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What are the popular auto loan options now?

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Valued Contributor

What are the popular auto loan options now?

I haven't applied for an auto loan in 4 1/2 years. My current loan is with DCU (1.74%). Rates have gone up since then.  I'll most likely go with them again but I'm exploring my options. Vehcile will be a 1-2 year old Mustang convertible. MY EQ and EX08 scores at around 750.  TU08 is 788. 

 

I checked another credit union in my area and PENFED. Most places are within a half point of eachother depending on the length of the loan.

Cap 1 - $23,000 / Lowe’s - $17,000 / Barclay Apple Rewards - $15,000 / Capital 1 - $15,000 / Walmart - $15,000
Cap 1 - $12,000 / PenFed - $10,000 / JC Penney - $10,000 / Discover IT - $9700 / Discover IT - $7500
NFCU - $7300 / Barclay Rewards - $5400 / DCU - $5,000 / Merrick - $2400 - Total - $154,300

EQ - 765 / TU - 761 / EX - 755
Message 1 of 6
5 REPLIES 5
Senior Contributor

Re: What are the popular auto loan options now?

I prefer to buy cars 1-2 years old and let someone richer than me take that major first year deprecation. I bought a 2016 Mazda in Sept. 2017 and had offers from a local credit union, Penfed and DCU, and DCU had the best offer by 1/2 pt. but also offered that for 65 months instead of 60. I don't want to make payments for 65 months but figured better to lock in a low rate (2.99%) for as long as possible just in case. And the CX-3 was around $25k new and I got it for $17,500 with 18k miles.


Fico 08: 734/716/734 TU/EX/EQ
Message 2 of 6
Established Contributor

Re: What are the popular auto loan options now?

Check out Certified Pre-Owned (CPO) vehicles, which are among the best deals available. Dealerships frequently offer very good financing for CPO cars, better than the rates available at credit unions and banks. They also sometimes offer added incentives, such as two years free scheduled maintenance. Of course, you'll need to qualify for Tier 1 or A rates. Your scores are high enough for that provided your income and DTI also meet their requirements.

 

For example, I purchased a CPO Mercedes in December and took advantage of Mercedes Benz Financial Services offer of 1.9% financing for 48 months. Good luck!

 

Message 3 of 6
Valued Contributor

Re: What are the popular auto loan options now?

I'm currently exploring all options from new 2019s to used 2018s. That includes CPO.  Those cars have a longer warranty so I feel more comfortable with them.  The only color I'm interested in is blue so that narrows down my options. 

 

Looking at one of the dealer's websites, they show financing at 4.9% for 72 months with a score of 800. That's with 10% down. DCU will finance up to 120% of the value at 5.24% for 72 months. No money down.  They will do up to 65 months at 4.24%.

Cap 1 - $23,000 / Lowe’s - $17,000 / Barclay Apple Rewards - $15,000 / Capital 1 - $15,000 / Walmart - $15,000
Cap 1 - $12,000 / PenFed - $10,000 / JC Penney - $10,000 / Discover IT - $9700 / Discover IT - $7500
NFCU - $7300 / Barclay Rewards - $5400 / DCU - $5,000 / Merrick - $2400 - Total - $154,300

EQ - 765 / TU - 761 / EX - 755
Message 4 of 6
Member

Re: What are the popular auto loan options now?

There are a few options out there these days. Lease/buy of course. However, payments can be pretty steep without incentives. I like another option though! I like residual based financing. You actually own the car and get really low payments (like really low). Essentially it is a 2 step loan. Step 1- You pay the car down to the residual value. Step 2) You decide if you want to keep the car or not. If you don't want to, you return it, like you would a lease car (no impact ot credit as it is part of the loan option). If you want to keep the car, then you pay the balance on the loan or refinance it.  My preference? Drive the car for a couple of years and turn it in and get the newer car. It works for me because I like to own vs leasing and it gives options.. and really low payments.

Happy hunting!

Kristi

Message 5 of 6
Established Contributor

Re: What are the popular auto loan options now?


@klow wrote:

There are a few options out there these days. Lease/buy of course. However, payments can be pretty steep without incentives. I like another option though! I like residual based financing. You actually own the car and get really low payments (like really low). Essentially it is a 2 step loan. Step 1- You pay the car down to the residual value. Step 2) You decide if you want to keep the car or not. If you don't want to, you return it, like you would a lease car (no impact ot credit as it is part of the loan option). If you want to keep the car, then you pay the balance on the loan or refinance it.  My preference? Drive the car for a couple of years and turn it in and get the newer car. It works for me because I like to own vs leasing and it gives options.. and really low payments.

Happy hunting!

Kristi


The problem with deferring loan payments like this is that you build no equity in your vehicle. At the end of your residual-based loan, you owe a big balloon payment. If you choose to keep the car, you will have to try and refinance the loan and hope the depreciation hasn't caught up with the loan-to-value you need. If you don't want to keep the car, you have no equity to trade in on your next car.

 

At that rate, you might as well lease the vehicle in the first place! Other than lower monthly payments, I don't see how this type of financing is attractive. There is no free lunch; your monthly payment might be lower but as a result you'll always be underwater on your loan and never have any equity in the vehicle.

 

If you choose this type of financing, you'd be well advised to purchase GAP insurance in case the vehicle is totalled and you're on the hook for paying off the entire loan!

 

Message 6 of 6
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