Car loans, interest rates, HOW hard can it be?

[JulieN]

BF, his family, and I, went car shopping over the weekend. He has a 750+ credit score, it's going to be his first car, and they offered around 7.3% on a 6-year loan, and 9.5% on a 5-year loan. This seems ridiculous to me?

 

[zoebartlett]

Yeah, that seems really high.

 

[packrat]

Where did he get the quote? The dealership? I've always gotten high quotes from them, so we go thru our Credit Union.

 

[TravelingGal]

Depends where he's getting quoted. Also, I would imagine it may also depend on what makes up that 750+ score. I'm no expert on how they are calculated, but if this is his first really big purchase, he has no history of paying back a large debt? Perhaps they look at stuff like that?

 

[onedrop]

I agree those rates are really high for a person with that credit score. Like packrat, I usually go to credit union to get auto financing, because they seem to offer the lowest rates. Then I see if the dealership can or will beat the rate I got at the credit union. Sometimes the dealer beats the credit union rates. Your BF might want to try other lenders to see if he can get a lower rate, and if he does get the lower rate, take that to dealer and see what they say.

 

[JulieN]

Cool, I guess we're going to shop around for rates. This was at the dealership. He also starts repayment on his student loans this month, which he has set up to automatically withdraw from his bank account, so hopefully 6 months of that might get him a better rate.

 

[Asscherhalo_lover]

My credit union came in at 5.25 for a five year and my credit score isn't even that high. The dealership is trying to make extra money off you. Look elsewhere!

 

[HollyS]

With a good credit score, he should be able to finance at a lower rate.

BUT, if he has not purchased a car before. . .
Or he currently does not have any installment loans on any other items . . .
Or it is a used vehicle . . .
Or he is not buying from a dealership, but from a used car lot . . .

All of those, or any of those things may determine his loan rates.

Buy at a reputable car dealership. They can offer the best loans because of their bank connections.

 

[Irishgrrrl]

Julie, is he looking to buy a new car or a used car? I ask because the rates on loans for new cars are usually lower than the rates on loans for used cars.

If he is looking at used cars, he might want to consider a new car instead. Many car manufacturers offer no interest financing specials from time to time (like 0% for five years), and your BF should have no trouble qualifying for those offers with a credit score of 750. He might be able to afford more car if he doesn't have to pay interest!

 

[swingirl]

Used car rates will be higher than new car rates but those quotes seem very high. His credit is good. I don't think the rate will change if his credit score improves. Shop around. Since he has good credit a bank might be a better bet that through a car dealer.

 

[JulieN]

It's for a new car, the Chevrolet Cruze.

Boy-o, family politics was pretty crazy to navigate: he and I were spending a week at his parents' house for the holidays. His mom thought I was a bully for talking him out of it, and his dad didn't think it was that bad of a deal.

He doesn't have any installments (yet) but he pays off his CC bill in full every month, which is over $1000.

 

[fieryred33143]

Yeah agreed that it's high. Your best negotiating tool is to have preapproved rates and quotes. If you walk into a dealer saying x bank is offering x rate, they'll either offer lower or some extras to get you to finance with them. And if they can't come lower or at least match, then that's a good indication that you have a decent quote.

 

[swingirl]

On the Chevrolet website they are offering 2.9% for up to 60 moths on a 2011 Cruze. I think your car dealer was hoping you didn't know what Chevrolet was offering.

 

[Irishgrrrl]

On the Chevrolet website they are offering 2.9% for up to 60 moths on a 2011 Cruze. I think your car dealer was hoping you didn't know what Chevrolet was offering.

Agreed. I would ask the dealer about that financing option and see what they say. If they jerk you around, I would look for another dealership to work with!

 

[chemgirl]

On the Chevrolet website they are offering 2.9% for up to 60 moths on a 2011 Cruze. I think your car dealer was hoping you didn't know what Chevrolet was offering.

Agreed. I would ask the dealer about that financing option and see what they say. If they jerk you around, I would look for another dealership to work with!

Sometimes the websites have a disclaimer that interest rates they post are just approximations (not sure about this particular add). I noticed this when buying my latest car. The VW dealership pointed to the little asterix when I asked why my rate was above the advertised rate. Regardless though, I went to several dealerships and didn't see any rates higher than 3.9% for a 4 year term (didn't check Chevrolet though...I have issues with our local dealership...long story).

I did find some variation between dealerships as far as price and sales tactics. We ended up buying our Golf in a smaller city because we found them to be far more accomodating. They seemed happy to make the sale and spent quite a while showing us every model we wanted to see. Our local VW dealership lost the sale because he kept on trying to upsell us with really strange tactics. We gave a price range and the guy kept on telling us we couldn't find anything in our range...except there were loads of cars within our price range. He didn't even bother letting us sit inside of any cars and said we weren't serious shoppers and he'd help us when we were ready to spend....Anyway, the high pressure was a turnoff and we almost bought a different car. The second dealership was far better, with better pricing and trade in value.

So I second the idea of trying another dealer.

ETA: I'm in Canada, so interest rates may be different here.

 

[megumic]

Okay, I recently had a very different experience than what most PSers have described.

I am currently a student with lots of student debt. (Think 6 figures...) That said, I have good credit and a high FICO score (credit score). I have an amex, I use it and pay it off every month.

Last May I went out to purchase a new car as ours was sucking the cash blood of life from us. We decided on a certified pre-owned from the dealership, a 2007 (we're cheap-os and new cars decline in value 30% once you drive them off the lot...tell the BF to skip the newbie and go for something one or two years old....) Because I have a better credit score than DH, and we were not yet married when we purchased the car, I was the sole purchaser as I would receive a better interest rate on financing. We financed from the dealership and I received a 4.99% interest rate for a 6 year loan.

It may also matter how much you're putting down as a down payment. I really have no idea, but I can imagine the more you put down, the less they have to lose and thus a lower interest rate.

I don't know how old your BF is, but I think the number one thing that makes it tough for younger individuals to get good credit/financing is the length of their credit history. For example, if one gets a cc at age 16 and shows how they are capable of paying it, that's a solid track record. If one gets a cc at 24, and pays well for a few years, that's not enough credit history for someone to trust you to loan to you at a lower rate. Just throwing that out there as it was always the reason cited for why I initially was denied/rejected from credit related stuff.

ETA: I agree with others, those rates seem redic high.

 

[kateydid05]

I bought a new Altima in 2009 and at the time, Nissan was doing a promotion that targeted people who wish to establish their credit and college students, etc. It was my first car purchase and the only thing under my belt in terms of credit were(are) my school loans. The promotion offered 0% interest for the life of my loan (5 years but I'm on track to pay it off early). Keep an eye out...don't settle

 

[tigian]

Don't listen to the dealership if they say they have the best rates. We found rates that were a good 3% lower than they were quoting. When we told them this, they said we chose the only bank they did not have access to. Really?