Refinancing A Car Loan
- KwL
- Steve67
- KwL
- Steve67
- JenL_3
- Nancy_Coulter
- Steve67
- Karin
- Nancy_Coulter
- JenL_3
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» KwL - Nancy, Odds are if you financed your car through a dealer then
Nancy, Odds are if you financed your car through a dealer then your loan has the interest "front loaded". That means you might owe just as much now as you did 1 yr ago. These loans charge a terrible rate and load all the interest in the beginning so if you refinance, you really don't save anything unless you do it very quickly after buying a car.If you got a special, "Very Low Rate" then you probably paid for it with a higher car price. There is no free lunch or car! 8) If this was the case, then you probably wouldn't be looking to refinance.
First step is to examine your car loan to determine what type it is, how interest and principal are paid and then we can help you more.
For others, the best way to finance a car is tell the dealer "Cash" and then get a car loan through a credit union where the interest is just charged on the outstanding principal and there is no prepayment penalty.
Make this your last car loan. What I mean is after the car is paid for, keep making payments, but to yourself in a special account where you save for your next car. Now you are getting interest to compound in your favor! Every time you get a raise at work, put some of it into this payment. Make the payment automatically so you never see or get used to the money. This is how one learns to live below their means and thus can become a millionaire in 20 or 30 yrs. (see the reading list for a book called Millionaire Next Door for other ways to do this.) Keep your car until you have enough to buy another with this saved cash and then you never have to worry about this again.
Kirk Lindstrom
editor Personal Finance and Investing My Recommended Reading List
-- posted by KwL
» Steve67 - Just a comment about automobile financing... My wife and I had
Just a comment about automobile financing... My wife and I had been saving for a new car for awhile and purchased recently. We were actually prepared to pay cash for the car (cash which was sitting in money market earning about 4.65%). Well, right as we began to shop around, we began seeing ads for 3% financing, then some for 1.9% financing, and even down to 0.9% from Ford! I found out that the reason they were offering such low rates is because there was still a lot of 98 models on the lots and dealers were (and still are) trying to move them out to make room for the new 99 models. We jumped on one of these deals and by financing and keeping the cash in MM, we continue to earn 2.75 % on the cash (4.65 - 1.9). Since this strategy seems to have been working well for dealers as new car sales are up so this may turn out to be a trend we see on an annual basis. While this has been a profitable strategy for me, those that could really benefit from these deals are those who don't have the cash and must finance to get the car. I've seen rates as high as 9.5%! Think of the savings there! By waiting and financing that same car for 1.9, your saving 7.6 %! On a $20,000 car you could save you between $2500 and $3000! And for those that MUST finance, that translates into LOWER payments! In conclusion, the perfect time to buy would be just before new models come out, and at the end of the month when salesmen are desperate to meet monthly sales quotas.-- posted by Steve67
» KwL - Count. Good points, but one can do even better to have the mone
Count. Good points, but one can do even better to have the money and bargain to get the savings as a discount on the purchase price. 1.8% financiny costs the dealers some money which they nick you for on the car price. Also, you pay taxes on money earning interest but can't deduct the 1.9% interest.Kirk Lindstrom
editor Personal Finance and Investing My Recommended Reading List
-- posted by KwL
» Steve67 - Kirk, agree with your last post. It just so happens that I did m
Kirk, agree with your last post. It just so happens that I did my bargaining in adition to the incentive financing offered by GMAC and got what I feel to be a GREAT deal. There is a few very good web sites the teach you everything you need to know to get the best deal possible on a new or used car. The one I found the most helpful was www.edmunds.com. They offer a 9 chapter guide by Dr. Burke Leon called The Insider's Guide to Buying a New or Used Car. This guide contains the following chapters:1. How to Prepare for Your Buy and Trade-in
2. Who's got the advantage: You or the Dealer?
3. How to Act Like a Real Buyer
4. How to Control the Negotiation Process
5. Always Know Dealer Costs
6. What to Bring to the Dealer
7. How to Win the Dealer's Game
8. The Best Buyer Defense Mechanisms
9. Closing, Financing and Leasing Tips
In my opinion the most important things to know when you deal with car salesmen is the invoice cost of the car or what the dealer actually paid for the car (sticker usually reflects a 9 or 10% markup over invoice eventhough they will accept as little as 2% and in some cases even less than that!), and if you have a trade-in, knowing what your car is really worth to them. If you don't know these numbers, you have no basis for negotiation. And if the dealer knows you know them, you'll save yourself a lot of haggling. The great thing is, these numbers are VERY easy to get. here are a few sites that give you the base invoice prices and the price of any added options:
www.edmunds.com (same place that has the guide above)
www.carwizard.com
www.autovantage.com
www.autosite.com
www.kbb.com (Kelley Blue Book)
When I knew what kind of car I wanted, I wrote down the base price and the price for EVERY option, so at the dealership I could calculate the price of any combination of options on that particular kind of car to find out EXACTLY what THEY paid for it. I used this along with tactics found in the guide. Once the salesman found out I had this information (I made sure he knew), I was totally in control.
One final note that's worth mentioning: The dealer will lead you to believe they're not making much on the sale of the car and may even try to feed you a sob story. Don't buy it. Even if they sell you the car for invoice, the dealer gets what's called a DEALER HOLDBACK, a price guaranteed to the dealer even if they sell it to you at cost. For domestic cars (Chrysler, Ford and GM) the holdback is generally 3%. More about dealer holdback at: www.edmunds.com/edweb/holdback_list.html
Hope everyone finds this information as useful as I did!
-- posted by Steve67
» JenL_3 - Count, thanks for the links about car purchasing. I bookmarked
Count, thanks for the links about car purchasing. I bookmarked them. We buy used cars, and try to make them run as long as possible, but with 3 drivers in the family, and soon to be 4, we'll have to buy another car sometime, and your links will come in handy. We try to always buy used cars, for the best bargains; and since Washington State licensing dings the new higher priced cars more than the older modest priced cars, buying used cars saves on licencing fees also.Also Kirk, last time we took out a modest car loan, through the dealer, but actually from a bank, we found out all about front-loading the interest payments. When we re-financed the house 6 mo. later, and wanted to pay off the car loan, we found out that we still owed almost the whole initial amount of the loan. Most of our payments up to that point had been paying on the interest only. Your advice about saving up for a car rather than paying interest on a car loan is very good. J.L.
-- posted by JenL_3
» Nancy_Coulter - my biggest problem with my loan is that i know i could have gott
my biggest problem with my loan is that i know i could have gotten a better deal. however, the timing was just really bad. my other car was just stolen and i was living back home at the time. that meant that between 5 people in the house (all who had jobs and committments during the day) we had to split 2 cars and get things done. the stress from all of that built up and finally i gave in and bought my car. i was hoping to save some more money (since i wasn't planning on buying a car last year).... but i wasn't able to do that.i actually couldn't get a loan approved with the dealership bank (honda's bank)... i ended up going with a local bank, via the dealership. so i'm not really sure how the details of my loan worked out (so i'm not sure if it's "front loaded" or not). the loan is with a local bank - not the dealership.
the whole process was just really rushed. i went to go check out cars on sunday and by wednesday i had my car. which was nice and gave me this great "rush" since it was my first real new car that i got on my own.... but i still felt that i could have done better. i know that when the time comes for me to get another car, i'm going to do it differently and i'll make sure that i don't get stuck with a high rate loan.
my brother ended up getting his car a month later. he is leasing his car (to buy at the end of the lease) and he got a GREAT monthly payment due to the fact that our mother knew the woman working in the finance office. so it does pay to know people in certain places. ever since then, i've been kicking myself for not waiting just a little bit longer and shopping around some more.
- nancy
Nancy Coulter
Contributing Editor: Women's Issues
ICQ: 1575634
Check out all the other Women's Topics on Suite101.com!
-- posted by Nancy_Coulter
» Steve67 - Nancy, Sounds like you at least know more than the average perso
Nancy, Sounds like you at least know more than the average person does when buying a car. As I said in an earlier post, the most important thing when buying a car is knowing the price your dealer paid. As far as everything else is concerned, the best way to handle the details (especially financing) is by simply taking your time. Don't let the salesman think you have to buy TODAY. Get all the information, walk away and take some time to go over the numbers. If a salesman really wants you to be happy w/ you purchase, they shouldn't mind. Be sure you make an informed decision. If you haven't already, try some of the links I suggested. You'll learn everything you need to know about buying a car. Good luck w/ your next purchase! By the way, isn't that new car smell awsome!-- posted by Steve67
» Karin - Nancy, why do you buy a car from a Dealer? I think it would be
Nancy, why do you buy a car from a Dealer?I think it would be better to buy your first used car from a little old lady down the street with as low milage as you can find.
I paid $350.- for my first car.
Got me anywhere and had no trouble with it. Pay cash!
K.D.
-- posted by Karin
» Nancy_Coulter - i bought a brand new car (not a used one)... and the reasoning b
i bought a brand new car (not a used one)... and the reasoning behind that was mainly the deal i got with the warranty.my car loan is a 5 year loan, and my warranty lasts 6 years. that means that if i have any problems with the car, then i don't have to worry about those extra costs. i can't afford to be paying money to have something in the car fixed all the time. i've driven a few used cars (all handed down to me from various family members)... and they were nice cars, but every other month there seemed to be a new problem with the car. which meant that i just threw more money into it, so it didn't really save me any money.
a long time before i bought my car, i did make the decision that when i would buy my first car, it would be a new car with a warranty. that's what i've wanted/needed more than anything else. i have to say, it's been great. i get free oil changes and i haven't had to pay for any kind of maintenance to the car since i've bought it.
i doubt i would have had the same experience if i had bought a used car - even if it was from the little old lady down the street. plus, like i said earlier, i was in a rush to get a car. with the way the circumstances were, i didn't have the time to search through the classifieds and find the perfect used car.
- nancy
Nancy Coulter
Contributing Editor: Women's Issues
ICQ: 1575634
Check out all the other Women's Topics on Suite101.com!
-- posted by Nancy_Coulter
» JenL_3 - Nancy, if you buy your new "used car" from a dealer, you might n
Nancy, if you buy your new "used car" from a dealer, you might not get such a good deal, but you can get a warranty. But from our experience, the warranty is usually so many years or so many miles, and with the amount of miles that we drive, the warranty usually runs out due to mileage, way before the time limit is exhausted; but that happens with new cars also. Once we started buying used cars, we wouldn't even consider buying a new car. Just call us cheap, but I'd rather invest my money in the stock market rather than in a new car, that will loose half it's value the minute it is driven off the lot. J.L.-- posted by JenL_3
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