Buying American Cars What Does It Mean?

gagrice

Then Ford Credit tried to screw me and I haven't been back since (22 years).

Last time I financed a vehicle was GM Credit. I found out when I went to trade I owed a lot more than I should have. GM would take all the Interest in the first few years of the loan. It should have been illegal. A real scam operation. And I still gave GM two more chances. Well they have to wait now till 2038 for my next GM purchase. You can only carry a bunch of losers so long. GM will be a Chinese company by the end of the decade.

andre1969

When I bought my 2012 Ram a few months ago, I was able to get another $500 off by taking their financing. The term wasn't so hot, at 3.99%, and I told them I wanted to pay cash, but they said they'd let me finance as long as I made four or five payments before paying it off.

So, I made payments of $5,000, $5000, $5000, and $3000, all before the first payment of about $358 was due on November 7. I think I made the December 7 payment around November 8. And just made the Jan 7 payment a few months ago.

So far, I think I've paid about $64 in interest, and the March 7 payment should pay it off, in full.

robr2

GM would take all the Interest in the first few years of the loan.

Um you know that's how loans work. You pay interest on the principal owed and at first most of your payment goes to interest so you owe a high principal amount.

bpizzuti

No, that is most definitely NOT how they all work. Most banks accrue interest as the loan term progresses, which means you are rewarded with interest savings if you happen to pay the loan off early.

It is definitely atypical to calculate and charge 100% of the interest at the front-end of the loan, and I would never do business with a bank that did that.

andre1969

You pay interest on the principal owed and at first most of your payment goes to interest so you owe a high principal amount.

On a long-term loan, such as a 30 year mortgage, or even most 15's, that's true. But on a 3-5 year car loan, even the first payment should be mostly principal.

On my 2012 Ram, which I financed $19,451 at 3.99% for 5 years, the first payment would have been around $64.67 in interest, and about $293 in principal, if I hadn't started paying it down aggressively.

robr2

I never said they take 100% on the loan up front.

Most consumer loans today are simple interest loans - interest is calculated based on the balance. The interest paid goes down every month as the payments are made. The first month, most of the payment goes to interest and it drops each month as the principal is reduced.

All my recent car loans have been through my credit union and they withdraw the payment weekly from a checking account there. With my current one, about 15% of the payment was going to interest at the beginning and is now at about 12%.

There is something called a Rule of 78 loan which is rarely offered anymore. These loans have more of the payment applied to interest up front. These types of loan have been outlawed in many states. If GMAC offered gagrice a Rule of 78 loan, it must have been before 1992 because that was when Congress investigated the use of those loans. I remember the loan on my 1984 Cavalier from GMAC was a simple interest loan as I paid extra on it every month to pay it off for less than the total payments.

robr2

Sorry - saying most of the first payment goes to interest was wrong. I should have said one pays a higher amount of interest the first month and it drops every month.

It's the same with a mortgage - the difference is that the amount is higher and the term longer. If one were to take out a 15 years car loan, it would probably be closer to 50/50 on the payment allocation.

berri

I've read several reviews on the new Altima. Some note that while the new Altima seats are very comfortable initially, they wear on you after awhile during longer rides because they don't provide good support. I dunno since I haven't had one as a rental.

berri

I think the Rule of 76 applies to compound interest which is applicable to most loans. Essentially, you are paying interest each month on the remaining balance, while simple interest just applies to the basic principal. Most compounding is done on a prorated (annual rate divided by 12) monthly basis which jumps the interest paid up more than an annual compounding. Lenders like to keep their hand in your pocket as much as possible

bpizzuti

That probably IS what he's talking about. A lot of car loans were infamous for that Rule of 78 stuff (now that I know what it is). In fact they were still offering them in the mid 90s, I got stuck with one from some no name "acceptance" corp back when i was stuck without a car and without much credit.

This is why I generally tell people to just use their own banks unless someone's offering a 0% deal. :shades:

robr2

What you describe as a compounding interest loan is often called a simple interest loan.

Here is one article (of many I found) that calls it a simple interest loan:

http://www.realcartips.com/carloans/382-simple-interest-vs-pre-computed-car-loan- s.shtml

robr2

In fact they were still offering them in the mid 90s,

They can still offered today for loans under 61 months (Feds passed a law outlawing them beyond that) but not in the 20 so states that don't allow them.

I would say that the shadier the dealer, the more likely at Rule of 78's loan could be offered.

berri

Interesting. I guess names change over time. When you look at these payday loan ads, I guess the old "simple"interest doesn't really exist any more and now compound interest is called simple interest. But heck, back when I was in college you had to compute these things mathematically by formula. The good old days weren't always better (although there used to be usury laws)!

gagrice

You found exactly what GMAC was doing during the 1990s. They wrote the loan to pay the entire interest on a 5 year loan with the first payments. If you paid off the loan early you got screwed big time. It was a live and learn situation. I have never borrowed on a vehicle since. I don't buy if I don't have the cash. The Feds also chopped consumer interest as a deduction.

anythngbutgm

Nissan supposedly focused on seat comfort and came up with "Stressless" seats according to some of the reviews I have read. They have been raved about by many publications.

I haven't driven the new Altima yet, but my sister had an older model with the HSD and it was a pretty nice ride. Even the CVT didn't bug me a bit, and as a Subie fan, I absolutely loathe the one in the new Impreza.

bpizzuti

That issue people are having with the CVT in the Impreza isn't really a "CVT" issue, it's a consequence of using an underpowered engine.

gagrice

I test drove an Outback with 4 cylinder and CVT. Right off the dealers lot is a long uphill. That poor little engine was screaming to keep up with the 50 MPH traffic. I told the salesman I could not take that noise in a car. I liked the interior and the seats seemed comfortable on our short test drive. I like the station wagon with some ground clearance. It looks like the V6 has a real transmission. I would never consider a vehicle with CVT. They belong in snowmachines.

bpizzuti

I loved the one I drove in the Nissan Juke. Very smooth when driven as a regular car, pop it over into manual mode and the thing is as fast as a good DCT in shifting, great for keeping the engine revved (which helps in a Juke).

Maybe Subaru was still getting the hang of the things. You should try the one in the 2014 Forester (N/A and XT Turbo). I intend to.

isellhondas

There really isn't such a thing as 0% interest. There is always a cost in borrowing money. Sure, you may be able to get 0% on your car loan but they are simply building that back into the price of the car you are borrowing.

bpizzuti

True, but they'll charge you that price whether you get their 0% financing or finance at the bank for 2%. Which still means it makes more sense to take the 0% financing.

andre1969

When I bought my 2000 Intrepid, they were offering 0.9% interest or $1,000 cash back. Back then, interest rates were running around 6.75-7% through my credit union, but I forget what Chrysler Financial was offering at the time. Probably about the same.

Anyway, back then it was definitely worth it to do the 0.9%. I financed $20,389 at 0.9%, which over the course of five years came out to a total interest payment of ~$469. My monthly payment was $347.66.

If I had taken the $1000 cash back, I would have only financed $19,389, but over the course of the five years, would have paid about $3510 in interest. The monthly payment would have been around $382.

Nowadays though, with interest rates being so low, it might not make much difference. My credit union is now offering 2% for a 5 year loan.

Nowadays though, it seems like the rebates are a bit different. For example, with my 2012 Ram, I got a $500 rebate for financing through them. Chrysler Financial is history though, and the loan is with Chase.

ateixeira

I was ok with the CVT in the Impreza. I think it's largely a function of expectations.

I actually drove it back to back with the 2.5l Mazda 3s 6EAT, and I liked the Subie better. Of course I don't live in a hilly area...

But look at this, from your own link, Gary:

> 2013 Mercedes-Benz GL350 Bluetec: 7 days
> 2013 Subaru XV Crosstrek: 7 days
> 2013 GMC Acadia: 8 days
> 2013 Toyota Avalon: 8 days
> 2013 Toyota Avalon Hybrid: 8 days
> 2013 Ford F-250 crew cab: 10 days
> 2013 Ford F-350 crew cab: 10 days
> 2013 Ford Fusion Hybrid: 10 days
> 2013 Honda Civic sedan: 10 days
> 2013 Nissan Pathfinder: 11 days
> 2013 Subaru Impreza hatchback: 12 days

Those are the models with the hottest demand, note the XV is tied for first and the regular Impreza ain't far behind.

The only problem Subaru has is a supply shortage.

Told ya they should consider building them in Indiana...

bpizzuti

I actually drove it back to back with the 2.5l Mazda 3s 6EAT, and I liked the Subie better. Of course I don't live in a hilly area...

Wow, considering how good the SkyActiv 6-speed auto is, that's something. I think the Subie CVT is pretty good but I'd rate the SkyActiv automatic higher. Then again, I like to bump shift, and don't see the point of a manual gate without a + and a - .

Subaru is expanding SIA, but anything that doesn't go to Toyota may end up building the new Forester.

ateixeira

Oops, my mistake!

I remember now, it was the older five speed auto, 5EAT. That's with the 2.5l.

The 2.0l SkyActiv had the 6 speed, but the doofus at the dealership brought around the wrong car!

isellhondas

Not necessarly. If the dealer is contributing to the zero percent he will be able to give you a lower price on the car if you pay cash or finance it elsewhere.

No free lunch!

bpizzuti

No way any dealer around here will give someone a lower price for financing with them. They can't, because the customer might at any time decide to change to their own bank, and then where would said dealer be? They'd be up the creek and the paddle would be up....another location. :shades:

busiris

You found exactly what GMAC was doing during the 1990s. They wrote the loan to pay the entire interest on a 5 year loan with the first payments. If you paid off the loan early you got screwed big time. It was a live and learn situation. I have never borrowed on a vehicle since. I don't buy if I don't have the cash. The Feds also chopped consumer interest as a deduction.

I'm like you in that I always pay cash for a car, but I did make an exception when I bought my 2010 328i.

BMW offered no discounts for cash, but if I financed through BMW, I got a $2500 discount off the sales price (rebate) at .9%. I kept trying to understand where the "gotcha" came into play, but never could find it. No pre-pay penalty, no minimum payments.

So, at the dismay of the dealer and salesperson, I financed the entire car, less my trade in value, and paid the note off when the 3rd payment came due. The finance charge totaled up to about $240, but I received a $2500 discount, so it was not a hard decision to make.

I'm still not sure who designed that deal, but it worked for me...

tlong

I'm still not sure who designed that deal, but it worked for me...

Probably because people like you are few and far between, and most people make the company beau coup bucks, so even if you didn't it all works out for them overall.

andres3

I'd love Audi to do a deal like that, which essentially provides a large cash rebate if you pay in cash but finance it for 30 days anyway.

isellhondas

That's not what I said.

Sometimes a dealer will "buy down" a rate in order to give a customer who is focused on the interest rate.

Thay can't do this and deeply discount the car at the same time!

andres3

Sometimes a dealer will "buy down" a rate in order to give a customer who is focused on the interest rate.

Or they will lie and tell you your credit isn't as good as it really is, and give someone focused on price their way, but tell them they need to pay 7.9% instead of whatever they thought they were going to get.

They offered me a 3-day contract buy-out option to appease our disagreement about my credit worthiness, but I wasn't sure whether to believe them after what had already been told (that I only had baby credit), and I didn't want to be in a position where I NEEDED an auto loan from a credit union, rather than SHOPPING an auto loan from a credit union.

I ended up taking the deal anyway, at 7.9 % because I was tired/worn out, made them take off $25 more extra bucks, and thought I could maybe eventually refinance anyway.

I ended up convincing the Honda finance manager to change the contract from 7.9% to 5.9% the next morning after he noticed me; and asked me why I didn't seem happy right after buying a nice new car (forget why I needed to go back the next day/morning now). He made it seem like it was a misunderstanding and clarification that allowed him to match what I thought my credit union was offering. After telling him why I was perturbed; He matched the rate I was asking for but did it with BofA (bigger commission?).

Regardless, I refinanced about 50 days later to 5.25% with the credit union as rates dropped a bit.

Lesson learned:

Don't even discuss financing with the sales people or managers; let the finance manager handle it, unless you are asking for something extra "special" financing wise.

bpizzuti

Actually that IS what you said. No one said anything about "buying down" interest, we were talking about the financing arm advertising and offering 0% financing.

There's another reason to not go through a dealer for financing: Each one will run your credit, and that dings your credit rating. Shopping and choosing a bank ahead of time means your credit is run ONCE, and you can go in carrying a pre-approval for an amount, knowing exactly what you can afford.

robr2

There's another reason to not go through a dealer for financing: Each one will run your credit, and that dings your credit rating.

Actually it doesn't. Fair Isaac (the almighty FICO score purveyors) treats multiple auto loan or mortgage credit checks within 45 days as one single credit check as they recognize people shop for loans.

bpizzuti

Actually, nobody knows, since they won't give us the formula. But each rating agency tracks each individual request, and they're available in your credit report to be factored in.

robr2

Here it is right from FICO - they're the ones that provide the credit score to the credit agencies:

http://www.myfico.com/crediteducation/creditinquiries.aspx

About half way down.

bpizzuti

Every last word they use is equivocal. "Can" "would" May"

isellhondas

I think we misunderstood each other.

Sometimes the dealer has to eat part of that "zero" percentage rate and that can, indeed, affect the price of the car.

If a manufacturer is offering a great, legit rate like 2.9% your local bank or credit union probably won't be able to match that. Otherwise it is a good idea to check with your local lender and get a pre approval.

Rates on cars and houses is about as low as I've ever seen them.

During the Carter administration people were happy to get a 15% loan rate.

robr2

Every last word they use is equivocal. "Can" "would" May"

Could you please point where it says that?

Does the formula treat all credit inquiries the same?
No. Research has indicated that the FICO score is more predictive when it treats loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for rate-shopping inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

bpizzuti

That's not what was in the link you gave me. Regardless, what you quoted indicates that banks have an option as to what length a "shopping period" they can consider. Plus none of this is verifiable because the formulas used to calculate these scores are not public.

Bottom line, you're better off NOT having everyone and his brother run your credit.

gagrice

Bottom line, you're better off NOT having everyone and his brother run your credit.

I agree. When I bought my 08 Nissan PU truck they asked if they could run my credit. I said, why I am paying cash? Just our policy was the answer. OK, and his eyes got big and said wow 830 that is good. I did not think about it until a month later when we were doing a refi to get a lower rate on our home mortgage. My score had dropped to 810. So no one gets to run my credit score unless it is absolutely mandatory for a loan.

isellhondas

Our store had everyone fill out a credit application and we would pull their credit even if they were writing a check.

That way if the check turned out to be a "reader" we could do a contract and finance the car if they didn't make the check good.

Some complained but we didn't lose any money either.

isellhondas

I doubt that you score would have dropped by 20 points because your credit was pulled. I suppose it's possible but I suspect they just used a different reporting company. Also, credit scores bounce around a bit.

bpizzuti

Our store had everyone fill out a credit application and we would pull their credit even if they were writing a check.

I had a couple of stores try that with me. I walked out. I always walk in with a pre-approval from my credit union, unless I'm looking for a 0% financing deal (which hasn't shown up while I was car shopping yet). Why they would want to run my credit anyway when they know they can't get a better rate I don't know. Most of the dealers here have the same local credit union as one of their finance providers, though I'll bet they prefer to use others for various reasons.

isellhondas

" Pre approvals" are no guarantee that the customer has a loan.

Until the store get's a check from your lender, they have nothing.

We would be happy to do the deal under your conditions but we just wouldn't deliver the car until we were paid.

Most people understood our position.

bpizzuti

The particular pre-approval I talk about is an actual loan approval for up to a specific amount, complete with credit check and rate guarantee, only waiting for a VIN number and a specific amount of funds to issue. And again, every car dealer in this area knows it.

Which is why no one in this area understands your position.

gagrice

That is what Chase said also. I don't understand why so many credit agencies are given my personal banking information. How will I ever break a 1000 if they keep docking points for having my credit run? ;-)

busiris

Our store had everyone fill out a credit application and we would pull their credit even if they were writing a check.

If I'm paying cash, I'd tell your dealership no. If they didn't think my check was good, they could call the bank and verify the money was there. Then, if that wasn't good enough I'd offer to be back with a certified cashiers check in 15 minutes.

If that wasn't sufficient for them, they could find another customer.

I don't mind a credit check if I'm financing something, but I sure as heck will not oblige any business if I'm paying cash just because "That's what we do with all our customers".

uplanderguy

I have paid cash for my four last new cars (three different dealers). All just verified that I had enough funds for the check to clear, and away I went. I did no credit application at any of them.

gagrice

A good reason to buy GM. :shades:

isellhondas

What is "this area"? This forum?

We might as well end this. I spent 13.5 years in the business. How about you?

I had customers tell me they were pre approved that were not.

On an incoming car we would have no problem doing this the way you want to. We just wouldn't "roll" the car until we were funded.

Things may be more laid back or different in your neck of the woods. We ran a tight operation and since we were the largest volume honda dealer in nine states for the past 32 years our customers must have understood why we did what we did.