Questions and Answer Time

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Written by Eric Strauch

Tuesday, 05 April 2011 17:51

We had a few questions after our last Surviving the Sale post.  Feel free to email your questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it and we will answer them here!

From Denise in Mpls

 

Q:   Is it important that I know how I am going to pay for the vehicle prior to starting my search?  Should I get preapproved for financing if that is the way I am going to pay for the car?  If so, how do I go about getting a preapproval and where are the best places to get the loan from? 

 

A:   Knowing how you are going to pay for your purchase is a very important and often overlooked aspect of the buying process.  If you are paying in cash, it does make the whole process easier, but you may miss out on some rebates available to you. With a cash purchase, you know what you have to spend, and can search within your price range.  These days having that amount of cash laying around is something that most people do not have, so financing your purchase becomes something to add to the thought process. 

 

You have a few different options when it comes to financing.  It is best to get preapproved for financing prior to starting your search.  It is a waste of your time to search for a vehicle and then find out that you cannot get financing for your purchase.  This will also help you narrow down your search, as you will know how much you have available to you for a loan.  

 

We recommend getting a pre-approval on your own, through a bank or credit union in your area.  You can use this to decide if the dealer offered financing is competitive or not.  Credit Unions typically have lower rates for loans, so they are normally the first place we tell people to look.  If you are not a member of a credit union already, there are multiple credit unions around that can qualify you based on where you live or work.  Most do not require you to actually join their institution in order to get pre-approved for a loan, but will require you to become a member upon closing your loan and making your purchase.  One aspect of doing things this way is it does not matter where you purchase your vehicle from, and allows you the flexibility of working with whomever you like to find your vehicle.

 

The dealer will also offer financing at the time of purchase.  If you have already gotten pre-approved on your own, you can compare that rate and term to the dealers.    

 

As always, your comfort level should play a major factor in making the decision of what route to take.  If you have been a customer/member of a financial institution for years, and do all of your banking through a certain place, do not hesitate to contact them and work with them for your financing needs.

 

From Mike in Woodbury

 

Q:    Should I take the 0% dealer financing with no rebates, or am I better off financing with my bank/credit union and getting all the rebates.

 

A:    We get asked this question all the time, and it is a tough one to answer.  You really have to look at what the interest rate on your purchase would be if you finance it outright and take the rebates, or if you forfeit the rebates and take the 0%.  Lets run one scenario, to show you what we are talking about.  As always, LC is more than willing to look at a specific scenario with you and advise you as to which route would be the most financially beneficial to you.

 

Say you are financing $25,000.00 (using round numbers is easier for examples sake).  The dealer offers you 0% financing, but you must forfeit the $3000.00 dealer rebates.  You go to your local credit union and they have a 2.99% interest rate for 48 months. Your total finance amount if you finance with your credit union would actually only be $22,000.00.  Total interest if you made all 48 payments without paying anything extra or paying off early would be $1,372.00.  Here is a breakdown of your total costs.

 

Dealer – Finance amount $25,000.00 – 0% interest = 0 – Total amount paid = $25,000.00

 

Credit Union – Finance amount $22,000.00 - 2.99% interest over 48 months = $1372.00 – Total amount paid = $23,372.00

 

You save yourself $1,628.00 by taking the $3000.00 in rebates and financing with a set interest rate and term. 

 

Another thing to keep in mind is that the 0% normally has fine print that allows for them to raise your interest rate if there is ever an issue with your payment.  If a payment is delayed because of the mail, or any other issue, you forfeit the 0% and the rate gets raised to another stated amount, normally much higher than any normal finance amounts you would accept.  

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