Questions About Financing New Vehicles

kyfdx · February 2006

I like my local bank a lot.. Will I get a car loan there? No way.. they just aren't competitive..

I like State Farm a lot... I've been with them for 20 years.. Reasonable rates, and great claim service.. Would I buy life insurance from them? No way.. they just aren't competitive..

My credit union is in another city.. they don't even have a local branch... But, if I need a car loan, that is where I will go... 4.9% on any '05 or '06 up to 60 months.. new or used..

The crazy thing? My local bank will give me a better rate through the new car dealer than they will directly to me.. and, I've been with them for 20 years, also...

isellhondas · February 2006

That store may give them 20 million dollars or more a year in business!

Don't be too sure about that 4.9 rate either. The rates have been going up recently. Have you checked in the past week or so?

kyfdx · February 2006

Just checked on-line...

Yup... still there.. .with a minor correction.. 4.99%.. not 4.9%..

biancar · February 2006

That's what my CU is offering also.

And they pay a better rate on savings than the bank does.

biancar · February 2006

Oops, I was wrong. 4.49, not 4.99, is the lowest rate they offer.

I could borrow $15,000 for 5 years for $282 a month, with credit life insurance.

Hmm - that Volvo is now looking pretty affordable after all, if I want to go back to having car payments.

lawyerboy · February 2006

I'm looking to buy my first car and I really need help.
1) I would like to finance the car now, with a credit score of 740, but I will not have verifiable proof of income until June. What is the best way for me to try to obtain financing at the best rate?
2) I plan on registering the car in my own name, and I am listed on my parents insurance policy. Will I have a problem including this car on a policy with my father as the policy holder and myself as an additional driver?
Thank you all so much for your assistance.

bdr127 · February 2006

You mention this is your first car and that you're under your parents' insurance. Would it be safe to assume you are fairly young with limited credit history? I'm not trying to age discriminate... What I'm trying to say is that if your credit score is 740, but all you have are 2 months of student loans (and this kind of thing really does happen), then the actual numerical credit score is mostly irrelevant. Lenders want a proven history of paying bills on time. If you don't have any history of bills, lenders don't know what they're getting, so it's almost as big of a risk as "bad" credit.

You say that you won't be able to verify income until June... Are you currently working and making money? If so, why aren't you able to prove your income, and why can you specifically starting in June? If you're trying to get a loan solely in your name with a limited credit history, many lendors will ask for proof of income/residency.

lawyerboy · February 2006

My credit history extends about 5 years, and is fairly significant for my age. I think the score is an acurate representation. The reason I can't prove my income until June is because I won't start working until then. However, I have worked previously and have a substantial amount of savings. I am just unsure of what I would need to show to get the best rates.
Thank you for your time.

biancar · February 2006

Do you have a confirmed job starting in June? If so, if you have a letter or a contract from the employer stating what your annual salary will be, that could help. Also, if you have significant savings, you could almost certainly get a loan using those savings as collateral. (Of course the car itself is collateral, but cash helps too.)

qbrozen · February 2006

I've never had to show proof of employment for a car loan, and, with a score like that, I'm not sure you will need to either. Could vary by state, I dunno.

By the way, I don't believe you can be on your parents' insurance with a car registered in your name. Easiest way to find out is call the insurance company.

lawyerboy · February 2006

Thank you both for your help. I sincerely appreciate it.

bdr127 · February 2006

My credit history extends about 5 years, and is fairly significant for my age. I think the score is an acurate representation.

Okay, sounds good.

Lenders, understandably, don't want to lend money to people who don't have a job. Of course, you have a job starting in June, but they might not like the fact that you won't have income for the next 4 months.

From our perspective, your savings is obviously your means to pay a car loan in the interim. From the lender's perspective, however, they have to consider worst-case-scenario... and there is no guarantee to them that you won't blow all that money by June.

As far as they're concerned, you could go on a bender in Vegas next weekend and not have a dollar to your name. Not that you'd do that, of course, but having savings does not promise anything to the lender, unfortunately.

biancar · February 2006

"ving savings does not promise anything to the lender, unfortunately."

Oh, I don't know about that. If you have a Credit Union account, ask to speak to the loan dept. Mine offers "secured loans" against savings very routinely.

Trying to finance from a dealer might be another story, but financing through the dealer is rarely your best option anyway.

rroyce10 · February 2006

.... **The reason I can't prove my income until June is because I won't start working until then....**

Do you have a letter of intent ...?

Terry.

stickguy · February 2006

if yo put enough down, they really have little exposure.

Of course, just pay cash for what you can afford, and you don't have to worry about it.

Kirstie_H · February 2006

A reporter aims to capture impressions of the buying experience for a first-time buyer or the parent of one. If you or your child bought a car for the first time in the past year, and if you'd like to share your story with a national magazine, please respond to jfallon@edmunds.com before Monday, February 13, 2006 with your daytime contact info and a few words about your experience.

natattack · February 2006

I own a 2005 Subaru WRX STi that I have made payments on over the past year, on time and in complete. My credit score shows 660 as of yesterday at Experian and 643 at Transunion. My soon to be ex-wife (next month) took our 2005 Subaru Forester as part of the separation agreement. That was 5 months ago. I took possession of the vehicle from her last week as for the 5th month in a row she was deliquent on her payments and was about push it 30 days again for the 6th time. So, now I have two cars and I can't afford both of them on my own. So I have put the Forester up for sale in an attempt to get out of it, but I know it will probably be $3k upside down because she wrecked it in a parking garage in NYC. She also wrecked my STi causing $3k worth of damage and I now estimate with payoff, that it will be about $12k upside down and show a wrecked title thanks to her.

I need options cause I'm running out of money and I can't figure a best path.

I'm thinking I will try and sell the Forester and pay the $2-3K difference and get out of that car. But I have to get her name off the STi as well, and that car I cannot make up the difference on.

The combined payments and insurance on these two cars is about $1500 / mo. So I'm thinking if I trade them in, worse case will be about 13% interest on a $20k or less car putting that car at about $30-$32k and a payment of $800-900 saving me $500-$600 or more a month in payments.

So my question, should I trade both cars in on one and is that even possible? I was thinking a little new Civic or something to take advantage of a lower interest rate, and lower price to dump about $15k on if I trade both in, or $12k on if I trade just the STi. Do I have to purchase a more expense car to carry that kind of upside down debt or will a little Civic or similar car work?

Any ideas or input on this situation would be GREATLY appreciated.

Thanks!

qbrozen · February 2006

why finance $30k for a $20k car when you have the STi? Its fixed, i'm assuming, right? So, if nothing else, refinance it. Considering you've been paying it off for a year, I have to think you owe less than the $30k you'd finance with a Civic.

stickguy · February 2006

if there was only 3K damage, I assume it has a clean title (not salvaged), but the accident might show up on Carfax? Besides, on a car like that, you can cause 3K in damage with a love tap!

It is hard to say without all the facts/figures, but from what you laid out, the most logical thin seems to be to sell the Forester yourself, if you can get close to what you owe for it, but you will have to come up with the difference. For now, I would keep the WRX, since you need something to drive, and sound completely buried.

Trying to roll over tons of negative equity is usually a recipe for disaster, so if you can get out from under the Forester, you might be able to keep your head above water payments wise.

Try posting both cars on the real world trade in value thread, and ask for trade in and retail (sell it yourself) figures. Also, if you have one nearby, bring it to Carmax to see what they would give your for it (might as well bring both just in case).

You are better off than some people. At least if you dump the Forester, you still have a nearly new STi to drive!

And finally, it probably depends on the state, but there must be a way to get the title switched, but I'm sure at minimum you need some kind of notarized document. CHeck with the DMV on that questions.

And good luck.

biancar · February 2006

Before you do anything, you need to talk to your lawyer. If the Forester went to your soon to be ex-wife as part of the separation agreement, did you have to turn the title over to her as well? It sounds like the loan is either joint or in your name only, is that right? You might have to refinance it in her name only, or if you sell it, give her the proceeds or some such thing.

Hope you've got a good lawyer.

bdr127 · February 2006

Oh, I don't know about that. If you have a Credit Union account, ask to speak to the loan dept. Mine offers "secured loans" against savings very routinely.

Trying to finance from a dealer might be another story, but financing through the dealer is rarely your best option anyway.

A credit union is not a "bank", so to speak. They have entirely different rules and procedures than traditional banks. CUs are non-profit and are actually owned by its users.

At this point in time with interest rates quickly climbing, credit unions seem to currently have better car financing rates. They tend to lag behind most prevailing bank rates.

A secured loan through your bank or credit union with your own savings as collateral is another story altogether and is not technically an auto loan... although you can effectively use it as such.

You'd be surprised at the financing you can get from a dealer. Like I said, right now your credit union might have a shot at beating their best rate, but most dealerships use a large number of local banks and credit unions from which to finance their customers. The large dealer groups especially have a good competitive advantage, as they tend to do a lot of business with particular banks. If they floorplan (new cars on the lot are financed with the bank until a customer buys it) with the bank, too, then they can often get better rates than even a bank employee can get!

imariquinn · February 2006

I was approved for a car lease from them, i input some information that I found from a newspaper ad about a 24 month lease. They approved based on the info from that ad. The numbers will be a bit larger ($50 more a month on the lease), but the vehicle is different (i.e., applied for Explorer lease, but want the Expedition instead) do I have to start the process all over again with Ford Credit or let the dealer just arrange it? I don't want the dealer pulling more credit when I am already approved.

rroyce10 · February 2006

.. **do I have to start the process all over again with Ford Credit ...**

No ... unless you're lookin' at a vehicle that's $10/$15,000 more, I wouldn't worry about it .....

Terry.

golic · February 2006

When I have purchased cars in the past I always went out and found the best deal I could and get pre-approved for financing prior to meeting F&I at the dealership.

I have never met an F&I guy who couldn't better what I had in my hand.

My next vehicle I am going to lease and was wondering if there are 3rd party vendors who specialize in Leasing vehicles? Can anyone offer suggestions or recommendations?

I would like to have the flexibility of not being at the mercy of the dealership lease, perhaps there is a better money factor to be had *headtilt*

Thanks for your thoughts,

audia8q · February 2006

I would like to have the flexibility of not being at the mercy of the dealership lease

It depends on your location...Here in CT most independent lease companies left the state due to some absurd vicarious liability laws....Some dealers offer leasing companies other than the mfg, for example we offer Chase and first third bank leasing..but the mfg lease programs have consistently been better. The only exceptions have been hot cars without incentives.

Have you checked your local yellow pages under auto leasing??

bdr127 · February 2006

I have never met an F&I guy who couldn't better what I had in my hand.

My next vehicle I am going to lease and was wondering if there are 3rd party vendors who specialize in Leasing vehicles? Can anyone offer suggestions or recommendations?

Most auto manufacturers have financial branches nowadays, and most of them have subsidized financing rates and leases on certain years and models. These rates and leases are virtually impossible to beat. Often times their standard rates are very competitive as well.

Short answer: it totally depends on what year/make/model you are buying.

CarMan@Edmunds · February 2006

Hi golic. bdr127 is right. If you lease through an independent bank on your own you will miss out on the special lease programs that manufacturers often provide on their products. The only time it pays to lease through an independent bank is if you are interested in a vehicle that does not have a lot of lease support available on it. Even then, the most popular independent banks, like Chase, usually do not deal directly with the general public but only through dealers. The bottom line is that it is difficult to get a good deal on a leased vehicle without going through a dealership.

Car_man
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golic · February 2006

Thanks everyone for your comments. Looks like I will focus my energies on price and maybe even a nice letter from my mom and credit union..so i can get a better moneyfactor *snicker*

j_eric2 · February 2006

I am trying to buy a new car (Mazda 6s GrandTouring) and am having a hard time getting the dealer to nail down at what interest rate the payment is figured (I forgot my finance calculator so I couldn't "do the math"). The hang up, according to them, is "Regulation Z". Allegedly it prevents anyone from disclosing the actual rate except for the finance manager when the transaction is closing. Has anyone else ran into this? I read what I thought were the pertinent parts of the actual reg and saw no such language. Did I miss something or is someone trying to put one over on me?

golic · February 2006

They are screwing with you.

In fact federal regualtions not only require the rate but the lender to disclose the APR which factors the fees involved in the loan.

This prevents the lender from saying the rate is "only" 1.99% but the charge $100s of dollars in processing fees, which when factored in, makes the rate more like 3.5%.

I have an amortization calculator. If you want to post:

Amount you are financing:
Number of payments:
Payment amount:

I can tell you the interest rate. Or email me if you are more comfortable that way.

-smile

british_rover · February 2006

Didn't realize you were in CT as well mind if I email you?

golic · February 2006

Here is a nice link which explains Reg Z in more of a laymans terms.

http://www.loanbiz.com/regz.htm

audia8q · February 2006

Didn't realize you were in CT as well mind if I email you?

sure...

lmp180psu · February 2006

I am currently financing a 2004 Mazda3S sedan through Mazda American Credit at 3.9%, and am seriously considering trading in for a 2006 Mazda3 Grand Touring hatchback. From the advice of Terry on the Real World trade-in board, I should have close to $4000 positive equity on my loan

I am noticing that rates are rising (about 6.49% for 60 months at my CU versus 3.95% when bought in March 2004). Is there anyway that Mazda credit will let me keep my 3.9% rate if I finance through them again (given my credit score is similar to before, which it should be). 3.9% and 6.49% is a big difference in monthly payment, and might prevent me from getting the hatch I really want :shades:

biancar · February 2006

Interest rates have gone up on everything since 2004. This is good if you're a saver, more return on your savings, but bad if you're a debtor, higher interest costs to pay.

Very doubtful that Mazda would still give you the same rate. They have to pay more for their money too.

That said, your credit union offering 6.49% sounds high, unless maybe your credit score needs some work. My credit union is offering 4.49% right now.

asafonov · February 2006

This is a good time to borrow from a CU (if you have to borrow at all) - CUs often lag behind banks and captive finance companies when interest rates start to climb, as they have been. 3.49% is unliekly, but my CU is offering 4.9% up to 60 months, and their credit score cutoff for this premium rate is quite reasonable (700, I think.)

lmp180psu · February 2006

I haven't gotten an official number from my CU yet, but that is what they advertise. I may check the other CU I belong to, to see what they are offering.

I was surprised to see 6.49% myself.

j_eric2 · February 2006

Thanks for confirming. I figured as much.

I have a calculator as well, just failed to bring it to the dealership - it worked out to 5.9% which seems a little high. Oh well, the search continues.

audia8q · February 2006

Alot of the folks coming in recently have been surprised at the interest rates. For example ford credit on new cars has a dealer buy rate of 7.25% if your credit score is over 720. We have outside banks that are a little lower but many of people coming in are surprised at the rates.

golic · February 2006

Well you can blame the domestic automakers for that.

Interest rates were incredibly low to begin with, then the 0% stuff started and the consumer was told this was a once in the lifetime experience. It went away, then 0% came back - the american consumer for not 2 months but about two years was conditioned to believe that cars can be financed at 0%.

Now, rates are rising, the 0% is gone and the consumer is shocked to hear 7.25% Heck, that is probably 1-2% higher than thier mortgage rate.

Yes, they ARE shocked, but it is due to in my opinion the poor decisions made by the automakers to sell thier cars with financing gimmicks for such a length of time that the consumer now expects LOW interest rates.

My guess is the roll out of 72-84-96 month loans will roll out next and many consumers will find they are upside down and can't get out of the loan...and THEN the automakers will solve this with 0% AGAIN *faint*

british_rover · February 2006

We get people all the time coming in asking where the 1.9, 2.9,3.9 financing is and they are just shocked when I tell them that we do not offer that.

Sorry just not avaliable. The best you could do is probably 4.9 on a CPO Rover.

karenc4 · February 2006

I'm looking at buying a Honda Civic within the next couple of weeks. I figure it'll run me about $18,500; I'm going to put $8,000 down and finance the rest for 48 months.

As of this morning, my FICO score is 758; however, I just paid off my debts a couple of weeks ago (except my mortgage), and not all of the $0 balances are on my credit report yet. In case it matters, one of the things I paid off, and which hasn't yet been updated, is a car (I owed less than $1,000).

I did the FICO simulator, and it said after all of the $0 balances are on my report, my score should be between 798 and 838. However, I'm wondering if 758 isn't a high enough score to go car shopping now? Would the extra 40 or so points make a huge difference in the interest rate I'd get?

Also, AAA offers car loans through the GTE Credit Union. Their advertised rate is "starting at 5.74% APR for up to 72 months." Am I right in thinking that's a decent rate, and with my current FICO score, what are the odds I'd get it?

Or would it be worth it to just wait to see what my score will look like when the $0 balances show up?

Sorry about the book's worth of questions. Thanks for reading all of this.

golic · February 2006

Karen,

You sound intuitive enough to understand if you are getting a good deal. I am only guessing, but I think once you clear a 720 FICO you enter into the "best" rate pool.

I would suggest in addition to AAA, look into Capital One's loan program and check out http://www.bankrate.com/brm/news/news_auto_home.asp

which will list the current rates in your area. Get pre-approved for a loan. Then either tell Finance you are armed with X rate, or to maximize.. let them offer you a rate and see where it compares. If its higher than your pre-approved tell them you want a 1/2 point better or you will use your pre-arrainged financing.

Good luck

karenc4 · February 2006

I am only guessing, but I think once you clear a 720 FICO you enter into the "best" rate pool.

I hope so.

Meanwhile, a little more specific info: I have a FICO of 758; my Experian/Plus score is 766; and my TransUnion score is 792. What confuses me is that the analyses I got with Equifax and Experian both say I'm an excellent risk; TransUnion, strangely, says my credit score is "not viewed by lenders as optimal... it may be difficult for you to qualify for the best offers from lenders. Prepare yourself to pay higher fees and interest rates, as well as make deposits and down payments." Huh?

So 792 from TransUnion isn't as good as 758 from Equifax? Would that affect my rate? Or should I just ignore the analysis and be happy with the score?

I'm pretty sure I'm done with the questions now. Thanks.

CarMan@Edmunds · February 2006

Hi karenc4. I personally don't think that you have to worry about not qualifying for banks top credit tiers. Most of the banks that I have seen have a cutoff of 720 to 730 for their top tiers, which your score is well over.

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biancar · February 2006

Question for the dealers here. On average, what percentage of your customers pay cash for their cars? Is there a difference between, say, less than $30,000 versus more than $30,000? If someone plans to pay cash, do you (can you?) sometimes offer such compelling financing rates that they decide to finance part of it rather than pay all of it in cash?

karenc4 · February 2006

Thanks. Got my Civic today.

I applied with E-Loan, got 5.5%. The dealership then said they don't accept E-Loan -- something about E-Loan having taken too long to pay them in the past. But the dealership, using a credit union they deal with, beat E-Loan's rate anyway -- I got 5.34%.

Not bad, considering that I needed a co-signer the last time I bought a car a few years back.

Thanks again for the help and advice.

CarMan@Edmunds · February 2006

Congratulations on your new car, karenc4. You got a very good interest rate and a great vehicle to boot, you did very well. Thanks for stopping back and letting us all know how everything turned out.

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rroyce10 · February 2006

... **My guess is the roll out of 72-84-96 month loans will roll out next and many consumers will find they are upside down and can't get out of the loan...**

Consumers have been upside down for over 20 years .... it has nothing to do with rates, the color of the vehicle or what Jessica Simpson is wearing .. it has to do with putting "little or no money down" and trying to trade every *25/35* months and then financing for 66/72/84/96 months -- which has been around since Jesus was a baby ... can't blame the manufacturers for that ....

Terry

2k1olds · February 2006

If you sign a contract at the dealer with financing from Bank "A", and a week later you get a phone call from Bank "B" saying they have taken over your loan with no notification from the dealer or Bank "A", is this legal? I realize loans are sold all the time, but written notification is usually given, is it not? What are a consumers rights in this situation? Any unput is appreciated....

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