Buying a car

[Banimal]

Hi,
My mom wants to buy a new car (not necessarily a brand new one but another one). She has the cash to pay for all of it. One of my friends told me that she might get a better deal if she were to finance it because the dealer will get the company more money in the long run from the interest paid on it. Is this true in practice, do people actually get better price deals on cars if they finance?

I called the financial services for car company and they said they don't have any fees if the car is paid off early. Are there any negative implications to her credit score if she does pay for it off early?

thanks

[emanon1501]

Hi,
My mom wants to buy a new car (not necessarily a brand new one but another one). She has the cash to pay for all of it. One of my friends told me that she might get a better deal if she were to finance it because the dealer will get the company more money in the long run from the interest paid on it. Is this true in practice, do people actually get better price deals on cars if they finance?

I called the financial services for car company and they said they don't have any fees if the car is paid off early. Are there any negative implications to her credit score if she does pay for it off early?

thanks

Some banks do give out some kind of kickbacks if they use their services. However, it is not necessary true you will save money, dealers want to make as much as they can.

[disneysteve]

It can be true that the dealer will be a bit more flexible on the price if you are financing with them since they then count on that money, too. And there is not usually any prepayment penalty so you can always take the loan and then pay it off a week later. Will it affect the credit score? Yes, but minimally and only for a short period of time. I wouldn't let that dissuade her.

When I go car shopping, I never tell them how I intend to pay. I negotiate the price first. Only when we have a deal - in writing - do I proceed to talk money. Could I have paid less if I had financed? Who knows? I got what I felt was a fair price and was satisfied with that.

[MonkeyMama]

I've done this before. Last 2 times I bought a car, the dealerships pretty much didn't even want a cash sale. (They were frustrated they could not talk us into more, and would not get kickbacks for financing). So last time when we went down the road I offered to use their financing. Difference was night and day!

All you can do is read the fine print. (They will tell you ANYTHING to get you to buy and finance). I read the fine print. There was some very small charge, but we took the gamble. In the end, I paid it off within a week and there was absolutely no finance charges. There might have been some small up front fee for the financing - I don't remember - but they offered to knock $500 off the price. Which was pretty substantial considering the deal we had already gotten on the car. I couldn't believe it, honestly. Interestingly, when I Called my insurance they asked if the car was financed (I had never financed a car in my life). I said, "Yes, but we will pay it off this week." They said fine and never asked me for the loan info. I had been a very longtime customer and I think they knew I had never gone the financing route. But, that was just something I hadn't thought about. That the financing complicated the insurance, etc. In this case? No complication.

Personally, I would never buy a car again without pulling out that card. Negotiate away without revealing how you will pay, but *then* ask if there is a further discount for paying with cash or one for financing. These days I would have to presume cash would get you further. Times sure have changed! I will never buy a car without asking again. I would do it all over again - it was a breeze.

[MonkeyMama]

P.S. Since I never had an auto loan before it only helped my credit score. Good credit stays on your report for 10 years. I had a noticeable bump to my FICO though my score was already around 830 or so. Of course, it depends on the circumstances. But in general, if you already have a good FICO score, more good credit on your report does not hurt. Even if it is immediately closed.

[thekid]

This hold true with dealers that finance exclusively through finance arm of auto makers?

In those cases, I generally see the opposite. Maker incentive only available for cash purchases (especially with year end models). From the dealer, I generally negociate 2-3% off sticker price. Some dealers are more flexible than others, especially depending on demand for their brand (ie. had a much easier time bringing mazda dealers down than honda dealers).

For example, on my wifes last purchase (an outgoing model year CR-V), we got a Honda rebate of 3 500$ on a cash purchase (if financed, the rates were subsidized by Honda Finance....the incentive is basically the annualized up front cost to Honda Finance of the rate subsidy). On top of that (rather, regardless of that), dealer gave us alittle over 2% off sticker price.

[MonkeyMama]

To clarify, I am talking about a used car purchase. I got the impression the last couple of times we car shopped that they were making all their money on the financing. The dealerships. We got GREAT deals on our cars. Plus, literally, there were dealerships who would not sell us their cars for cash. I am totally serious. Wasn't worth selling some of their more used cars if they couldn't get the financing. They wouldn't make any money otherwise. Looking back, that's all I could figure. (They were betting they could talk us into more, and we walked out. But, they had ample time to sell us the car we asked to buy. Was WEIRD).

I think it depends so much on the dealership, the car, and the age of the car, the state of the economy, etc., etc., which is why I would just kind of feel out the situation next time. We bought in 2002 and 2006 and those were just some strange times. IT was ALL about the credit. I would hope today would be a little different today, that cash would speak a little more. But, on the flip side, don't think we would get such a deal on a used car, if we were shopping today. At any dealership. Anyway, our cash was SO unwanted in 2002 was why we decided a different tactic when we replaced my car in 2006. I wouldn't expect to have to play up the credit angle so much today. You'd think they'd be happy to sell anything.

[thekid]

To clarify, I am talking about a used car purchase. I got the impression the last couple of times we car shopped that they were making all their money on the financing. The dealerships. We got GREAT deals on our cars. Plus, literally, there were dealerships who would not sell us their cars for cash. I am totally serious. Wasn't worth selling some of their more used cars if they couldn't get the financing. They wouldn't make any money otherwise. Looking back, that's all I could figure. (They were betting they could talk us into more, and we walked out. But, they had ample time to sell us the car we asked to buy. Was WEIRD).

I think it depends so much on the dealership, the car, and the age of the car, the state of the economy, etc., etc., which is why I would just kind of feel out the situation next time. We bought in 2002 and 2006 and those were just some strange times. IT was ALL about the credit. I would hope today would be a little different today, that cash would speak a little more. But, on the flip side, don't think we would get such a deal on a used car, if we were shopping today. At any dealership.

Ah. Yeah, used car rates are seldomly subsidized so I can see that there is no or less interest to sell for cash.

I actually really liked what we did with the CRV last time around. Manufacturers cash purchase rebates (and subsidized rates) are public on their website. They typically show up towards the end of the model year when they want to move inventory. We waited til the rebate became quite substantial. I realize part of that is depreciation (a 2011 model with 0kms has a market value less than a 2012 with 0kms), but I don't really care as we typically keep our cars 7-8 years and the difference is marginal at that point. Anywho, with the rebate it did not make sense to buy used (at least fairly new used). My anticipated depreciation (which is what you pay for a car) on a 7 year hold is less on the new 2011 than it would be on a 7 year hold of a used 2009 or 2010 with the cash purchase rebate on the 2011.

[Nightfly]

We just bought a brand new Kia. Side note: we considered a late model used, because every "expert" ever babbles on about the depreciation on new cars - ok, whatever. We wanted the 10 year/100k mile warranty which is worth gold to us right now. Besides we have one paid-for car already. Anyway...

...After setting foot on 4 different dealerships, we ended up buying from the one giving us the least amount of pressure (please take note, auto dealers!) It is my experience that dealerships are in the business of selling financing first, and the car second. Cash purchases don't necessarily appeal to salespeople like they might have back in, oh - the 1950's.

Things to keep in mind:
* If there is anyway to sell your used car, do it. Try to avoid trading it in if possible. You WILL get hosed. It's pretty much unavoidable.
* Try to arrange financing with your bank or credit union (preferably your credit union) before you set foot on a dealer lot. You'll probably get better terms. We did.
* Once you have cash for a down payment (from your used car sale), you take the trade-in issue off the table, which helps. Once you have the financing lined up, you'll take the financing issue off the table, which is nice because then you truly can negotiate price. Other posters have suggested that you should talk price first. Well, yeah - that's preferable in theory. However, you'll be surprised how many salespeople dance and sway around getting you a fixed price. It's amazing how they'll dodge this.
* Regarding financing: most salespeople (my experience and what I've heard from others) are trained to get prospective buyers to zero in on the monthly payment. They will try to get you to put all other aspects of the deal (trade-in, final purchase price, interest rate) in the background, mentally. I've had to walk from at least two dealerships (which they make very difficult to do) when the focus became the monthly payment.

BTW we spent nearly a month prepping the used car for sale, actually selling it, researching loans/blue book amounts/possible new cars/invoice prices/etc. before making the purchase. Don't walk into a dealership without doing some research first.

[Banimal]

Thanks for the replies! I'll make sure to tell my mom to haggle as much off and then inquire about both options and see what benefit each might have.

[gambler2075]

I don't know much about buying cars, but I did a little reading and I tried holding out for a $ price, then telling them how I want to pay.

I was in the market for a 2012 Subaru outback and looked at a couple of dealerships. I spent a couple of days playing one against the other, and I think I eventually got them down about 2K$ from the original price.

Finally, when I told the dealer (who I bought from) that I was about to leave for the other dealership, and could he beat their price, he said "Well, how do I know that you aren't going to take my price and just leave?" And I said "Ok, fine, tell me what it is and I will buy it right here and sign the paperwork"

So he told me, and only THEN did I write the check for like 26K$ (or whatever it was, I forgot).

Still not sure if that was the way I should have done it, but oh well.

g

p.s. I will say that I was actually encouraged by my parents and brother to buy the new car, which was a huge change for them. Before I became a moderately successful trader, they always wanted me to buy a semi-used car for no more than 5K$. When I started having days where I made or lost 30K$ to 100K$, they realized that the money was only in etrade fantasyland and it didn't matter WHAT your balance was, if you never took it out and did anything with it.

[disneysteve]

there were dealerships who would not sell us their cars for cash.

That really happened? A dealer refused to make a cash transaction with you? I suspect that violates some law somehow - a business refusing to accept legal tender for trade. I probably would have reported that to the appropriate authorities or, at the very least, sent that story to the media. I'm sure they would have had a field day with that.

[bjl584]

I've heard that dealerships have more wiggle room if you use their financing. If you have the cash, then the easiest way around it is to use their financing, then wait till the penalty for early payoff is up (usually a few months), then just pay off the loan.