meant that way.

[Nick1911]

I'm sorry, but that's just bogus.  There are plenty of sufficiently safe and reliable $1500 cars out there.  You just didn't look in the right places.  I sold my '92 Civic last year for $1000 and it was plenty safe and still ran very reliably with 200,000 miles on the clock.  And there's lots of others just like it out there for sale.  You just didn't want an old, ugly car and rationalized the payments on the false premis of safety and reliability.  Sorry if that sounds harsh, it's not meant that way.

I use to have the same line of thought.  I've come to realize that many (most?) people lack the motivation to learn to do mechanic work.  As such, in terms of raw dollars, a slightly used car makes more sense.  A $1000 92 civic might well blow a head gasket tomorrow.  Cost for me to fix? Maybe $100.  Cost for a shop? Maybe $600.  Add in towing charges and a rental car - after a few seemingly minor repairs, you would have been better off getting a loan for $5k and buying a better car.

Of course, there's also the vanity aspect.  Car's are status symbols to some people.

That said, it makes darn good sense to work on your own cars.  In the single job I'm currently doing on Mrs. Nick1911's car, I'm saving $2,000 off quoted repair costs.  That's more then the cost of every (non machine tool) tool I've ever bought.

[Monkeyleg]

Look, folks. I understand the benefits of not taking out a loan. My former primary vehicle ('88 Ford Ranger) I bought new for my business in 1988, and I drove it for 15 years and 175,000+ miles. It was paid off in 1991. Even with the modest interest rate I paid, I wound up paying almost nothing for the truck on a per-month basis. It was only when everything had gone--steering, body, radio, etc--that I got rid of it.

My current ride is a 1991 Saturn. I bought it new for my wife in '91, and got my father's 15% GM employee discount. It was paid for in three years. It's now butt-ugly inside (drooping headliner, worn carpeting, etc), and many things are broken: the sun roof, the A/C, the radio (one channel is loud static), the cassette player, power seat belts, and some of the clear coat is starting to peel. It needs a brake job soon, but I'm going to try to push that off until the alley is clear enough of snow that I can replace the rotors and pads myself. I'd say that my cost-per-month on that car has been practically nothing.

(Nick1911, I have two carts full of tools, plus compressor and other equipment, and can and do just about any repair myself; nobody wrenches on my motorcycle except me).

In 2003 I got my wife a new PT Cruiser. The dealership started at $18,000+ and I wound up getting it for about $15,700. It's paid for, only has 35,000 miles on it, and is in excellent shape. We'll have it for years. In fact, I just bought my wife a chrome grill for it to go with the chrome moon hubcaps and chrome belt line trim I got for her last Christmas. Once we're moved down south in 2010, we'll be putting whitewalls on it.

Here's the deal with the car I want to buy now. It's a 2007 Mustang GT with 8,000 miles on it. I've looked at literally thousands of comparables online, and I find them priced anywhere from $22,000 to $25,000, and precious few of those had such low mileage. This car is like brand new.

The dealership had it priced at $22,000 back in November, then dropped to $21,900 in October. I saw it two weeks ago online, and they had temporarily dropped the price to $18,900. Then they brought the price up to $20,300. I called to ask why they raised the price, and they said they had priced it at $18,900 to get it off their inventory for 2008 and, if I wanted it, I could come and get it for $18,900. That price may not be good after the end of the month if the inventory story is true, which I believe it is.

That's about $2000 more than blue book trade-in value, and I think I can get them lower than that, especially if I already have approved financing in my back pocket.

I would wait until we moved down south and pay cash or pay a large percentage in cash, except for a couple of things. One is that I've never seen a comparable 2007 (or 2006 or even 2005) Mustang this cheap. Secondly, out of the 1,000's of Mustangs I've looked at online, this is the only one I've found that has the exterior/interior color combination I want: deep red exterior with a tan interior. All of the others have black or dark gray interiors that make them look like black holes.

The third reason contributing to my wanting to buy this car is that my wife and I gave up smoking over three months ago. I was smoking five packs a day (about $750 a month) and my wife about 1.5 packs a day ($350 a month). We now have $1100 more a month than we did before.

I gave up drinking last year as well, which was no small feat. But I haven't rewarded myself with anything. I haven't bought a gun in years. I haven't taken a vacation in over five years. My wife and I rarely go out to eat. I only go to rock concerts if my best friend is buying. IOW, I haven't spent a dime on myself for pleasure. With me giving up drinking and smoking, and now working seven days a week, 10 to 16 hours a day, I think I'm due a reward.

Make no mistake, though. If I can't get a better deal than $18,900, I'll walk away. I want to pay what they paid the guy back in August who traded the car in (probably $16,500 or so, when gas was sky-high), plus a thousand or so for the dealership's profit.

So, there's my story. Now, once again, where's the best place to get used car loans?

[Nick1911]

Ah, that makes more sense.

Buy newer and drive till the wheels fall off.  Then you're not taking a chance that the $5000 car only had oil changes ever 20,000! 

I like.

(Nick1911, I have two carts full of tools, plus compressor and other equipment, and can and do just about any repair myself; nobody wrenches on my motorcycle except me).

I know the feeling.  I don't even like taking mine in for tires, less some idiot decide to blow the lugs on with an impact wrench...  Even if they aren't cross threaded or snapped off, good luck getting them back off in a parking lot when you have a flat!

So, there's my story. Now, once again, where's the best place to get used car loans?

I'm entirely unhelpful here.  I've only ever gotten loans for college, and my home.

[Declaration Day]

Definitely check with your credit union or bank first.

Second, check with some of your credit card companies.  Many of them offer car loans and if you have a good history with them, you might get a low rate.

I agree with the "pay cash or don't buy it" crowd, but you guys are overlooking something.

If Monkeyleg were looking for a Camry or a Taurus, he'd be buying a transportation appliance.  But no, he wants a Mustang GT. He's a car nut.  Some of us dump our "disposable" income into guns.  Some into the latest computers or a multi-thousand dollar home theater.  Some of us like to collect smoke in our lungs via 5 packs a day ( ).  So just answer the original question and let him have his toy, mmmkay?

[Gowen]

Getting a car loan: bank, dealer, or other?

I love that the first couple responses don't answer your question.

I think that is part of his question.

[K Frame]

"So, there's my story. Now, once again, where's the best place to get used car loans?"

PAY CASH! LOANS ARE THE PAPER LOIN JUICE OF SATAN!


NO! GET A HORSE! NO CARBON FOOT PRINT! CARBON DIOXIDE ENVIRONMENTAL DAMAGE IS THE GASSY LOIN JUICE OF SATAN!


NO! DRIVE YOUR CURRENT CAR UNTIL THE WHEELS FALL OFF, THEN SLAP THEM BACK ON AND DRIVE IT SOME MORE! DETACHED WHEELS ARE THE CIRCULAR JOIN JUICE OF SATAN!


Ok, now that we've got all the "non-answer answers" out of the way, we can ignore them and move forward.


Simply put, there is NO easy answer to your question.

A lot depends on what a dealership is offering vs what banks/credit unions are offering. Your credit history can also play a huge role in it as to where you'll ultimately end up getting a loan.

Right now you are in the driver's seat, as you're interested in a car that's been on the lot for awhile in an economy that is making dealers squeal.

I negotiated a significantly better price on my 1997 Subaru because I bought it in the panic downturn following September 11.

There's simply no substitute for doing your homework. At best, the only answer any of us can give you is an estimate which may or may not reflect reality.

Jamis is correct, however, that a preapproved loan from your bank or credit union can be a very powerful bargaining tool. It makes the dealer realize that you're not just kicking tires.

And, just because you have a preapproval does not mean that you actually have to use it.

[Monkeyleg]

Mike wins the award for funniest answer. :D :D :D

[charby]

NO! GET A HORSE! NO CARBON FOOT PRINT! CARBON DIOXIDE ENVIRONMENTAL DAMAGE IS THE GASSY LOIN JUICE OF SATAN!

Sports Car? Get a Thoroughbred.

[Jamisjockey]

This is place isn't nearly as bad as a boating forum I go to for preaching from the pulpit.  
www.thehulltruth.com
Its pretty quiet right now, but someone posts a generic question about a boat, and it quickly turns into a 10 page pissing match over who's brand of boat is the best.  Or someone says "how do I fix this" and they get 10 pages of what a moron they are for trying to fix it when they should have never broke it in the first place.

[charby]

Here is the rates at my credit union

http://www.unicreditunion.org/RATES.htm#usedvehicle

[K Frame]

Wow.

My credit union smokes your credit union...

http://navyfcu.org/rates/rates-allloans-frameset.html

[charby]

Wow.

My credit union smokes your credit union...

http://navyfcu.org/rates/rates-allloans-frameset.html

Navy CU smokes everyone.

[BridgeRunner]

I'm sorry, but that's just bogus.  There are plenty of sufficiently safe and reliable $1500 cars out there.  You just didn't look in the right places.  I sold my '92 Civic last year for $1000 and it was plenty safe and still ran very reliably with 200,000 miles on the clock.  And there's lots of others just like it out there for sale.  You just didn't want an old, ugly car and rationalized the payments on the false premis of safety and reliability.  Sorry if that sounds harsh, it's not meant that way.

Sounds like it's meant exactly that way.  It presumes that your interpretation of my choices is the only possible accurate version.  As such, it ignorant in that it ignores what I have stated about my own circumstance, something it is safe to say I know more about than you.  It is judgmental in that it insists that the way you would approach the problem is the only valid way to approach it, and it is harsh in that it begins with the insistence that my reasoning is "bogus".

The only reason I shared my experience was so that *someone* would actually answer the damn question, although I doubted that my situation mirrors Monkeyleg's.  I figured someone was gonna take the opportunity to mess with me, after all, no one could leave the op alone about choosing to finance, and he didn't even mention unemployment.

My only answer to your accusation of "bogusness" is as follows.  I do not intend to debate this further.  That was not the op's intention in starting the thread nor mine in posting on it.  So, you wanna mess with me further about my personal choices, you're gonna be doing it by yourself.

I am a full-time law student. I have a two year old daughter.  I have minimal mechanical skill.  I work, during term-time, at last sixty hours a week, usually a lot more.  I have no one who can teach me mechanics.  I taught myself--in the face of my father's disapproval--how to do the basics, like changing oil and tired and coolant and such, but when it comes to skills like diagnosing problems or solving most problems, I simply do not have the knowledge.  In fact, over the next several months, I'll probably end up paying someone to change my oil.  Although I have taught my husband, who doesn't really have a knack for machines, he isn't really comfortable with doing it, and I will soon not be able to fit under a car. My last car had virtually no brakes.  This is because when the brakes needing replacing, I had to use the money for repairs instead.  Twice.  The door handles started failing.  If my car was in a serious accident, the odds of me being able to get my daughter out were slim.  A car at 200,000 miles is not, I have learned, sufficiently reliable and safe to transport my daughter in, unless I know for certain that it has been properly maintained and what, if any, problems are likely to be looming.  It is not feasible to plan on learning mechanics in the intervals when, on the weekends, if I don't have too much work, my daughter is asleep or playing quietly and happy enough on her own for me to disappear outside for a while.  Those intervals tend to be fifteen minutes or less.  My husband is not generally available on weekends because of his own class schedule.  

Now, I'm sure that there are lots of people who think I don't work hard enough, that I should not only be raising my family and caring for my house, and attending classes and volunteering in legal clinics and preparing for the bar, but that I should also cook and bake all of our food from the products of a garden we should keep, that I should devote one day a week to scouring the second-hand stores so I never have to waste money on new clothes and that I should never even consider paying a mechanic when I can learning automotive diagnostic and repair and do it myself, much as I have done with home plumbing, tailoring, minor electrical work, carpentry, and other sundry skills.  I ain't one of those people.  I think that most people who do have that kind of expectations haven't really tried to live up to it themselves.  All of those things are entirely possible.  Not when one works 60-100 hours a week.  You think I should never need to hire a professional to do anything?  You think I should hold a car together with chewing gum and good intentions?  Sorry.  THat is not my reality.  And I never submitted my reality for your approval anyway.

So no, it's not vanity.  It's an inability to take on the very, very high risk of incurring far more necessary repair costs than I can afford, and choosing to operate a vehicle in a dangerous state of disrepair in order to pay for those costs.  If you choose not to believe me, well, them, my advice is Mishnaic:  Don't judge another until you have walked in his shoes.

And that is all I have to say about that.

[MillCreek]

I am also of the drive it until the wheels fall off school.  I have two cars: 1986 Mazda pickup and 2006 Ford Escape (actually bought in 2004).  I bought both of them new and therefore had to do very little maintenance work over the years.  When I bought the Escape, I compared loan rates from the Navy CU and Bank of America, at both of which I have accounts.  The dealer teaser rate of 2% for three years as a Ford promotion was significantly better than either the credit union or the bank.  The loan cost me $ 720 in interest over three years or $ 20 in interest per month.  I could have paid cash for the vehicle as I had it in savings, but did not want to drain my savings account by that much.  In addition, by having that amount in CDs, I actually earned more interest than I paid on the car loan.  

I have a friend who is a finance manager for a large RV lot, and he claims that the rates he can get for his customers through his lending network is usually better than the local banks or credit unions.  I endorse the idea of shopping around amongst the banks and credit unions for comparison purposes though.  I will be interested to hear which avenue gives you the best rate and terms.

[Northwoods]

So no, it's not vanity.  It's an inability to take on the very, very high risk of incurring far more necessary repair costs than I can afford, and choosing to operate a vehicle in a dangerous state of disrepair in order to pay for those costs.  If you choose not to believe me, well, them, my advice is Mishnaic:  Don't judge another until you have walked in his shoes.

So this would not qualify as sufficiently safe and reliable?  Took me about one minute on Craigslist to find that.  Could it have problems lurking?  Sure.  So could a $5-10,000 car.  My '92 Civic blew a head gasket at 110,000 miles or so when it was worth $5-6,000.  I replaced CV joints more than I care to remember on that thing.  I had a few things go wrong (not counting the theft of the car, and a couple break ins) that all told probably cost me $1000 doing the work myself (with the help of a friend that knew what he was doing) in the last couple years of owning that car.  But, the guy that bought it from me was still running it with absolutly no probelms 6 months later (last time I saw him before moving to Seattle). 

And yes, I've always had more money at my disposal than you have at the moment.  Not a put down, just a matter of mathematical fact.  But I do understand what it's like to have to live with a crappy car having been front and center helping friends do so.  It sucks.  But you do what you have to do to get by. 

Bottom line though is there are plenty of cars that will be safe enough, and reliable enough to get the job done that you can buy for $1500.  They're usually ugly, and they're not going to run for another 100k miles on just oil changes and a few tires.  But they'll last for a year or two and then you can sell them to the scrap yard or to someone on Craigslist for $500 and go buy another one.  A good independant mechanic, or better yet a friend that likes working on cars is a necessity.  When you're a poor student that may be all you can afford.  Once you graduate and make some money it's easy enough to move up in car and leave the bondo-buggy days in your memory. 

As for the OP, I do believe I answered his question to the greatest exent I'm able to do so in my earlier post.

[coppertales]

Shop around and get pre-qualified before car shopping.  That way you will know how much you can afford.  Wife and I have a joint account at the company credit union.  When she goes in for a loan the interest rate is 8 percent.  When I go in for the same loan, the interest is 12 percent, go figure......chris3