Confession: I just got a car loan.

[autoxer]

I bought my last three cars with cash, so this goes against my recent ways, but between buying the house and getting married, I just don't have the available cash for a decent car. But I'm keeping it sensible with a used car and a three year loan. Pentagon Federal Credit Union gave me a rate of 3.99% for a used car. The loan is for $12,500 and finance charges will end up being ~$800, but I suspect that my wife and I will pay it off early. The car is a 2006 Honda Civic SI for my wife to drive.

Penfed is exclusive, but you can join the National Military Family Association to become a member even if you don't have any military connection.

[Ima saver]

The only loan I allow myself to have is a car loan. that is because my husband is a car nut! He knows he can't get a new car until the car loan is paid for. Otherwise, he would be buying a new car every year. My car loan rate is at 2.99% so that is not too bad.

[kork13]

Car loans aren't inherently terrible, just mildly undesirable. You got a fairly good rate, so don't worry too much about it.

If I may, what was the purchase price for the Si? I own the '07 model, and just curious what you paid for your's being 3 y/o... Great car choice, btw I love mine.

[autoxer]

I am also a car nut, and will be in the market for a sports car once this civic is paid off. The purchase price of the '06 SI is $13.5k, and it currently has 50k miles on it.

[buildmybudget]

Rate's good, so it's really not all that bad of a buy. Add that it's a used car and you haven't lost any money right off the bat... Hopefully it turns out to be a great car that doesn't surprise you with maintenance costs!

[disneysteve]

I happen to think that having a reasonable term and rate car loan gives you flexibility with your money. You can pay it off early if you have the means and desire or you can hold it for the full term if your money is better used in other places. You have a very good rate for a short term. Nothing wrong with that.

[red92s]

Originally Posted by autoxer

I am also a car nut, and will be in the market for a sports car once this civic is paid off. The purchase price of the '06 SI is $13.5k, and it currently has 50k miles on it.

The screen name proves it.

Sedan or Coupe? A buddy of mine has a red SI sedan that sees use doing service calls all week, then switches to Azienis for weekend autocross duty. Nice little car.

[Scanner]

It's not so much the loan as the car buying process - the dealers weave the car price into the loan or vice-versa so you don't know where you are getting screwed. YOu just can't separate the two.

You did the right thing by negotiating a loan and then negotiating a car price.

You probably didn't get hte best "price" on the car per se. . .or more accurately, the "lowest" price but you now know all costs up front - financing and car.

[disneysteve]

Originally Posted by Scanner

It's not so much the loan as the car buying process - the dealers weave the car price into the loan or vice-versa so you don't know where you are getting screwed. YOu just can't separate the two.

That's always been my thought, which is why I'm convinced 0% financing isn't really such a great deal. You end up paying more for the car because the dealer knows he's making nothing on the loan.

What I do wonder, though, is what happens when I'm on the lot shopping for a car and I haven't told the dealer how I intend to pay. I don't mention that until after I've agreed on a price. When he says to go speak with the finance guy, that's when I'll say I'm paying cash or already have my loan lined up. So how does that factor into the negotiation?

[Vytautas]

Originally Posted by disneysteve

That's always been my thought, which is why I'm convinced 0% financing isn't really such a great deal. You end up paying more for the car because the dealer knows he's making nothing on the loan.

What I do wonder, though, is what happens when I'm on the lot shopping for a car and I haven't told the dealer how I intend to pay. I don't mention that until after I've agreed on a price. When he says to go speak with the finance guy, that's when I'll say I'm paying cash or already have my loan lined up. So how does that factor into the negotiation?

I have a friend who worked as a car salesman at the local BMW dealership. I can only base my knowledge on his experience but their dealership did not offer any financing. They required their customers to get their financing from an outside source.

According to him though, other dealerships loved it when people financed through them because the salesman would be paid his commission on both the financing and the car. This would allow them to merge the financing and the car price to make a more complicated purchase for the consumer. This would allow the sales people to get a much higher commission because they had a lot of flexibility in how to sell the car to their customer.

It's a pretty devious way to make money by using the ignorance of their customer to make them feel like they are getting a good deal when they are really being screwed.

[GREENBACK]

I agree that you should never finance thru the dealer. They don't do this because they like you. In every case their is a financial incentive for that dealer to finance through a bank that they have set up for your loan. If you can get a great rate that's wonderful but be mindful of the entire process as outlined here. Car dealers, like banks, are in it for the money and look at the bottom line more than your smile.

[Vytautas]

While both banks and dealers are out to make a buck. Banks are offering you one easily defined product (the loan) while the dealership is offering you the car and also a way to pay for it. This forces the banks to be far more competitive when giving out loans while car dealers can obscure what they are really selling by bundling the loan with the car.

[disneysteve]

Originally Posted by GREENBACK

I agree that you should never finance thru the dealer.

I think this is overstated. You should never blindly finance through the dealer. When I bought my car, I shopped around for a loan with multiple lenders. When I was at the dealer and had negotiated the price of the car, I sat down with the finance guy. He gave me their rate. I told him the rate I had lined up already and told him either he could match that rate or I'd get the loan elsewhere. He matched the rate so I got the loan there.

[Scanner]

You guys hit pretty much the proper way to do it. I just go in with the following attitude:

1. Financing is separate.
2. Negotiate the best you can on price.
3. Be ready to walk away.
4. Run your car into the ground so don't get too hung up on getting the best deal.

I am convinced my soon-to-be-ex-father-in-law gets a better deal on cars and is hands-down a better negotiator but he gets a new one every other year. So I don't really care if I am not able to extract an extra $500.00 out of the salesman.

My favorite line though is:

"Wow. . .you are such a hard bargainer. You should work here."

LOL. . .then I know I got screwed as that's a psychological ploy they use to make you feel good. Just shut up and fill out the paperwork.

[MonkeyMama]

Um, I think the dealer has a good idea when you are going to pay cash or finance. & yes, they get a larger commission if you finance with them. Which is how and why they judge you pretty quickly.

IT depends on the type of car you are buying, but in the car selling hey deys we had dealerships tell us to screw off because we wouldn't finance. It kind of starts with, "I have a $10k budget." "But what's wrong with this $20k car?" "We can't afford that." "You can finance it into eternity!" "No thanks." It's then they decide you are probably a cash customer and they don't want your business. I can't say I Would ever go to a dealer and tell them cash or finance, because you can negotiate far better if they think you will finance. But I think they usually have a general idea (or a guess - right or wrong). I find we are too frugal to be able to fool them into actually believe we would finance. Or, if you can really negotiate a lesser priced car without the subject of financing coming up, more power to you. It seems it is the first question they ask. (With newer cars, maybe they assume most people would finance. My experience is with way less expensive autos).

I am with Scanner - his advice is good. Auto buying is the only thing we have ever strategically walked away from and they didn't come crawling after us. Heck, one dealership hurled insults at us as we walked away. ??? Way to treat a potential customer (& 7 years later - yes I remember the dealership - will never go back). But that being said, there were plenty of fish in the sea and we found a far better deal any way.

We kind of live by Scanner's #4. I want a good deal on the car. I could care less if it's the best (because the best is way too much work?)

[disneysteve]

Originally Posted by MonkeyMama

Um, I think the dealer has a good idea when you are going to pay cash or finance. & yes, they get a larger commission if you finance with them.

You can tell them you'll be financing it. You don't have to tell them where you are getting your loan. See my previous post. When I bought my car, I already had financing lined up from an outside lender. I only went with the dealer financing because they matched the rate.

You can also take the dealer financing and turn around and pay off the loan soon after. I've done that, too, as I took a home equity loan to pay off a car loan since the terms were much better.