Questions About Financing New Vehicles

Nancie · March 1998

This continues topic #21 in the Smart Shoppers
Conference where we talk about financing your new
car. To read the earlier part of this discussion
click here, then return to this topic to post your
comments and questions.

Nancie

msellow · March 1998

I'm seriously interested in the Passat GLX. It looks like demand may mean a lengthy wait for delivery. I'd love to order the car now, and arrange financing w/ my credit union in April/May when the car would be expected to arrive. Is this feasible, or should I wait until April when I'll have financing finalized?

ashkan · March 1998

I am interested in leasing an SUV. I have never leased an automobile before and don't know anything about leases. How does a lease work? How can I be sure I am getting a good deal on a lease?

isaiah5417 · March 1998

I would like to have A.P.R. explained. For instance if the current Chevy rate of 1.9% is one I want to consider, does it mean 1.9% times 4 if financing for 4 years? I have bought/financed cars before many times, but I was usually looking at the amount of monthly payment I was willing to pay for 4 years. Can anyone explain the A.P.R. thing to me (not too technical please)?

CarMan@Edmunds · March 1998

Mesellow, I don't see any reason why you can't just put you name on a waiting list for the new Passat and work on the financing while you wait. If you decide to go this route you will probably be asked for a small deposit just to show the dealer that you're serious.

CarMan@Edmunds · March 1998

Ashkan leasing is much like financing except you do not actually own the vehicle. When you lease you agree to pay the company that you are leasing from a monthly payment in exchange for being allowed to drive the vehicle for a certain period of time. This monthly payment consists of the depreciation that the car will have over the term of the lease and interest that you pay to the company that you are leasing from. At the end of this period you have the option of purchasing the vehicle that you leased for what the the company originally estimated it would be worth at the end of your lease. Or you can simply return the car and pay nothing except for any excess mileage or disposition fees that you are subject to.

Here is a sample lease. Right now you can lease a 1998 Honda Civic DX Coupe for $149 per month and a $1,500 down for 36 months. When you take possession of the car you will probably be required to pay the first month's payment ($149), the down payment ($1,500), a security deposit ($150), and an acquisition fee ($495). Please note that under the terms of this lease you are only allowed to drive the car 12,000 miles per year. You will be charged for any mileage over that amount that's on the car when you return it.

CarMan@Edmunds · March 1998

Isaiah5417 it is extremely important to get as low an interest rate as possible when financing a vehicle. Financing a car works the same as calculating interest on your bank account. If you do decide to buy a Chevy you are actually better off financing it at 1.9% and putting the money in an interest-bearing account than paying cash all up front!

ryen · March 1998

A low interest rate on your car should be part of the whole deal. On my last car purchase with my Nissan Quest, I set the purchase price: invoice +1% minus the $1500 incentive, minus the blue value/trade-in on my 94 Quest; then, I let them know I was aware of the 5.9% rate Nissan is offering and made the deal contingent upon getting that low rate.

tfang · March 1998

I am going to buy a Toyota 4Runner. The salesman told me that their 6.99% finance rate will end this month(3/31). Is this true? Or is it likely that this rate will continue next month?

Thanks,
TF

CarMan@Edmunds · March 1998

Tao, I can't guarantee this but I doubt that 4Runner interest rates will increase significantly even though Toyota's programs end on March 31st. Most dealers have a large supply of Sport Utility Vehicles on their lots because of the mild winters in many areas. Although it is sometimes true, dealers frequently tell their customers that a program is going to end soon because they want to pressure them into a quick deal.

Singeon · March 1998

I have only lived in the US for about a year and don't yet have a credit history here, although I do have one in Canada. How hard would it be to get financing based on my Canadian credit history, or is this even possible?

CarMan@Edmunds · April 1998

That is a very good question, Dale. As long as you had good credit in Canada and could proove it I really don't see any reason why you would have a problem getting financing.

pbb · April 1998

I'm looking at a new Chrysler and have read about their "gold key plus" program which is similar to a lease, but you own the car..???? Anyone experienced or knowledgable about the program and its advantages and disadvantages?

I would appreciate any wisdom!

CarMan@Edmunds · April 1998

Parker, I believe that the Chrysler "Gold Key Plus" program is what is referred to as a "balloon" program. This is actually a type of financing so you do own the car, but people associate it with a lease because of its low monthly payments. Basically a balloon note allows the customer to make much lower monthly payments than normal financing, however at the end of the note the customer must make a large "balloon" payment to pay off the rest of the car. This final payment is usually very high. Depending upon the price of the vehicle it can be well over $10,000. This is not a very popular type of deal because people rarely have the cash to make that large payment at the end of the note. Although I have heard of individuals who get a balloon note on a car and then finance the large payment at the end. I believe that this type of program is much more popular in the South.

shawkins · April 1998

Greetings All,

I would like to mention that after purchasing my 1998 Toyota Sienna XLE the other day, I applied for financing at the http://www.peoplefirst.com web site. Got 7.25% for 5 years. When you fill out the application (about 5 minutes), they will call you in about 15 minutes to notify you of their answer. You can get a draft check overnight as well. Great staff I talked to and the service was perfect. I got a call to make sure the check got to me overnight and they asked me to call them with any questions. Great financing service!!

Scott

gdike · April 1998

I understand that you should have your financing arranged before you go to the dealer. How does this work with leasing? Can you arrange a lease before you go to the dealer if you know what you want? How do you find the residual value of a vehicle?

CarMan@Edmunds · April 1998

Geoffrey, calculating a lease payment is a little more complicated that calculating a finance payment. In order to calculate a lease payment for a vehicle you must have two very important numbers. One is the money factor or the rate of interest that you will be charges. The other is the vehicle's residual value, or how much the model will depreciate during the course of the lease. These two numbers very widely between vehicles and even between leasing companies. Unfortunately, it is not really possible to have your leasing arranged before you begin to shop. If you have any specific questions about a vehicle's residual value please feel free to ask me and I'll see what I can do for you.

NurseMBH · April 1998

I want to trade in my 1997 Dodge Grand Caravan, as the payments are too high. I am about 3 grand upside down. I am trying to buy a less expensive car, and refinace the negative equity. None of the dealers here in Las Vegas want to work with me. Guess they figure they are not going to make anything on the deal. I have even gotten preapproval from a lender. The dealers all want 3-4 grand down. I was told by one dealer," You cannot control the loan, the trade, and the price of the car. This was at a so called "One Price/No commision" dealership. help or advice please.

gdike · April 1998

The car we want to lease is a Dodge Grand Caravan SE. We would probably do a 5 year lease. What would the residual value be on that. We are also considering terminating our current lease early (6 payment left). Is that a bad idea? We are still under our mileage (within 4000 miles though), state inspection is due, and we're thinking that repairs will need to be done. We don't want to put much money into the car if we are only going to have it 6 more months. Thanks for you help.

CarMan@Edmunds · April 1998

Gdike, terminating your current lease six months early will probably end up costing you some money. I doubt that the company that you are leasing from will let you out that early for free. Furthermore, if you don't think that your car will pass inspection you probably have some pretty noticeable problems with it. If this is the case, you will end up having to pay to fix them anyway when you turn in your leased vehicle.

CarMan@Edmunds · April 1998

Nurse, since the dealership told you that you can't control the loan, the trade, and the price, why don't you take some of those factors under your own control. Try selling your car yourself instead of trading it in. This is a good idea if your are upside down on your lease because this is the way for you to get the most money for your used van. You can also go to a bank in order to secure financing instead of doing so at the dealership.

harriet7 · April 1998

I bought a 97 Kia last July and financed it through my State Employees Credit Union. I want a Ford Ranger (or other small truck). Should I continue to be pleased driving my Kia (great car) or trade it in for a small truck? With all of the great finance plans that dealers are offering, I am confused if this would be a good move or not!!

Brutus · April 1998

I don't think the financing will interfere with your decision. The question is, will you be happy with the price you can get for your Kia? Depending on how much you put down on the vehicle and how good of a deal you got, you may not get what you owe. I think you will really be disappointed with the low ball trade-in offer a dealer will likely give on a one year old vehicle, so you will probably need to be prepared to market it yourself. But you never know until you try. I suspect the value of the Kia will be the deciding factor for you, not the financing. Good luck!

RochelleW · April 1998

I had the most wonderful experience dealing with PeopleFirst internet financing over the last few days. Both the SERVICE and QUICKNESS OF RESPONSE beat everyone, including my local credit union!! For a new car, 36 month loan, their rate was 7.25% if you have payments automatically deducted from an account. You can decide which day of the month the payment is deducted. The credit union insisted my husband must co-sign the car loan or I must open brand new accounts (fat chance!) and car finance.com's interest rate was slightly higher.

PeopleFirst states you must have excellent credit, own your own home and they will have an answer for you within minutes. Well, they are located in California and I'm on the opposite side of country. I had to wait until they opened to get an answer! :-) But they had one within minutes of opening!!

You can check out their web page at http://www.peoplefirst.com. I'm not affiliated with the company in any way except that's how I'm financing my VW Cabrio.

shawkins · April 1998

Ditto what Rochelle said! I had a very pleasant experience with these people. They exceeded my expectations on all claims they made.

Scott

gamen · April 1998

Thought I'd pass along something I discovered when I bought a 98 Passport last week. I was planning to get my financing through my credit union which was running a special rate of 7.15% fixed for a 60 month loan (no down payment required). When I made the offer to purchase, I told the dealer that I wouldn't finalize the deal until my financing was approved, UNLESS they could match the 7.15%. They did. 6.99% for 60 months, no down payment required, and with no creative financing tricks.
What I learned is this. In addition to their published loan rates, banks also provide lower preferred rates in some circumstances. These rates are not generally available to the public, but through a combination of volume (dealer referral in my case) and excellent credit on the part of the lender, an individual can sometimes get the preferred rates. The 6.99% I got was through NationsBank, whose published rate was somewhere in the 8.25% to 8.75% range.
My advice is to always let the dealer try and beat the rates you can get on your own. But DO be very careful that any dealer financing which beats what you can already get has the same conditions (i.e. fixed/variable rate, same length, penalty clauses, down payment, etc.)

pocahontas · April 1998

Gamen's right about about lower rate offered to dealerships; they're dealing with hundreds of loans everyday, so they often do get a preferred rate. As to whether they will pass that discount onto you, that's all in the negotiation.

It amazes me how many people will go to such extremes to get the best car price, then they just settle for the what ever interest rate the dealership offers. Don't sign the purchase agreement, until you've seen the financial officer and have agreed on the interest rate. If they say, that's the "best they can do" and you don't believe them, get out of your chair and head for the door. More often than not, they'll try to find a way to lower it. The dealer will be eager to match or beat your lowest rate so you'll take possession of the car right then.

ay107 · May 1998

So after the purchase price is agreed upon, and without signing anything I should then let them check my credit and begin negotiations on the credit rate and terms? What gets signed then, a credit form or a purchase agreement? Is the agreement the last thing signed? Also when the rate, term and finance rate are written up, if there is an "error" in the calculations can the delaer keep the extra money? In order to check the calculations I guess I need a financial calculator since I won't have a computer.

shawkins · May 1998

AY107,

You can negotiate the deal after which they will probably ask you to fill out a buyers order describing the vehicle you negotiated on and the price, including trade-in and such. DO NOT SIGN it and just tell them you will complete the form when the financing has been agreed upon. The buyers order says it is a legal contract somewhere on it, so if you sign it, all they have to do is provide financing to you. The buyers order has your SSN and enough info for them to decide what sort of interest rate they will offer you. I always shop around so they know what they have to beat, then if they can't beat it, they'll give you a Promissory Note and you have 5 days to get a check to them. Just did this about a month ago.

Scott

ay107 · May 1998

Hi Scott,
Wanted to thank you for the info on the Edmund's site re: car buying.
I have never purchased a new car before and so I have been painstakingly
researching everything. I did get outside financing thru CarFinance.com and
would just as soon stick with them if the Factory rebate for Toyota goes into
effect again. There is a dealer incentive on now though. I am also putting
down almost 50%.
I understand that I should NOT sign the buyer's agreement until either my
financing or the dealer's financing goes thru. In the case of CarFinance.com
that means faxing documents to them and providing proof of income to
complete the qualification process. I assume I can do this before actually
committing to the vehicle by signing the buyer's agreement. Then if financing
goes thru,(I assume that happens right away?), I sign and drive. If it takes
longer, then I do not sign, and I do not drive, until it does?
I was confused about the prommissory note you mentioned. What is that and
is it given only after a buyer's agreement is signed in the case of someone
wanting to shop around for a loan after they have committed to a purchase
agreement?

Suzanne,Scared -but -making- progress

shawkins · May 1998

I went through PeopleFirst.com for my financing a little while ago. Great people. They approved me for the amount I requested, which was $19,000. Then they sent me a draft check, which is a check I can make out to the dealer for up to $19,000. The check is good for 45 days. My rate was 7.25% for up to 5 years. I gave the dealer a chance to beat the interest rate and he couldn't, so they gave me a promissory note saying that I would pay them within 5 days.

Sooooo, it is a good idea to get your pre-qualification stuff out of the way before you go shopping. Then you already know that you are approved for X% interest rate and for X dollars for Xyears.

I signed the buyers order before I spoke to the finance officer because I knew I had financing already arranged. It was just a matter of whether the dealer could beat it. Does this help you any more??

Don't be scared about buying a car. The dealer will sense your fear and try to take advantage of you. Take along someone who knows how this all works or just do your homework and gain control of the transaction. Just remember, you have the money they want. Don't give it to them easily. If I can help any more, let me know!

Scott

gdouble · May 1998

i don't know how familiar anyone is with financing, as far as credit is concerned, but here's my scenario:

i had leased a nissan over 3 years while i was
in college. i was late on 10 payments. i have 3 credit cards, and a total credit card debt of 4k. all are reported as "R1" on my credit report. i had two bills that were
placed in collections, but they have been paid.
i am 23 years old, and just graduated college.
i have been on the job six months, working full time. my yearly salary right now is around 33k.
i went with a friend of mine to a second chance
place, and i while he was filling out the application, i told the salesman of my situation, and he says that i wouldn't be able to get a
(approximately) 20k loan, even with 10-15% down, and that i'll have to
pay the high rates of a second chance dealership.
is he right? or do i have a fairly decent chance of getting a loan somewhere?

gdouble · May 1998

also, if i have a chance of getting a regular
loan from a bank, should i try and get one through my credit union before going to the dealership. i have only banked there since i moved to minneapolis (about 5 months ago). i was warned that too many credit inquiries at the same time negatively affects your chances of getting a loan.
is there anything else i can do to help my situation?

gdouble · May 1998

by the way, i'm looking at getting either a new
honda accord, or buying a 94-95 lexus es 300 used.
would i be better off getting approved on one over the other?

teamplayer · May 1998

Man! I am totally confused about the gm smartbuy and smartlease. Can anyone explain them? I want to get a tahoe and can't determine the best method.

CarMan@Edmunds · May 1998

It sounds like you don't have a very good credit history. My advice to you is to try all of the places that you mentioned and see what rates you get quoted. Yes, it's not the best thing in the world to have a lot of inquiries on your credit report. However, shopping for a good interest rate is just as important as shopping for a good price on the vehicle that you want to buy. It's still money.

CarMan@Edmunds · May 1998

Teamplayer, there are some very attractive lease rates on Tahoes right now. My advice is to go with the GM SmartLease.

Scourge25 · May 1998

I had my dealer locate a vehicle for me in TN and I believe he is trading with that dealership to get me the truck I wanted. My question is, does he lose his holdback? He said he would, but this makes no sense to me. Thanks.

CarMan@Edmunds · May 1998

I was just speaking about this situation with someone the other day. Dealers often claim that they lose their holdback if they trade for a vehicle. I think that this really varies depending upon the manufacturer. Dealers usually don't like to talk about or dip into their holdback in order to make a deal in the first place. In this situation it is costing the dealership money and time to go all the way to another dealership and swap for the truck that you want. Taking this into account they probably won't let you touch their holdback whether they get one or not. If you really want to try to get at the holdback, you may be better off going to a dealer that has the exact model that you want in stock or ordering one.

stewartl · May 1998

I have agreed with the dealer on a price for a 98 Mazda 626 that includes a $1,000 rebate. They have 2.9% financing but say if I want the special interest rate I cannot get the $1,000 rebate.Is it possible to get both, dealer says they do not get rebate from factory if you get special interest rate.Any comments?

CarMan@Edmunds · May 1998

Unfortunately, Stewart, the dealer is right. Mazda will not allow dealers to combine their cash rebate and special financing programs. You have to choose either the $1,000 or the 2.9% financing. You will end up saving more money in the long run if you go with the special financing program.

gregsintx · May 1998

I also used PeopleFirst (www.peoplefirst.com) for financing my new Dodge Ram truck, and it was a great experience. I received a "blank" check from them for up to $25,000 that I just filled out at the dealership. Unlike CarFinance.com, the PeopleFirst check required no additional faxes or income verification. The dealership had no problem with it at all, and with a rate of 7.25%, they couldn't beat it.
The folks are PeopleFirst are very responsive and friendly - definitely a good loan experience.

shawkins · May 1998

Gregsintx,

I ditto everthing right to the letter!!

They'll definitely get my recommendation to relatives and friends, as well as a shot at any future car purchases.

Scott

artem · May 1998

I've got a new job, so I plan to move into new
apartments and buy a new car -:). The question is that: When is the best time to get financing?

1) before taking a new job -
It means (+) I would have lower income, however
(- )they would figure out I'd had a job for a while.

2) after getting a new job -
(+) higher income
(-) not enough time on the job

I'm puzzled.

Art

CarMan@Edmunds · May 1998

Art, personally I think that it probably is better for you to apply for financing once you have started your new job. Your higher income will probably more than outweigh the fact that you have not been at your new job for a long period of time.

rushforth · June 1998

I recently purchased a (new)1997 Chevy Tracker for my wife (great deal btw, under $10k after rebate). The only problem we had was when it came to the financing.

I am also leasing a second car (Corolla), which I intend to return at lease end in Aug98. I have the usual credit cards etc and my credit is excellent.

When I asked the dealership about leasing the tracker, they told me that GMAC would not approve a lease unless I turned in my other car now. Obviously I did not want to do that because we wanted two cars, but the finance manager told me I could not have two cars on a lease because I was maxed out according to GMAC.

They actually got us the finance through Ford Motor Credit who must have less strict criteria.

My concern now is that I want to lease another GM car after I return the Corolla, but I expect to run into the same problems and have finance it with a conventional loan (possibly at a higher rate).

I have been reducing my monthly outgoings by paying off my credit cards and cancelling anything that I don't really need, so come Aug/Sep my loan to income ratio will be better.

I also expect a pay raise and a bonus in Aug which should help too.

My question is how much IS TOO MUCH?

Is there an average formula that finance companies work from, or even better does anyone have a contact at GMAC that could tell me what their criteria is.

Many thanks.

CarMan@Edmunds · June 1998

I think that every finance company has different guidelines as to who they accept and who they reject. It sounds as though you are on the right track. My suggestion is to pay off as much debt as you can before applying for GMAC credit again. The fact that you will be getting a raise will definitely help your situation. If for some reason GMAC still rejects you when you try to lease a GM vehicle in August, you still have other options. There are many other reputable finance companies that offer leases on vehicles such as World Omni and Chase. These companies often have cheaper leases than the manufacturer's captive finance arm like GMAC. One of these companies may accept you even if GMAC doesn't. Good luck.

sharyn · June 1998

Hi. I'm a new college grad looking to buy a new car this summer. Probably a Honda Civic. What's the interest rate I can expect? Are there special rates for new college grads? I start working in Sept. Would that make it harder to get financing?

CarMan@Edmunds · June 1998

I don't believe that Honda has any special finance rates or cash bonuses for recent college graduates. However, I have heard that they give special consideration to recent grads when they apply for financing. Honda's standard finance rates are nothing special and you could probably beat them by going to a bank. However, if you purchase before the end of the month Honda is offering a special low interest rate on Civics.

thiulede · June 1998

Here a scenario for you:

I'm in Texas and looking to purchase a 98 Exepedition. There is a dealer in Oklahoma that will order one from the factory for me for $99 below invoice. I either have to pick it up from them myself or they will drop ship it to a Texas dealer for $500.

It appears to be a legitimate deal. I have seen numerous posts on several internet sites saying that people have actually done this and that is worked very well.

The issue is the lease financing. They say that they normally only do purchase loans for out-of-state customers. Not leasing.

So, I need to find my own lease financing.

Any recommendations?

CarMan@Edmunds · June 1998

Thiulede, you should be able to lease the car from that dealership without any problem. The fact that you are an out of state customer should not matter. The only difference would be the taxes. You may want to look around and see what sort of lease deals you can find on the Expedition through banks and lending institutions in your area just to see if they can beat the Ford dealer's rate. If you decide to lease through Ford Motor Credit I believe that you will have to pay 9.75% for 24 & 36 months and 10.75% for 48 months to lease an Expedition. Good luck

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