SCG-Milan

Up until this point in my life I have paid cash for everything, or I have put it on my credit card and paid it when the bill came in. Now I'm looking at taking out a loan for a used S2k but I'm not 100% sure how it works...

I know how loans work, I get interest rates and everything, I just don't know what happens when it comes to $$$.

So lets say I find an S2k in Seattle for $20k. I don't have $20k but I have $5k. I go to my bank for a loan for $15k to make up the difference and it gets approved. So what happens now?

Does the bank put $15k in my account and then I go to Seattle and cut the guy a check for $20k? How does the bank know I'm using the money for a car? Do they hold the title or something?

Any help would be great...

meth

well, i dont know if all banks will loan money for a used car. i know my bank won't (wamu). i was shopping around for a car just recently and signed up for the capitalone auto loan just to see what i would qualify for. i wasnt expecting a check, but sure enough they mailed me a blank check good for 30k private party loan and 40 dealer purchase. that is one option, i believe the rate was 10% apr.

there are a few other online loan sources and if you can try a credit union.

DryCycle

I normally purchase cars from a private party, and I always get a loan from the local credit union for safety and convenience reasons.

The bank or credit union will want the VIN, and your money. They will issue a check for the full amount of the loan, and give you some papers for the sellers to sign, and a list of documents (like a title) that the CU wants you to bring back. They will also collect state taxes, and might issue temporary tags depending on where you live. My CU also runs a Carfax report, which is nice.

ft2057

My experience with banks aren't very good. I pretty much think they are crooks (no offense to those in the banking industry) with the way they do the math on interest and the amount total to be paid back.

Basically, for a used car, most banks will only allow certain years. The newer the used car, the better. To a bank (from what I understand), you are a liability to them, and a used car furthers that liability with the reliability of the car and the depreciation of value. Hypothetically speaking, if you don't pay the loan back the bank will confiscate the vehicle and sell it, if they don't sell it for the amount owed, thats the banks loss. Which is why a used car loan has a higher finance rate than a new car loan. They will want to get as much money back from you as possible, and if the payment plan is followed according to the contract, they will be up about 5-10k (finance charges) on top of the cost of the car.

There are quite a few other factors that determine the finance rate you will be charged; your credit history, your employment history, your monthly income before taxes, and quite a few other things on top of that.

Another thing to think about is how long you want to be paying on the car. The shorter the amount of years to be paid, the higher the monthly payment and vise versa. However, the higher monthly payment and lower the years to be paid will ultimately save you the most money since this option will most likely have the lowest interest rate. The longer the payment plan, the higher the interest rate and the higher the interest paid.

My s2000 that I financed was roughly $20,000 when I got it (because of negative equity on my trade in), the total amount that I will pay after my 5 years of paying for this car is roughly $31,000 due to my 11% interest rate and this car being my first car purchased on my own without any cosigner.

This may be a lot more information than what you have asked for, but I figure it would be nice to have as much info as possible before you commit to something this big.

AssassinJN

This also depends on who you get the loan through. If you get the loan on your own as mentioned above, then you get a check to write out what you need. The other option if the used car is at the dealer, is to get it through the dealer from the bank they work with. The small advantage to doing it this way is that you can talk them down some more by mentioning the fact that you KNOW that they get a nice cut when they finance a car (on something like the S you should be able to get at least $500 lower then what they agreed to before saying you'd finance).

I realize you probably have your mind already mad up that you will be getting a s2000 or something similar, but I would highly suggest that you spend only what you can afford to pay cash on your car. As the example above, 20k of car payments will end up costing you 30k over time. Even if you double your payments each time you will still be spend at least $4k more then the price you agreed to.

If you are going to borrow around 15k for 5 years at 8%, then you are looking at payments of at least $350 a month, $4200 a year. If you can wait 3 years, then not only will you have that extra $12600 in your pocket, but the price of the car will be down but a couple grand as well, putting you in a position to pay for the car straight up. Saving you from paying the last 2 years.

Sorry for being the party-pooper. Just hate seeing people make the same mistake I did.

ft2057

Remember, if you do decided to finance, don't feel bad about low balling them. Try it and see what happens, regardless of the outcome the bank will STILL be making some sort of income off of you. A low 8% interest as mentioned above is an extra 4k just to use the banks financing services. Don't be afraid to shop around either, these guys want your money so they will try to cut you a deal. If you don't get the deal you want, walk away.

SCG-Milan

The point of financing is to stay liquid.

At my local credit union I can get a used auto loan for 60 months at 7.46%. In my opinion paying a little extra for the ability to pay over time is cheap insurance as opposed to withdrawing $20k from your bank account at once.

Shit happens, you never know what you might need your money for or what other opportunities will prevail at the time. While I agree it is unwise to be upside down on your loan for a car, I still think financing is the way to go if it's a viable option.

Also with the way interest rates are going, it's becoming better and better to take out a loan, assuming you aren't dependent on it.

I was just asking more of how it physically works rather than if it's a good idea or not.

BTW, how is 8% on 15k an extra $4,000?

SD_S2K

With my credit union once you are approved for XX amount, they can cut you a blank check that states on it "can be written for up to XX amount only" and then it acts like a cashiers check that you write out to the seller.

In that case you would go to Seattle, negotiate the price, and hand him the check and you are done, in terms of the loan. Once it is cashed you trigger the loan and I am sure you will have some basic follow up paperwork and stuff. Of course you also have to register it and pay those fees, but that has nothing to do with the loan.

You may want to shop around for better rates. Depending on the year of the car, you can get better than 8-11%. For 2006 my CU has a 5.9 rate and a 2001 car is a 7.49 rate, with lower rates for years 02-06.

I think bankrate.com also shows auto loan rates....

Personally for any car over 10k I would also prefer to finance and keep my cash liquid.

ft2057

This is why I call bankers and their math crooks. If you do the math yourself, it does not add up to an extra 4k, but a 15k loan at 8% averages roughly around 350 for 5 years. Now, if you do the math, that is 21k total that you will be paying. The way the banks calculate their interest and adds them up every month is a complex formula, I've been trying to find this formula for awhile and apparently I was told that each bank has their own.

I'm not trying to steer you away from financing, but I do want to make sure you know how much that will cost you in the long run. If you decided to do it or not is totally up to you.

sahtt

You know Albert's 8th wonder of the world, compounding interest? The thing all us investors work so hard to take advantage of? The banks are the masters of the trade, and most of their victims have no idea who they are dealing with. Just like how 24% interest doubles your principle in 3 years, it works the other way against you when you get a loan. 10% interest on 100k dollars is NOT 10k$, depending on the amount of years it's going to be multiples of that figure. Most mortgages even at "low" rates actually cost 2-3 times the value of the house when the loan was first purchased.

Go to your local credit union and talk to them. They'll gladly give you a high interest loan, it makes them rich and requires about 30 minutes of paperwork. Not a bad deal for 5-10 grand in pure profit eh?