Topic: financing a used car...n00b questions

[AMDdude]

I know that financing a used car is about the worst way to buy a car but I think that is my only option right now. I'm looking to spend 10-12k and finance that for 36-48 month (pref 36). I know that the rates on used cars are insane. Should I go with a dealer or bank financing? Also does bank financing mean that the bank gives you the lump of money right away and you pay them back month by month? I'm looking at no more than $250/month. Will I be able to finance a car in my 10-12k price range without going over that monthly payment? (Consider 500-1000 down and 36 or 48 month term?)

[mdxtasy]

Financing a used vehicle of limited value can be tricky.  Can you get a loan from family and pay them back?  Getting anally charged with a loan like that is brutal on interest rates.  You'll be paying way more for that used car.

[UmroAyyar]

Everyone's circumstances are different and its almost impossible to give you a definite answer. I am describing a scenario, you can fashion it according to your situation.

Your loan rate and approval depends on your credit status. For used cars, its easier to get financing arranged by the dealers as banks work with them. 3 months ago, financing rates for cars were between 7.49% for good credit and between 8-8.75% for average credit for a 5 year term.

Click on this link and type in your numbers. You'll get a brief idea.

http://www.canadiandriver.com/tools/loan.htm

e.g.
Vehicle Price = 12000
Downpayment = 500
Loan Term = 36 months(3 years)
Loan Rate = 8%

With Ontario taxes, Monthly Payment turns out to be $413.
with a 5 year term = $267

[Cord]

250 x 36 = 9000. So no to a $10-$12G car over 36 months.
250 x 48 = 12000. So no to a $12G car and close to yes to a $10G car over 48 months,

Whether you go to your own bank or use the dealership, you will still be making payments to the bank. Many bank branches have absolutely no interest in arranging car loans at all and certainly no small car loans. Most will refer you to use the dealership because they are hooked up to the banks dedicated car loan centre. Usually the only people that get good service on car loans at the branch level are established customers with extensive history of loans and deposits with the branch.

Now, the length of term is dictated by the age of the car. This is where most people get messed up because most cheaply priced cars are also older cars. This means that the term has to be short which often translates into a higher payment even though the purchase price is low. If the car is older than a certain age (99 or 2000 depending on the bank) they will not finance it at all.

Many people in this situation find themselves at a dealership with a salesman suggesting they buy a newer car. The customer then posts on a place like this and people will exclaim, "they were just trying to upsell you, trying to rip you off!" When actually, going to a newer car may be the only way to get a payment low enough to satisfy the customer. The term will be longer, yes, but if the choice is a payment they can afford vs no car at all, most will choose the longer term.

Your credit history also determines what you can finance. If you are young with no bad marks on your credit and with a steady job, you may qualify for a "first time buyer" program on a new car. This would let you take advantage of possibly low interest rates which might mean payments you can afford. Any negative credit history will probably disqualify you for this program.

[Bodin]

Even with depreciation after you drive it (the car) off the lot, you are better off trying to get into an brand new entry level car.

good luck

[UmroAyyar]

250 x 36 = 9000. So no to a $10-$12G car over 36 months.
250 x 48 = 12000. So no to a $12G car and close to yes to a $10G car over 48 months,

Whether you go to your own bank or use the dealership, you will still be making payments to the bank. Many bank branches have absolutely no interest in arranging car loans at all and certainly no small car loans. Most will refer you to use the dealership because they are hooked up to the banks dedicated car loan centre. Usually the only people that get good service on car loans at the branch level are established customers with extensive history of loans and deposits with the branch.

Now, the length of term is dictated by the age of the car. This is where most people get messed up because most cheaply priced cars are also older cars. This means that the term has to be short which often translates into a higher payment even though the purchase price is low. If the car is older than a certain age (99 or 2000 depending on the bank) they will not finance it at all.

Many people in this situation find themselves at a dealership with a salesman suggesting they buy a newer car. The customer then posts on a place like this and people will exclaim, "they were just trying to upsell you, trying to rip you off!" When actually, going to a newer car may be the only way to get a payment low enough to satisfy the customer. The term will be longer, yes, but if the choice is a payment they can afford vs no car at all, most will choose the longer term.

Your credit history also determines what you can finance. If you are young with no bad marks on your credit and with a steady job, you may qualify for a "first time buyer" program on a new car. This would let you take advantage of possibly low interest rates which might mean payments you can afford. Any negative credit history will probably disqualify you for this program.

AMDDude, listen to this man. Great advice. 

[froggy]

Why not a leasing? 
48-60 months on an Accent or an Echo would not cost you more than $250 per month with 0 down... No equity at the end, but face it, how much equity will you have on a 8-9 year old car with gazillion of kms.... Plus you have warranty and a reliable car!

[AVToller]

Kind of hard to lease an Echo. Yaris maybe.

[airbalancer]

We got 1.9% financing of a BMW a couple of years ago, it was more then $250/month
Try leasing

[AMDdude]

That was very informative!

Well I will be 20 if I decide to buy another car and my credit is clean. I can afford to make a larger monthly payment, but I just don't want to take any money out of my "fun-hanging-out-with-friends" portion so thats what I decided on for that. I guess the only safe way would be to put $2000 down and finance for 48 month. I really am not interested in leasing something like an echo because right now I drive a 328i and it was hard enough deciding on a replacement in the first place (01 Preludes are what I'm looking at)

Thanks again for the input.

[AMDdude]

We got 1.9% financing of a BMW a couple of years ago, it was more then $250/month
Try leasing

LOL the only question is how much more? And was this on a brand new one?

However I drive one right now and I'm trying to get away from BMW until I have a really good job. Although if I can lease a new one with warranty for a little more than 250/mnth than I may just look into that

[airbalancer]

We got 1.9% financing of a BMW a couple of years ago, it was more then $250/month
Try leasing

LOL the only question is how much more? And was this on a brand new one?

However I drive one right now and I'm trying to get away from BMW until I have a really good job. Although if I can lease a new one with warranty for a little more than 250/mnth than I may just look into that

It was used.

[Damien]

Factor in repairs as a variable cost on the used cars.

A couple fixes/year @ $250-1000 per.

There is the potential to see "payments" down the toilet.

New Accent, Elantra or Cobalt with 0% financing may be a good approach.  All are great on gas.  Maybe a City Golf would give you the best of both worlds.  A drip more perceived panache than the other cars I listed, and still only $15K.

Or stick to a 6 year old car, that will use more gas and require repairs.  But will look sexier.   Face it, in 99% of circumstances, a car is NOT an investment.  It is more of a game of minimizing negative ROI.  Not sure if that makes sense.  

[johngenx]

I usually spend $15-18K on used cars, and there are LOTS of great 3-4 models available in that range.  Stepping down to $10K means you are usually shopping for a 4-5 year old base model car like a Civic, or perhaps a little bit newer Protege or Hyundai.  There are really good cars to be had, and ones with years and years of reliable running left in them.  A 2002 Civic will not have $2000 a year in non-maintenance repairs.  Cripes, my ten year old Mercedes with over 200K barely costs $2K a year in maintenance and repairs.  Our six year old Subaru (which is much more expensive to run than a Civic) doesn't cross the $1000 mark!  About half that!  Maybe people just beat their cars to crap, but if you chose a good brand, I can't imagine spending that much.

The trick is to underspend on the car, leave a budget for operating, and you can come out thousands of dollars ahead of buying/leasing a new car.  BUT, you have to be prepared for the occasional out-of-pocket expense, and it's best if you're a little car-handy.  If $10,000 is your outside budget and would leave no room for operating, spend less.  That $10K mark might not give you the best bang for your buck.  Shop around at cars in the $7000 range and see what can be had.

One thing to spend some time investigating is insurance costs.  Insurance on a new car at age 20 can be very costly, and on a used car too depending on model.

The extra interest you'll pay on a used car loan will not come anywhere close to the depreciation cost on a new car over the term of the loan.  Buying a new car is NEVER less expensive than a used car.  If it was, I'd have saved big bucks over my life!  It is LESS HASSLE, and it depends on what that is worth to you.  When I was 20, I saved tons by driving older cars, but I had new car fever.  When I was 22 I bought my first new car, and it was far too expensive compared to my used car life prior.  But, I really enjoyed having a new car, so buy new if you like, but there is no savings compared to buying a relatively inexpensive used car.

[safristi]

SIGH....why doesn't THAT werk wif USED HOUSES......

[Arthur Dent]

A generic personal loan often gets you a better interest rate ...

[haris]

A generic personal loan often gets you a better interest rate ...

++
Or a line of credit.

[johngenx]

Hey, being 20 means you might not have stellar credit or home equity, but that's life.  If you think most 20 year olds have the credit score (on their own) for the subvented captive financing, I bet you're mistaken.  One of my friends has adult children, and his youngest daughter tried to get the low financing on a new Subaru.  Ha!  Sure, with Dad co-signing, but othewise, forget it.  GMAC came back and said she could have the 0%, but a shorter term and a pretty sizable down payment.  Read the fine print, OAC.  Not everyone gets the advertised rate.  Lots of people pay more.

If you want to borrow money for a used car, a normal bank loan isn't such a bad thing.  Sure, the interest rate is a bit higher than on a new car, but the cash outlay is much less too.  And you might develop a ood relationship with a bank, which is not a bad thing.  Having a good working relationship with my bank has been a nice thing on occasion over the years.

I  bought my first new car in the late 80's just as John Crow was determined to dive us into a deep and sustained recession with massive interest rate hikes.  I was paying 18% on a NEW car.  My $19,000 Acura cost $500 a month!  The kicker was that, at the time, my wife and I took home a combined $1400 a month.  What an idiot I was!  Spending a third of our net income on a car.  Was nice having a new car, but financially, stupid.  And did we "save money on repairs?"  Nope.  Maintaining a new Acura, even under warranty, cost more than the repair AND maintenence bills on the old Civic it replaced.  Then the car depreciated like crazy, and we ate it big time.  Yeah, I've bought new cars since (including the MB, probably not the smartest move), but at least I knew going in that I was taking a financial beating and what I really wanted was a new car, not to "save money."

[initial_D]

My $19,000 Acura cost $500 a month!  The kicker was that, at the time, my wife and I took home a combined $1400 a month.

Yikes!  But rent was less than $300/mth tho, yes?

[johngenx]

Nope.  A run down basement suite in the inner city was $330.  We were paying about $500.  Needless to say, we weren't very financiall "viable" at the time.  Couldn't even imagine living like that today...