Questions About Financing New Vehicles

chloe_6

Is anyone familiar with the Honda/Acura Graduate Program? The Honda website just gives qualification information and some vague program details. I'm not ready to go and discuss with a dealer quite yet.

rakudrama

I have a AHFC (Honda) car loan at 3.9% and I have my cash in a CD earning 5.2% I am earning approx $14/month in this arrangement for a total incentive of about $500 over 36 months.

Honda must be losing money on this since I am lending money to a bank at a higher rate than a bank is lending money to me. Further, I am a bigger risk to AHFC than the CD is to me since the CD principal is federally insured (FDIC) and I merely come with a good FICO score. Risk-adjusted, AHFC is probably paying nearer $20/mo.

It would appear to be in AHFC's interest to let me pay off the loan for the $500 under principal.

Is there a way to go about achieving this?

cccompson

The only way that I know of would be to contact them and see if they are willing to do so.

Good luck.

newbee7

Let's say you're pre-approved by a CU for 5.45% APR 60 months. The dealer can't beat your rate because his lowest APR is only 6%. You refused the dealer's offer.

Do you still have to sign the retail installment sale contract with the dealer with a rate of 6% APR for 60 months? What's the point of signing a contract when you know for sure you'll not use the dealer's financing?

lightwave25

Now that the new year is here, have there been any good lease or buy offers announced for less than $250 per month? My lease ends in March, but I'm doing my research now. :shades:

smittynyc

I'm not a dealer or an expert of any kind, but my guess is that you should not sign that document if you aren't using dealer financing.

They may want to run a credit check on you, and you may have to jump through some hoops as the dealer confirms the CU's financing/waits for their money, but signing that installment contract means you're using it, as far as I know.

kyfdx

You don't have to sign it, if you are willing to wait for your CU check to clear, then take delivery.. about two weeks..

If you want the car now, you'll probably have to sign that contract as backup financing to protect the dealer's interest.

regards,
kyfdx

dtownfb

Why would you have to wait for the check to clear? Wouldn't the credit union send the dealership a certified check (or send it with the buyer)? Or wouldn't the F&I department simply call the credit union to confirm financing? heck they can send the funds electronically and the dealership will have the money in a few hours.

Of course, if you are using outside financing, it should all be resolved before you are sitting down to sign the final paperwork so there would be no need to sign the financing paperwork. Also the Credit Union will have to be included on the title and a few other papers.

lightwave25

I found Leasecompare.com, so I guess that I don't really need a reply to this one.

smittynyc

Well, by "jumping through hoops" I meant that the buyer might have to wait a day or two more than he would if he was using the dealer's bank, but two weeks?

Presumably the dealer would have conducted business with this CU before, no, or the CU can present funds in a manner other than an old-fashioned paper check? Electronic transfer, etc.?

Now that I think about it (I signed an installment contract three weeks ago), if you sign their contract, you're pretty much going to be stuck using their financing. Once you leave the lot with their car and with their lender, you're on the hook for the full amount to be financed that's indicated on the contract.

There probably won't be a prepayment penalty -- i.e., you could have the CU buy out the loan -- but the dealer's lender will expect the full amount on the note, which will have been calculated with the higher interest rate. Even if you have your CU purchase the loan from the dealer's lender, you'll be on the hook for the difference, and you're effectively financing through your CU at the same rate as the dealer's lender.

I'd love to hear what your dealer's explanation for all this is.

newbee7

In a dealership, who is DP? (what does it stand for?) How influential is this person?

In F&I language, what is charge back (in dealing with banks), what is reserve? Can somebody explain the 101 of what a dealer benefits from taking over a financing contract?

cccompson

newbee7, you must separate financing from buying. They are two different transactions.

If you are getting a loan, you can either do it on your own or have the dealer arrange it.

Unless the vehicle manufacturer's financing arm (e.g. American Honda Finance, Ford Credit) is making the loan, the dealer gets a cut if he arranges the loan.

Now, here's the weird part - just because the dealer gets a cut does not necessarily mean you are paying too much. There are times (and it has happened with me) when the dealer can put a loan through your own bank at a rate that it lower than you can get on your own.

Sorry, can't help with the definitions you seek.

stickguy

the only DP I can recall hearing about was the dealer principal, which I guess is the "owner" of the place.

not sure the definition of each term, but sometimes the dealer cn get what is effectively a rebate on the finance contract, that is, they mark it up. Say they write you at 6%, and the bank lends the money at 5%, the dealer can get the benefit of the extra 1%. There might also be a fee for bringing them the deal.

kyfdx

I'm guessing you are right on DP.. can't think of anything else it could be..

Reserve: What the finance company pays the dealership for writing the loan... If they write the loan at a higher rate than the base, the reserve is higher. Sort of a commission paid by the bank to the dealer.

Chargeback: If you pay off the loan early (usually before 90 days), the bank takes back the reserve, or a portion of it. That is the chargeback.

soraghan

We bought a new car/SUV and financed it with the dealership shortly before Christmas. We have excellent credit and got a good rate (4%). Had a little trouble with the dealer on another issue and refused to bring in additional information they requested until our complaint was dealt with. Needless to say they didn't deal with our problem in a timely manner and later said that they no longer needed our additional info. and would not be able to make any changes to our contract because the car's financing had already gone though. This week we received a letter from the Finance Co. saying our car loan had been denied. Is this legal? We've had the car now for about 3 weeks. What should we do? Can they repossess it? Make us refinance at a higher rate? Can we legally return the car since the financing was denied? I'm panicking that the dealership can come out and tow away our car and we'll loose our down payment of $5000 and We already feel so cheated with this dealership, we really don't want to end up forced into some kind of bad deal. :mad:

newbee7

First thing you need to read the contract carefully to see what you agreed to. I bet there will be a clause saying that if the financing is failed, you'll need to return the car in the same condition as it was when you took it.

Now, whether you'll lose your down payment or not or you'll be forced to re-signed another contract it's up to you and the dealer. This is what I understand from reading a retail installment sale contract. I didn't see anything in the contract I read that dealt with this particular issue. I don't think in that contract there is a clause saying that you'll lose your down payment if financing is denied.

With regard to other questions, my answer is based on my understanding of a contract I read. Your contract may be different.
It's legal to inform you that the financing is denied. I guess it's much better to work out a solution rather than to wait until they come to your house to repossess the car because repossession negatively affects your credit history/score. I guess they're probably gaming with you to get you to a higher rate. I'm not sure what make/model you bought, but I'd be worried about 4% APR right from the beginning. Unless, other people can usually finance the same make/model with 0% APR (as seen in some Toyota ads). This is because in order to give you 4%, the dealer has to find a bank to finance with 4% APR or less. It is challenging because the inflation rate is already >2%, which leaves very little for the bank to earn. Besides, if you go to some online lenders (E-loan, CapitalOne, Honda Financing, etc.) they always advertise their lowest rates at more than 5.5% APR. This can give a rough idea of the market. If in fact 4% APR is easy to get, you'll see all those online lenders ads at 4% APR.

You can legally return the car (but it has to be in the same condition when you took it). They can't force you to sign another contract with a higher interest rate if you don't want to. If you really want to return the car, I guess they'll probably charge you some of the detailing costs to bring the car up to its original condition.

It's also a good idea to check with the local DMV to see if they already registered the car in your name or not. If they haven't, it's easier for them to resale the car to someone else as if the car was never sold to you. Even if the car is already registered in your name, I doubt that forces you to keep the car.

Please keep us inform about the situation.

dtownfb

Soraghan: First call - Call the finance company and find out why you were denied. The additional information you were suppose to supply may have something to do with it along with your dealer not handling it in timely manner. But give them a call immediately.

Second Call - Next contact the dealership and talk to the F&I person about the financing and returning the car. He/she will likely try to find alternate financing for you most likely at a higher rate then 4%. The dealership does not want your car back so they will find alternate financing esp. if you have excellent credit.

Third call - You might also want to check on financing yourself like at a credit union or bank (third call). You won't get 4% but it will competitive to what the dealer gets.

jeffh2

I purchased a 2007 Mazda 3s at the end of December. The interest rate on my loan is 6 percent. In the meantime, Mazda has come out with a 1.9 percent incentive rate. I have some recollection that the auto dealership is obligated to refinance my car at this new rate because I purchased the car from them less than 30 days ago. Am I correct? I contacted them and was told there was nothing I could do save trading my car in and purchasing a new one. Needless to say, I am FUMING right now...

Thanking you in advance...

nj2pa2nc

did you try calling mazda customer service, not that will help. I had almost the same thing happen after I bought my acura. I am paying 6% but if I waited two weeks it would have been 4.9%. I am just enjoying the car.

grandtotal

I don't think there is anything you can do and I don't think anybody is obliged either legally or morally to help you. It's just plain bad luck. Try to put it behind you and enjoy the car.

cccompson

Mazda ain't Macy's.

Why fume over something unforseeable?

phx08

Hello, I'm in the market for a car right now, and the interest rates offered through the dealer are not that great. My Credit rating is excellent but the rates given are still too high, But i do not have the time to get the loan anywhere else. Is it possible to refinance the loan after a short amount of time with another bank offering a better interest rate? Or would that be too much of a hassle.

tidester

Is it possible to refinance the loan after a short amount of time with another bank offering a better interest rate?

It's always possible to refinance - but you will pay a price!

tidester, host

phx08

ahh ok, i was just wondering, since the interest rates aren't that good, i was thinking about getting a loan with Capital one or some other bank....

tidester

I would suggest getting the financing you want even if it does take an extra day or two. Most dealers will be accommodating.

tidester, host

wlbrown9

Last purchase in May 2004. I was prepared to use pre-approval with local credit union. The dealer finance guy went through his book and matched the rate for a couple of months more... He said Bank One wanted to finance everything he could and did not want to lose a loan. They changed to Chase Auto Finance later on. So, try that. If you have good credit, use that to get the dealer to match or beat what you could get from your bank. It has been over 20 years since I have financed with my local bank...they have a $100 or more up front fee and not quite competitive rates...My credit union was more than competitive, but the dealer F&I guy has always at least matched the rates and not having to run paperwork and checks around is nice.

kyfdx

Chase actually has purchased Bank One, and converted all of their branches to the Chase brand.

financeexpert

A great auto refinance resource is the site Transportation Solutions where you can find everything there is to know about auto refinance issues. I found this site to be well designed and appealing.

Auto Refinance Expert

Kirstie_H

Huh, this sure looks like spam/advertising to me. Guess we'll know if the member comes back!

joel0622

To the poster fuming over the rate change, just curious, if you would have bought your car and two weeks later you see on TV the rate went up 2 points, would you feel obligated to go re-contract at the new higher rate?
Its all luck of the draw, it happens all the time, some times for the better some times for the worse.

For the poster who recived the TD letter. When ever a deal is submitted to a lender and it is turned down or conditioned initially a letter is instantly computer generated and sent to the consumer. It is a requirement under AFIP. This happens even if the dealer calls and re-hashes the deal and gets it approved. The letter still goes out. This may be what happened in your case.

jawz2285

I have a 2004 Dodge Grand Caravan that I bought new. I still owe $19,600 with more than 3 years remaining on the loan. The monthly payment is $580. What are my options for reducing my payment amount? Should I try to refinance? Or is trading in for a cheaper vehicle an option?

cccompson

My guess is that you're seriously upside down right now. If so, trading for something cheaper isn't likely to help your cash flow because of the negative equity that you'd have to roll into the new purchase.

A refi likely would make more sense, at least in terms of reducing your monthly payment. Bear in mind though that if you do so, the amount of time that you're upside down will be extended, probably for longer than the additional term of the new loan.

tidester

If you have 36 months remaining then you're paying interest at a rate of about 4%. You're not going to get much better than that by refinancing - to say nothing of refinancing fees. However, if that is really 40 months or more then your interest rate is 10% or so and refinancing may get you to where you want to be.

You may find some helpful tips in Owe more than it's worth... I'm upside down and I can't get up!

Good luck!

tidester, host
SUVs and Smart Shopper

blue2500hd

Hello , i hope you can help me with this i have a lease on a 2500HD GMC that is do up in Jan. 2008 i will be trading this back in before it is do up i have talked with a sale person on another truck and i should have around $2000 or so equity in this now i also have a loan on a 2006 subaru forester x thats my wifes rig , she isn't really happy with this car and since i have been looking around at trucks she saw a suv that she really liked the looks of and wants to try out now what i need to know since i am about $3000 to $4000 in the hole ( car is worth around $17,800) we owe between 20,000 and 21,000 would it be better to trade my truck for the suv and wait maybe 4 to 6 months and then trade her car in for my new truck ? we are paying $400 amonth on the truck and $480 on the car i know with trading my truck for another at 35,000 my payments should be the same or a little less but the thing is i really don't want hers to go up or at least not more then $25 what do you think i should do ? i feel i will always be in the hole with this car tell i pay it off . Thanks for any help !

tidester

i feel i will always be in the hole with this car tell i pay it off .

Why don't you wait until either one or the other is fully paid off? Also, consider lowering your sights to a more affordable vehcile.

Just a thought.

tidester, host
SUVs and Smart Shopper

blue2500hd

My truck is a lease and is up in jan.08 but since i use it to plow my driveway with i will trade it in early and get everything set up for the new truck , we did lower are sights when we got the forester we had a pilot before and she is just not happy with this car and the dealer we got it from( also tried another dealer to) anyhow that is the reason for getting out of her car and getting something diffrent ( hers is not a lease) i was just woundering if one would be better to trade in now then the other .

tidester

i was just woundering if one would be better to trade in now then the other .

You have to balance three factors: (a) rate of depreciation, (b) rate of equity growth and (c) intensity of feelings about the old/new vehicle.

It sounds like (c) dominates which suggests trading in your wife's vehicle for another one. Just my thoughts.

tidester, host
SUVs and Smart Shopper

Kirstie_H

A reporter with a national newspaper is hoping to talk to consumers who financed their car with sub prime loans. Please reply to ctalati@edmunds.com no later than Friday, March 23, 2007 with your daytime contact info.

g8trgrl

Hi -
I'm trying to finance about $15,000 for a new car purchase. My credit score runs between 650 and 675 (I check it monthly) and I'm rebuilding after mis-managing grad school loans. I've had clean history for about 3 years, but I just got turned down by Chase because they say I haven't had any history of paying off this kind of installment loan. (AHEM. What do you call $900/month in student loans???). Anyway, at this point, what do I do? Do I keep shopping local banks and add all those inquiries to my credit report? Or am I stuck with whatever the dealer offers? I don't want to deal with 9% financing...

joel0622

Shoot if all you have is Student loans and you got a shot at 9% what are you waiting on? Just make sure it is simple interest with no early pay off penalty, drive it and make timely payment for 18 months then re-fi. The difference between 7 and 9% on $15K is about $15 a month. In 18 months that means you pay an extra $270 in finance charges. Make one extra principal payment in the the first 3 months and it washes.

You are stressing over nothing my friend.

qbrozen

i completely agree with joel. 9% is not that bad. Heck, my sis has a 751 credit score and chrysler financial gave her 7% on a NEW CAR.

oldfarmer50

...but what is the difference between a simple interest loan and one that uses "Rule of seventy-eight"?

kyfdx

Not a dumb question.. this is the way it was explained to me (when I tried to pay a loan off early in 1984, and wondered why the payoff was $400 higher than I calculated).

When a loan is paid off early, using the "rule of 78s", the amount allocated to interest and principal is different from a simple-interest loan.

On a 60 month loan.. The first payment, 12/78ths of the first payment is allocated to principal, and 60/78ths is allocated to interest... the next payment, 13/78ths is allocated to principal and 59/78ths is allocated to interest.. etc, etc, etc..

This continues until the total amount of interest equals what would have been paid if the contract was completed. As you can see, a huge amount of your payment is allocated to interest..

Also, there is no mathematical basis for doing it this way.. Just think of Mr.Potter in "Its a Wonderful Life", to get the reasoning behind it..

Hope that helps... the actual numbers may be a little off, but that is the idea behind it..

regards,
kyfdx

tidester

On a 60 month loan..

Just a note - the Rule of 78 can no longer be applied to loans whose terms are greater than 60 months.

The number 78 comes from adding the integers from 1 through 12 and the procedure you outlined is strictly applicable to a 12 month loan. For a 60 month loan it would really be using the "Rule of 1830" since the sum of the integers from 1 through 60 is 1830 but the generic name "Rule of 78" is applied to any term.

For the 60 month loan the breakdown would be 60/1830, 59/1830 and so forth.

The "mathematical basis" for doing it this way is simply "ease of calculation" since calculators and adding machines were not available when lenders first came up with these "rules." It's an anachronism that should be put out of its misery in this age of calculators and ubiquitous computing but it persists for "historical reasons."

tidester, host
SUVs and Smart Shopper

joel0622

All great explanations. What it means is the bank is going to get theres first. A whole lot of interest is going to get paid before you start hitting the principal.

grandtotal

The rule of 78 persists because it has not been outlawed and consumers are not educated enough to reject it. If I were a lender (and unscrupulous) I would prefer to lend on a rule of 78 basis every time.

oldfarmer50

So the rule of 78 is a way of front loading interest payments?

joel0622

Ya, basically that is it. It also lets the lender collect more of the interest if you pay it off early.

But don't worry, I don't know of a bank that still uses it. As a previous poster said it is not allowed in loans of 61 months or more and the following states have outlawed it all together

States outlawing use of the Rule of 78s formula in installment loans of five years and less:
Arizona Michigan
Delaware Minnesota
Idaho Nebraska
Iowa Nevada
Kansas New Hampshire
Maine New York
Maryland Oregon
Massachusetts South Dakota
Vermont

The bigger deal now is penalty for early payoff. They can range from 2-4 % of the balance due. So if you are one to pay off a loan early the lowest rate is not always the best deal.

Same thing goes with 0%/ 1.9%/etc etc. if you are giving up a Big rebate to get 0% and plan on paying it off early you may be better off with the rebate instead. The payment may be a little higher but in the long run you benifit.

akangl

I wish all states would outlaw it. I went with a friend to help her buy a truck, got a great price on the truck, but then in finance they informed her it was a rule of 78s loan. I questioned it and its legal in the state of Alaska. I tried to talk her out of it, but she needed a truck like yesterday and this was the only way she could get financed. I cringed big time, but she was happy to get the truck. At least the loan wasn't for a lot of money, but still, not the best way to go and the interest rate was criminal at best.

joel0622

Agreed, there is no place for them in todays lending world.