I've Got Cash. I Want Wheels. Adavantage/Disadvantage?
August 30, 2011 12:57 PM Subscribe
Looking purchase new car. What are my purchase options to build credit and advantage me for future business/home loans?
I am about to purchase a new vehicle. I am able to pay for it in full with cash. I have read that I won't get that good of a deal as the dealer makes little money and would rather that I finance vehicle. My understanding is that if I do finance and am 100% with my payments my credit history will be looked upon favorably by banks for future loans.
I have thought then to just deposit money into a separate account and let the dealer withdraw it monthly til vehicle is paid off or lease agreement is met.
Outside of money I have little tangible assets. I do not own home, vehicle, etc. I have no debt and my credit is good. The only "black mark" is DMV record. I (have to doublecheck this) have at least 3 points, two of which will clear in 2012.
My ideal would be to lease a vehicle and build credit. Would my DMV record and lack of tangible assets be held against me even if I have the ability to pay for the vehicle in full. Would this also be held against me if I purchase the vehicle and get financing?
I am about to purchase a new vehicle. I am able to pay for it in full with cash. I have read that I won't get that good of a deal as the dealer makes little money and would rather that I finance vehicle. My understanding is that if I do finance and am 100% with my payments my credit history will be looked upon favorably by banks for future loans.
I have thought then to just deposit money into a separate account and let the dealer withdraw it monthly til vehicle is paid off or lease agreement is met.
Outside of money I have little tangible assets. I do not own home, vehicle, etc. I have no debt and my credit is good. The only "black mark" is DMV record. I (have to doublecheck this) have at least 3 points, two of which will clear in 2012.
My ideal would be to lease a vehicle and build credit. Would my DMV record and lack of tangible assets be held against me even if I have the ability to pay for the vehicle in full. Would this also be held against me if I purchase the vehicle and get financing?
Everyone I've ever known who's leased a car wound up regretting it. Unless it's really important to you to drive the latest, expensive car every couple of years, it's always more money in the long run, particularly as there can be lots of little built-in rules and penalties to leasing, such as mileage restrictions and wear-and-tear clauses, that can add up (and which I know you well enough to say you almost certainly won't like).
As for the dealer giving you the better price if you agree to finance... when I bought my car new in 2004, I insisted on negotiating the price before the question of financing was discussed. I went into it having already arranged my financing ahead of time with my (then-)credit card company; the dealer countered with a financing offer that was half a point lower, so in the end I went with them. (Also, I was able to pay off the car loan ahead of time without penalty.) So you should feel free to keep the question of price and payment separate, even if the salesperson wants to try to discuss them at the same time. Agree on the price first.
posted by scody at 1:33 PM on August 30, 2011
As for the dealer giving you the better price if you agree to finance... when I bought my car new in 2004, I insisted on negotiating the price before the question of financing was discussed. I went into it having already arranged my financing ahead of time with my (then-)credit card company; the dealer countered with a financing offer that was half a point lower, so in the end I went with them. (Also, I was able to pay off the car loan ahead of time without penalty.) So you should feel free to keep the question of price and payment separate, even if the salesperson wants to try to discuss them at the same time. Agree on the price first.
posted by scody at 1:33 PM on August 30, 2011
Everyone I've ever known who's leased a car wound up regretting it. Unless it's really important to you to drive the latest, expensive car every couple of years, it's always more money in the long run, particularly as there can be lots of little built-in rules and penalties to leasing, such as mileage restrictions and wear-and-tear clauses, that can add up (and which I know you well enough to say you almost certainly won't like).
Actually, leasing kinda saved my sanity when I was younger.
TMI: I was 22 or so and making decent-ish money, but not tons. Decided I was tired of the bus and bought an older car with a small loan and life was great, but then it started needing brakes. And bearings. And a ton of other litttle nickel-and-dime expenses that always seems to come up when I had just paid my credit card down to zero, or worse when things were tight.
Then the transmission went. By this point I had put nearly what I'd paid into the car (which, added all up over the year I'd had it, would have worked out to a much nicer car), and was just ready to wash my hands of it.
Leasing a car gave me two things I desperately wanted at that point: a predictable, fixed payment, and a brand new, reliable car. I knew that no matter what, my car would only cost me what I'd signed up to pay each month - which is negotiable, btw - plus fuel and insurance. I got my oil changes included with the lease, and the only (minor) repairs the car ever needed were covered by warranty. And the wear and tear insurance I bought with the lease would have paid my at-fault collision deductible up to $1k, so I got to jack up my deductible and saved enough money on my insurance to make the cost of the coverage nearly moot.
FWIW, my credit score gained 100 points in that 4 years as well (though I had an old delinquency drop off in that time too). I've had no trouble since getting credit cards, another car loan, etc etc. I have no doubt the regular monthly payment of my lease helped.
posted by area.man at 3:08 PM on August 30, 2011
Actually, leasing kinda saved my sanity when I was younger.
TMI: I was 22 or so and making decent-ish money, but not tons. Decided I was tired of the bus and bought an older car with a small loan and life was great, but then it started needing brakes. And bearings. And a ton of other litttle nickel-and-dime expenses that always seems to come up when I had just paid my credit card down to zero, or worse when things were tight.
Then the transmission went. By this point I had put nearly what I'd paid into the car (which, added all up over the year I'd had it, would have worked out to a much nicer car), and was just ready to wash my hands of it.
Leasing a car gave me two things I desperately wanted at that point: a predictable, fixed payment, and a brand new, reliable car. I knew that no matter what, my car would only cost me what I'd signed up to pay each month - which is negotiable, btw - plus fuel and insurance. I got my oil changes included with the lease, and the only (minor) repairs the car ever needed were covered by warranty. And the wear and tear insurance I bought with the lease would have paid my at-fault collision deductible up to $1k, so I got to jack up my deductible and saved enough money on my insurance to make the cost of the coverage nearly moot.
FWIW, my credit score gained 100 points in that 4 years as well (though I had an old delinquency drop off in that time too). I've had no trouble since getting credit cards, another car loan, etc etc. I have no doubt the regular monthly payment of my lease helped.
posted by area.man at 3:08 PM on August 30, 2011
Everyone I've ever known who's leased a car wound up regretting it. Unless it's really important to you to drive the latest, expensive car every couple of years, it's always more money in the long run, particularly as there can be lots of little built-in rules and penalties to leasing, such as mileage restrictions and wear-and-tear clauses, that can add up (and which I know you well enough to say you almost certainly won't like).
Strictly anecdotal, but I've leased various vehicles for over a decade and have had no regrets. Buying a new car is a losing proposition, so you don't really "have anything" after you've paid it off. And the only downside I ever faced with a leased vehicle was the mileage restriction, which only hurt me on one car because I was dating a man (the future Mr. Adams) who lived in Cincinnati for a while when I lived in Detroit. So if you take a lot of road trips during the year, the 15,000 miles per year limit may cost you. Other than that, if anything went wrong with the car (other than a flat tire), the dealership covered the repairs in full and gave me a free loaner vehicle in the meantime. Plus, and I wasn't thinking of this at the time, but when I pulled my credit report once during that era the timely payments on my car lease showed as a positive.
posted by Oriole Adams at 3:18 PM on August 30, 2011 [1 favorite]
Strictly anecdotal, but I've leased various vehicles for over a decade and have had no regrets. Buying a new car is a losing proposition, so you don't really "have anything" after you've paid it off. And the only downside I ever faced with a leased vehicle was the mileage restriction, which only hurt me on one car because I was dating a man (the future Mr. Adams) who lived in Cincinnati for a while when I lived in Detroit. So if you take a lot of road trips during the year, the 15,000 miles per year limit may cost you. Other than that, if anything went wrong with the car (other than a flat tire), the dealership covered the repairs in full and gave me a free loaner vehicle in the meantime. Plus, and I wasn't thinking of this at the time, but when I pulled my credit report once during that era the timely payments on my car lease showed as a positive.
posted by Oriole Adams at 3:18 PM on August 30, 2011 [1 favorite]
Ah, interesting. The folks I've known who leased cars (two family members and a couple of friends) found that the mileage restrictions and wear-and-tear rules just didn't work for how they drove their cars (this was in California and New Mexico, where they had long commutes and/or often took road trips, plus, in the case of NM, faced bad road conditions in the winter); additionally, one family member in particular had no end of problems getting their dealer to make complex repairs. So for them, it added up to more money and more hassle compared with owning.
As for the good credit generated from timely lease payments: that's true, but good credit will also generated from timely loan payments. My feeling is that goalyeehah should either pay cash, or take a shorter loan (36 months or less) in order to generate good credit while minimizing finance charges.
posted by scody at 3:50 PM on August 30, 2011
As for the good credit generated from timely lease payments: that's true, but good credit will also generated from timely loan payments. My feeling is that goalyeehah should either pay cash, or take a shorter loan (36 months or less) in order to generate good credit while minimizing finance charges.
posted by scody at 3:50 PM on August 30, 2011
Best answer: Coming from a former car salesman I can tell you that you might get some small consideration on a deal if you make clear that you're planning on financing through them. Check on what rates you can get at your bank or, preferably, your local credit union of choice. However, this is just to get the goal for the dealer to beat which they almost certainly will.
However, that piece of advice changes a lot if we're talking about new cars instead of used. There are often financing deals from the manufacturer. You can usually choose between either low-interest financing or a cash rebate (which the dealer will take off the price). Depending on the rates available, it might make more sense to take the cash and finance through a different bank. The finance manager will help you figure this out.
So long as the loan doesn't have a prepayment penalty, you should only take a shorter loan term if it gets you a lower rate. You can always make extra payments or just pay the whole thing off with your first payment.
If you can get something like 0.9% financing, you should be able to find a super conservative mutual fund (some manner of bond fund perhaps) that will return 2% annually. Assuming the payment isn't a big deal for you cash-flow wise, you could even put it all into a 58-month CD at Wells Fargo and get 1.4% APY. You should, of course, shop around for rates.
Leasing is a different animal completely but "might" be a good deal for you if and only if your mileage stays consistent and you want to have a new vehicle every couple of years.
If you are in fact going to buy a new car, negotiating the price should be pretty easy. Go to edmunds.com (or a bunch of other places) and you can build the car you want. You should be able to pay $100-$300 over the invoice price less rebates and incentives (what the dealer pays for the car). To make sure you're comparing apples-to-apples you'll want to look at the window sticker of the car you want to buy. Make note of the options packages and prices and the exact sticker price.
I have tons more advice about buying cars that may or may not be relevant to you. Check out some of the other ask.me questions I've answered on the topic for most of it or feel free to memail me or reply here if you have any specific questions.
posted by VTX at 7:10 PM on August 30, 2011 [3 favorites]
However, that piece of advice changes a lot if we're talking about new cars instead of used. There are often financing deals from the manufacturer. You can usually choose between either low-interest financing or a cash rebate (which the dealer will take off the price). Depending on the rates available, it might make more sense to take the cash and finance through a different bank. The finance manager will help you figure this out.
So long as the loan doesn't have a prepayment penalty, you should only take a shorter loan term if it gets you a lower rate. You can always make extra payments or just pay the whole thing off with your first payment.
If you can get something like 0.9% financing, you should be able to find a super conservative mutual fund (some manner of bond fund perhaps) that will return 2% annually. Assuming the payment isn't a big deal for you cash-flow wise, you could even put it all into a 58-month CD at Wells Fargo and get 1.4% APY. You should, of course, shop around for rates.
Leasing is a different animal completely but "might" be a good deal for you if and only if your mileage stays consistent and you want to have a new vehicle every couple of years.
If you are in fact going to buy a new car, negotiating the price should be pretty easy. Go to edmunds.com (or a bunch of other places) and you can build the car you want. You should be able to pay $100-$300 over the invoice price less rebates and incentives (what the dealer pays for the car). To make sure you're comparing apples-to-apples you'll want to look at the window sticker of the car you want to buy. Make note of the options packages and prices and the exact sticker price.
I have tons more advice about buying cars that may or may not be relevant to you. Check out some of the other ask.me questions I've answered on the topic for most of it or feel free to memail me or reply here if you have any specific questions.
posted by VTX at 7:10 PM on August 30, 2011 [3 favorites]
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It heavily depends on the terms of your loan, but in general unless you have a very bad loan agreement you should be able to pay off your loan ahead of schedule without penalty. So theoretically you could could buy the car with financing and then immediately pay it off. Or you could pay off almost all of it and still build up credit history while spending only a fraction of the interest that you would spend normally. Basically every payment you are not late on (even if you owe $0) gives you a very small bump up in your credit rating, so having a car loan payment that you are current on every month helps somewhat for that. Generally the gain you get from that is not worth the expense of actually paying interest though, depending on the total of the loan you could be paying hundreds of dollars per point on your credit score. If you have a credit card or student loans or anything else like that you will be building credit at nearly the same rate without any extra expense. You can use Credit Karma is a good site for helping with these kinds of decisions, they have a calculator that will help you estimate how much different actions will help or hurt your actual credit score.
posted by burnmp3s at 1:16 PM on August 30, 2011