Is It Time To Get A Cheap Dealer-Financed Car Loan?

With banks continuing to stick to high (well, higher) lending standards, and car dealers eager to move inventory, now could be the right time to buy a new car and finance it through the dealer, according to SmartMoney. Rates are as low as zero percent, and . “nothing beats 0%,” says Paul Taylor, of the National Automobile Dealers Association.

SmartMoney runs the numbers and finds some good deals for consumers — though not necessarily for car dealers.

[T]he savings for consumers could be considerable. On the 2011 Toyota Camry sedan, with a base model price of about $20,000, consumers can get 0% financing for up to 60 months at some dealers. Put $2,000 down on a five-year loan (the average length of most auto loans) at 5.9% and you’ll shell out $840 more in interest over the duration of the loan than a dealer-financed borrower who locks in 4.2% and around $2,820 more than a buyer who scores a 0% interest rate. …

[D]ealers are offering interest rates that are 0% or close to it — for less than what it costs a financing arm to raise capital to lend. In this case, the dealer is not making money, and, because the automakers subsidize the loans to help dealers move cars that aren’t selling, the automakers are losing money.

Of course, buying a new car may not always be the best option, but if you are considering it, now may be a good time to start looking into it.

Car Dealers Lending More Money to More Buyers [SmartMoney.com]

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  1. Cheap Sniveler: Sponsored by JustAnswer.comâ„¢ says:

    Yea, “new to me” is still my best deal. I’m not about to eat the new car smell premium. Let the other sucker do that.

    Used car rates are still pretty good for those of us with decent credit (Hint: Pay.your bills.on.time) and although I am not in that position yet, Cash is still king.

    • Applekid ┬──┬ ノ( ã‚œ-゜ノ) says:

      I think a lot of it depends on the car. I might trust that a used Buick wasn’t abused, but I don’t think I could every believe a used Scion was treated well.

      Yes, I am completely buying in to the stereotype that old people buy Buicks and young people buy Scions.

      • Cheap Sniveler: Sponsored by JustAnswer.comâ„¢ says:

        As would I.

      • partofme says:

        The next iteration of your statement is that a lot depends on the previous owner(s) of the car. If you’re buying from an original owner, it’s generally pretty easy to get a good sense of how it’s been treated throughout its life. If you’re further down the list, it’s pretty much next to impossible to know anything except by the stereotype.

      • Big Mama Pain says:

        I have a 32 year old Buick that is still going strong!!

      • falnfenix says:

        Yes, I am completely buying in to the stereotype that old people buy Buicks and young people buy Scions.

        right there with ya.

    • not-gonna-tell-ya says:

      Best advice ever. The article quotes an auto sales association that says 0% is AWESOME!. What a crock. Who in their right mind thinks paying a 30% premium in price at 0% is a good deal? I’ll pass.

      • Brunette Bookworm says:

        Someone like me who has a longer commute? After multiple used cars and the repair bills with them I love having a new car. The lack of worry about what’s going to go wrong next and do I have enough saved for a major repair is worth the depreciation. I plan on keeping my car the entire loan period, maybe longer. I’d rather be able to depend on my car all the time than save a few bucks. Plus the monthly payments on my new car were less than what I had paid on a used car AND I use a lot less gas.

    • Das G says:

      Hah. I was in the market for a new car in September. I was going to get a used car. I then found out that I could get a brand new Mazda3 at 0% for cheaper over the life of the loan than a used one at the lowest used car rate at the time. Good cars don’t depreciate like they used to. The KBB value on my car is still $600 more than what I paid for it, but then again I got a great deal on it.

    • Kate says:

      From what I understand, used cars right now are not a good deal. In some cases, they cost more than new.

    • sonneillon says:

      My car new cost 14.5k with tax, the used 2 year old version with 35k miles on it cost 13k with tax. I paid the extra for a better interest rate and 2 more years of warranty.

    • zzyzzx says:

      My 1999 Oldsmobile still has that new car smell. Then again given the lack of miles on it, maybe it should.

  2. Costner says:

    I disagree that “nothing beats 0%”. The price of that financing is always built into the purchase price in one way or another, so a car purchased with 0% financing could often be purchased for thousands of dollars less if the purchase was made with cash.

    If you pay cash for your vehicles not only do you get the best possible price, but you earn interest on the money you are saving for the vehicle right up to the point you buy. Thus, instead of subsidizing an artificially low interest rate on a car, you could be collecting compound interest which works to your advantage.

    Oh yea – and always skip the new car for one that is a couple of years old. It is silly to invest in a depreciating asset, so let someone else take the big depreciation hit for those first couple of years and you’ll come out ahead each and every time.

    • nbs2 says:

      Of course, with interest rates at historic lows, the compound interest you make probably won’t be that much. Also, if you plan to hold onto the vehicle until it stops running, depreciation isn’t that significant a loss. It’s a bit of money that you might not have spent up front, but you would need to factor any upgrades you make after the fact

      That being said, I can’t disagree with the point that you should have most/all to make as a down payment. In addition to having the extra money, if something tragic happens to the vehicle, you don’t want to be left holding the bag for the rest of the purchase price.

    • FuzzyWillow says:

      The 0% often has an option to get manufacturer cash instead.

      In most cases this low rate is offered by the manufacturer’s finance company (e.g. Ford Motor Credit or America Honda Finance), so the dealer is not subsidizing that rate. So if you walk away from it, you are leaving money on the table.

      The rate should not determine the price if the rate is provided by the financier, not the dealer.

      • nbs2 says:

        They do? I remember seeing that offered once upon a time (including a calculator at my bank that would determine whether you could save more by using bank financing and taking the cash discount or using dealer financing), but I haven’t seen an offered cash discount in a few years. Perhaps it just isn’t worth advertising.

      • gman863 says:

        This isn’t always true.

        Although some mfrs. like GM & Ford promote choices (“0% or $2000 rebate”), others use “dealer incentives” – a hidden payment from the mfr. to the dealer if a customer does not take the 0% financing.

        On slow selling models (gas guzzlers), there is often a hidden dealer incentive ON TOP OF the public finance/rebate offer the mfr. is promoting. This is why certain pickup trucks always show up in ads at $6000-$8000 off MSRP if you skip the 0%. Even at a steep discount, the hidden money paid by GM, Ford or Chrysler still makes it profitable for the dealer.

  3. Virginia Consumer says:

    It all depends on the car you want. Some used car models or types are at highs right now. If you like to buy newer used cars, then yes it’s a good time to buy new. I have had pretty good luck with my last few used cars though.

    • nbs2 says:

      Yep – our model of choice, MY10 or newer Outback, is selling within 10% of new right now. And that’s when you can find one that’s used. I suspect we’ll end up getting one new CTO. If there is a group that I don’t get, it’s the new-from-inventory- buyers. If you are going to buy new, why not get what you want unless you need that new car right away?

    • not-gonna-tell-ya says:

      All because the govt muckity mucks messed with the auto market. There was a net depression of available cars as a result of the cash for clunkers program (cars traded in HAD to be destroyed even if they had value). Result=higher price for used cars due to reduced stock.

      On another note, how green is it to throw away something that is still functional just to have someone build a new one for you…

      • FuzzyWillow says:

        That is a good question, but if the components of the vehicle are recycled even though it is not operable, you are not losing anything. While at the same time some of those clunkers were burning gasoline at such a high rate, those owners are now onto more fuel efficient vehicles.

        My understanding was the most popular vehicle clunked in was the Ford Explorer and the most popular vehicle purchased was the Toyota Corolla.

        Explorers had very low resale value, so I doubt those specific vehicles impacted the used car market much.

        • chucklebuck says:

          You’d be surprised. I actually WANT a used Explorer (or similar) but the prices for them around here are completely insane. A 1999-2001 model with over 120K miles or so gets priced around here between $5000 and $6000. That is completely insane to me.

          Luckily (?) my 1993 Metro by some miracle just passed its safety and emissions inspection so I can put my search off until prices come down or it dies or it fails inspection next year.

          • gman863 says:

            Be patient.

            When gas hits $4/gallon prices for large used SUVs will nosedive. ABC 13 did a story on this last time gas peaked. Trade in and auction values on some fell by 40% in Houston – the redneck Pickup/SUV mecca of the world.

            • chucklebuck says:

              Yeah, I am hoping my car lasts until summer vacation season when gas really spikes. I drive 2000 miles a year, so gas prices will not affect me all that much.

  4. Nigerian prince looking for business partner says:

    It’s been my experience that the special dealer financing typically has an option for a cash rebate that’s roughly equivalent. I’ve always had better luck prearranging financing and then negotiating an out-the-door price with the dealer.

  5. shepd says:

    Financing a car is only a good deal if the financing rates were negative. Remember, you are buying a depreciating asset with debt. Even at 0%, you lose money. Of course, the utility has a value, and that’s fine, but from a pure profit standpoint, don’t buy a car with debt, period. Cash in hand or forget it.

    • Cheap Sniveler: Sponsored by JustAnswer.comâ„¢ says:

      To a very large extent, I agree. The only problem with that is – cash on hand in this economy, and the very high price of cars in general make cash purchases difficult for most.

      Yet, I’ve only had ONE car loan in my life, and my last car purchase was a 1993 Ford Taurus for $1000 with only 65,000 miles on it – five years ago. It still has less that 100,000, and I could get at least $500 out of it today. One benefit of owning a $1000 car with no loan – nobody requires you to have collision. If it’s totalled, I either buy a new one cash or – in an extreme case – use a line of credit.

  6. colinjay says:

    My wife and I just bought a 2010 Toyota Prius at 0% for 60 months. I was looking at a bunch of other options including some used vehicles but with the higher interest rate on used vehicles, I couldn’t justify missing out on a new car with a full warranty.

    Additionally, dealers don’t always “build in” the discount financing to the final price of the car. If you do the proper research, stick to your guns and are prepared to walk away from anything less than what you want you can still get a deal. I payed $100 over invoice and still got 0% financing.

    Oh, and my FICO isn’t even that great.

  7. remusrm says:

    I got in 2009 a 2010 Toyota Corolla LE new with sticker price of 18750 for 16700 out the door plus 0 percent. Beat that. A used one would not be that much with 3.9 to 7.9 interest. So saving extremist check your facts. This year I got a 2011 Mazda2 sticker 16430 for 15600 plus tax out the door and .9 interest. That is 499.99 interest for 60 months. Not bad. To bad the Toyota had 41k and had issues with transmission.

    • falnfenix says:

      Beat that.

      alright, i’ll bite.

      back in 2006 the boyfriend bought a Nissan Titan king cab with 4WD, what they currently list as the “S Popular Equipment Package,” bed liner, and 8 year extended warranty. invoice was just a hair under $32k. boyfriend walked away paying $24k after his meager $2k trade. i believe he had a 1% interest rate (it was the best they were offering at the time).

      unfortunately that dealer is now closed, or i’d be going there to get a new car this summer.

  8. travel_nut says:

    We got 2.9% on a used car from a Nissan dealership. I thought that was pretty darn good, since I was under the impression that you could only get really good interest rates on a new car.

    0% on a new car would be nice…if you can afford the hefty cost of a new car.

  9. Donathius says:

    I got a killer deal a year ago on a 2004 Honda CR-V. It was exactly what we were looking for and had 75k miles for $10,000. Got a decent interest rate (5.2%) with zero down since we were broke and desperate. I checked the KBB recently and we owe less than the car is worth. If I was to sell it for the private party value I’d make money after paying off the loan.

    • Awjvail says:

      I test drove a 2nd Gen CR-V… I found it extremely uncomfortable to drive, mainly due to the lack of a dead pedal. Your leg seems to be at an odd angle because you don’t have a spot to put it.

    • Me - now with more humidity says:

      I did the same with a 2008 Civic and a 2006 Scion xB last year. Got the Civic $4,000 below low book and the Scion $2,000 below low book. Excellent deals and just what we wanted. Had friends get a great deal on a new CR-V. Just gotta go negotiate. Have CU financing in hand first.

  10. FerretGirl says:

    I used USAA’s car buying service to get a new car this year. They had 4,000$ off MSRP for a new car but only 200-500$ off used cars. I picked a 2010 Hyundai Elantra with 10 year warranty (free tires, free oil, free roadside assistance, all that junk) and 7 miles on it and essentially paid the same price as I would have for a 3 or 4 year old used car with 3 to 5 years of warranty and between 50 and 75 thousand miles on it. Since I intend to drive my car until it runs into the ground or sell it after 5 years that was a no brainer for me.

    When I got to the dealership, USAA loan in hand, the dealership offered me another 1,000$ off if I’d finance with them. Since they were offering me 3.9% and USAA had given me 11.75% I went with them. I feel like I got a great deal. …0% would have been better, but for a first time car buyer with fairly new credit I don’t feel bad about what I ended up with.

  11. TasteyCat says:

    Whether it’s wise to get a loan from the dealership or not, the bottom line is simple. Go to a dealer with financing already lined up. If they can beat it, great. If not, don’t use them.

  12. gman863 says:

    What sucks is these offers usually apply to turd models a manufacturer is overstocked on.

    I’m considering buying a hybrid this year – likely either a Ford Fusion or (when released) Hyundai Sonata. The fine print in every finance/rebate offer I’ve seen always states “excludes hybrids”.

  13. mac-phisto says:

    some previous commenters touched on this, but not entirely.

    not only can you beat 0%, but you can even do it with financing at a rate higher than 0%. how? many times, manufacturers offer a cash incentive that is forfeit if you choose no-cost financing. for example, GM is offering $2500 – $3500 back OR 0% for 60 months on select models right now.

    so, let’s assume you purchase a $25,000 vehicle with 0% financing for 60 months OR $3000 cash back. & let’s assume you qualify for financing at my credit union – 3.49% for 60 months. instead of financing $25,000 at 0%, you’d be financing $22,000 at 3.49%. the total of payments would be ~$24,000, which means you just beat 0% by about $1000.

    my advice? shop rates beforehand & secure financing before you go car shopping. then, focus on finding the vehicle you like that you can afford & agree on a price WITHOUT discussing financing options – don’t allow your negotiations to be clouded by how you intend to pay for the vehicle. once you agree on a price, THEN discuss financing options & determine which option has the lowest cost to you.