Car Purchase

[maat55]

Depends. If I got an awesome rate on financing like my DH did with his focus 0%, then I'd finance.

This is my oppinion, but I don't think there is any such thing as 0 financing. The financing is added to the cost.

[disneysteve]

Depends. If I got an awesome rate on financing like my DH did with his focus 0%, then I'd finance.

This is my oppinion, but I don't think there is any such thing as 0 financing. The financing is added to the cost.

I agree with you, maat. I think 0% financing is a scam. Also, LAL, keep in mind that those 0% offers are only on brand new cars which are already a huge waste of money.

Have you ever paid attention to the ads from the furniture stores? They advertise no payments and no finance charges for a couple of years with approved credit. But then, in the small print it says 10% discount for cash purchases. So you aren't really getting "free" financing because you are paying more for the merchandise. I think the car deals are the same way. They just don't show you that fine print like the furniture stores do.

[maat55]

I agree with you, maat. I think 0% financing is a scam. Also, LAL, keep in mind that those 0% offers are only on brand new cars which are already a huge waste of money.

Have you ever paid attention to the ads from the furniture stores? They advertise no payments and no finance charges for a couple of years with approved credit. But then, in the small print it says 10% discount for cash purchases. So you aren't really getting "free" financing because you are paying more for the merchandise. I think the car deals are the same way. They just don't show you that fine print like the furniture stores do.

Yep, and I've seen it on car adds too.

[LivingAlmostLarge]

Depends. It was for the car in the ad. LOL. He got the one car they price dirt cheap without options that draws people into the store. He bought it on Wednesday and the ad was for the weekend. The car sales guy said this is what happens. They sell that car earlier in the week when the ad comes out on Wednesday but is running till Sunday of the next week and people come in looking that el-cheapo car.

That one new car it's usually not a profit maker. It's to draw people in. You know the one that's $9995? Then every other car is $13k or something?

Well that's the car he got. The actual car in the ad. And besides it was great way for him to build credit.

He had arrived in the US about 1 week before he bought the car. He put down 2/3 and financed 1/3, though he had the cash to pay for it 100%. This allowed him to start building credit. My DH could not get a credit card for 1 year after arriving. But the car payment helped A LOT.

[disneysteve]

Good story, LAL. So that advertised car does actually exist. Sounds like he was in the right place at the right time to take advantage of a good opportunity.

[LivingAlmostLarge]

One and only one car. The sales guy was super happy to sell it to him so he could tell everyone he sold it before they came in.

Usually people see it, don't like the color (purple, silver, beige, etc), don't like the manual transmission, don't the lack of features, etc. You have to buy the car as-is, no exceptions. Nothing added on or taken off.

And the VIN has to match the ad and that's it. I never thought it existed either. But turns out they usually try to sell it before the weekend so they can tell people they came in too late.

[tripods68]

This is my oppinion, but I don't think there is any such thing as 0 financing. The financing is added to the cost.

I don't think so. The car makers like Ford or GMAC lending arms offering zero financing incentives so they can push to get rid of certain models or all new cars to move quickly. It's really an incentives for the dealers to shrink or get rid their inventories w/o holding cost. It wouldn't make sense to add the financing costs to the car when they can couldn't even sell at MSRP. That's doesn't make sense. So the car makers are the ones that eats the incentives which is tied to their profit margin. That's why all US carmakers are all in negative territory compared to their competitors like the Japanese. Even their heavily discounted they still can't sell enough cars to break even.

[JinCO]

The EF seems high relative to a single months expenses- 30k- is that 6 months expenses? What return are you getting on this 30k?

Before I say cash or credit I want to know the return on the cash.

Jim - $30K is about 4 months expenses. The return would be about 3.5%.

[LivingAlmostLarge]

My DH got the car at the listed price out the Door to boot. So including tax and license. And it was the "loss leader" like the ones that get you into a grocery store.

Those cars they always lose money on because they need to get people in.

[disneysteve]

It wouldn't make sense to add the financing costs to the car when they can couldn't even sell at MSRP. That's doesn't make sense.

Of course it doesn't make sense to you and me, because we understand how all these financial things work, but the average American doesn't have a clue. They got sucked in by the 0% interest offer, not realizing that they end up paying just as much (if not more) over time.

Let's say MSRP is $20,000. A good negotiator could talk them down to $17,500. Plus you have a trade-in that they give you $4,000 for.

Along comes the 0% deal. Now, the lowest they'll do on the price is $17,700 and they only will give you $3,800 for your trade. Mr. Uneducated Shopper thinks it must be a great deal because it is 0% financing. In reality, he has just paid an extra $400 for the car.

I'm just making up numbers, but you get the idea.

[jIM_Ohio]

Jim - $30K is about 4 months expenses. The return would be about 3.5%.

Can you beat 3.5% on a car loan.

3.5% of 30k is $1050. You get $1050 from interest each year if you can finance the car for less than 3.5%

For example if you could find a HELOC for 4.8%, it would have same after tax return as the interest rate on the car loan.

So finance car on HELOC at around 4.5% and you gain a tax deduction- if memory serves me right you don't have many of these earning so much, right?

[tripods68]

Let's say MSRP is $20,000. A good negotiator could talk them down to $17,500. Plus you have a trade-in that they give you $4,000 for.

Along comes the 0% deal. Now, the lowest they'll do on the price is $17,700 and they only will give you $3,800 for your trade. Mr. Uneducated Shopper thinks it must be a great deal because it is 0% financing. In reality, he has just paid an extra $400 for the car.

BTW, most car buyers must qualify to get the zero percent. So not everyone will qualify.

As for your example Steve. I agree with you 100%. The only thing I would say is that I'm a very good negotiator myself. This is a good lesson for everyone who read this board. I would not let the dealer change the price on me. I'd make them stick to the agreed price @ zero percent. Your also better off selling the car yourself. In most of time, you can command (KBB) value by selling the car on your own than what dealerships can offer. That's all.

[maat55]

BTW, most car buyers must qualify to get the zero percent. So not everyone will qualify.

As for your example Steve. I agree with you 100%. The only thing I would say is that I'm a very good negotiator myself. This is a good lesson for everyone who read this board. I would not let the dealer change the price on me. I'd make them stick to the agreed price @ zero percent. Your also better off selling the car yourself. In most of time, you can command (KBB) value by selling the car on your own than what dealerships can offer. That's all.

I would like to put your theory to the test. You could go in and make your best deal with 0% and I'd bet you I could pay less with cash.

Numerous times while browsing the sales adds, I've seen this:

Cash price 12,500 or only 15,000 at 0%. IT would piss me off. It's my contention that you do not get money for free.

[disneysteve]

BTW, most car buyers must qualify to get the zero percent. So not everyone will qualify.

That's true and is another reason why 0% isn't all it is cracked up to be. They run a million TV ads for the 0% financing to get people into the dealership. Then most folks don't qualify and end up buying with a higher rate.

Again, I'm not saying that it can't be a deal for those who are financially savvy. The reality, though, is that most people are not.

You are correct, also, about selling your car privately. But most people trade-in at the dealer. Heck, I trade in at the dealer. I don't want to bother with selling myself, having strangers come to the house and test-driving my car. It isn't worth the extra money to me.

[jIM_Ohio]

The bigger issue here is the car companies probably make more on the financing than they do on the car itself- talking Ford-Honda-GM as the company.

Maybe the dealer makes something off the sticker, but I think most of money is made on the financing side.

Best technique I have heard is to line financing up thru a third party ahead of time, then go into dealer and don't tell them (let them walk you through their financing). The right before signing, tell them you have financing secured through a third party and take the price given for dealer financing to the third party.