Best way to buy a car & how to borrow money for it.
April 20, 2015 10:40 AM   Subscribe

Mr wwax & I have finally narrowed down our car choice to a Subaru Outback, but now the big questions arise. Do we buy new or certified preowned or just plain old secondhand? Then if we can finally stop going around in circles on that issue, what is the best way to borrow the money to buy the car?

We had decided to buy a certified preowned Subaru outback for around $28k that fitted out budget nicely and seemed a great way to get the car we like. But with Subarus holding their value so well at the moment, we can get a new basic model for the same price. My husband has only just realized this and rather likes the idea of getting new for the 5 year warranty, this seems to be the only reason he can articulate, though I suspect the whole new car thing might be part of it too. I prefer certified preowned, even though you only get the 1 year warranty as you can get more features for the same price and the depreciation has already, well depreciated.

Then we come to the car loans. This is where I think I am hitting some cultural differences (I am from Australia) I have always bought a car with a car loan from a bank, they have worked by getting preapproved for a certain amount, finding a car I like, giving the details to the bank and they organised the money. I liked shopping this way as I couldn't go over budget. I was all set to go to our credit union over here in the US to do the same thing but am getting conflicting information from various unreliable sources so could do with some advice.

My Father in Law basically thinks I'm an idiot and should borrow money through the car dealership(and also can't understand why we aren't getting a new car). The heavy handed car sales man basically told me I was an idiot going through a bank as his dealership has much better rates (which I take with a grain of salt, my father always said car yards make their profit selling loans not cars and fees can eat up rate savings) but the information I am using to base my decisions on comes from buying a car in Australia. In the US do car dealerships have better rates? Am I an idiot because car loans don't car loans work the same way here in the US? Do I have to find the car first then apply for the loan?

Any suggestions or advice appreciated.

Additional info in case it's relevant.

We have $6-8K down and are looking to borrow $20k.
Mr wwax has never had a car loan so knows nothing about how they work either.
We have a good credit rating.
Credit Union I was going to borrow money through is TCU the rate would be 3.35-3.75% depending on if a new or secondhand car, we are fine going with another bank if the rates are significantly better, it's just we have our mortgage with them.

posted by wwax to Work & Money (21 answers total) 9 users marked this as a favorite
Best answer: Yeah, this is why new car sales are so strong... certified pre-owned is just about the same price, and you get the full factory warranty on the new car. And Subarus are particularly good about that. Just buy the new one, is my advice. The warranty is a fine reason assuming you're going to keep the car for a while.

With regard to the financing, get pre-approved with your lender, just in case, but let the dealer try to finance you too. Subaru is currently offering 1.49% on new 2015 Outbacks, for example, and if your credit is OK you probably qualify. (Subaru finances through Chase.)
posted by kindall at 10:48 AM on April 20, 2015 [1 favorite]

With certified pre-owned Subs (and maybe all used cars; though I know from my experience buying a certified used Forester last year), you get the remainder of the factory warranty. So if you buy a 1 year old Outback, you'll get the remainder of the 5 year bumper to bumper, and the remainder 7 year power train warranty.

It should go without saying that buying used car A for $X or basic model new car B also for $X is not the right comparison. Whenever you're buying a new car, you pay for the privilege of driving it off the lot. That's it. Let some other sucker pay for that, and then get a better car less money. What's great about Subarus is that they have such a long lifespan. A well-maintained used Subaru will last you years and years.

I bought a year-old Forester with a full winter package, got the factory warranty, and have been quite satisfied.
posted by Admiral Haddock at 10:50 AM on April 20, 2015 [1 favorite]

Best answer: In the US do car dealerships have better rates?

Sometimes. You should compare the two.

Do I have to find the car first then apply for the loan?

Sort of. You can get pre-approved for a certain amount, but it's contingent on the car. You can't get a loan for $20,000 and then go buy a 1995 Chevy Cavalier. You'll call them and say I want to buy a 2015 Outback, here's the VIN etc. and then they'll confirm the rate and amount.

Don't get pressured into doing anything at the dealership. They're going to try to make you think that this car will vanish overnight but it likely won't, and you should always be prepared to walk away anyhow. You can do everything over the phone/through email except sign the actual papers. If you're getting a new car, and you know the features you want, this is exactly what I would do. I spent less than an hour in the actual dealership.
posted by desjardins at 10:50 AM on April 20, 2015 [2 favorites]

Best answer: A car dealership may have a better rate - the only way to find out is to shop around. There's nothing preventing you from going to your credit union and getting pre-approved for a specific loan amount and rate. They'll give you a letter that you can then take to shop for Outbacks. When you pick your new car, you can compare the dealer's rates to your credit union rates. If your credit union gives you a better rate, it'll work exactly as it appears to work in Australia.

I have to say, I've bought a new car using dealership financing, and I've bought a new car with credit union financing, and the second situation was much more pleasant without the hard push tactics and outright fabrications that the financing department at the dealership used to get me to agree to things like "gap coverage" that I didn't really need. Like desjardins mentions, there was a lot of pressure to leave the lot THAT DAY with the car, which was to their benefit and not to mine.
posted by muddgirl at 10:53 AM on April 20, 2015 [1 favorite]

Sounds like new is a better idea. A five year warranty is definitely valuable.

Definitely get your loan lined up before you go to the dealer. If the dealer can offer a better rate, go for it - you are just out a bit of time.

Make sure you negotiate a cash price for the car, then the financing payments after, to avoid giving the dealer a chance to mess with the numbers in their favor. I would suggest you approach it as if you will not be using dealer financing and then once you have everything sorted out, give the dealer the chance to offer you financing (don't reveal your rate otherwise until near the end of negotiations, if at all).
posted by ssg at 10:55 AM on April 20, 2015

Another thing to consider is that the price of the used one might be surprisingly flexible if you play the game well. The best bit of car-buying advice I've received is to ignore the sticker price, particularly on used cars; it's what they're hoping you'll pay, not what they have to get for it.
posted by jon1270 at 10:55 AM on April 20, 2015 [2 favorites]

Best answer: In my (Honda) experience, certified pre-owned turned out to be not worth very much. It turns out my car was in an accident that wasn't disclosed to me, the repair job wasn't great and the windshield washer fluid container was cracked. When I complained they said that particular thing was no longer on the warranty. Wah-waaaah.

So - if you go cert pre owned, I would still treat it like a private sale and have your own independent mechanic go over the vehicle.
posted by St. Peepsburg at 10:56 AM on April 20, 2015

Another thing to consider is that the price of the used one might be surprisingly flexible if you play the game well.

Yes. I know a guy who emailed 10 dealerships in the area (everyone was on the CC list and visible to everyone else) detailing the exact car he wanted down to color and options and then asked what price. He ended up with a deal he was happy with. So if you go new, definitely cast a wider net.
posted by St. Peepsburg at 10:58 AM on April 20, 2015 [1 favorite]

We just bought a new 2015 Outback about 9 months ago (in July 2014) - and the reason that we went with a new rather than certified pre-owned was because the 2015 model year was redesigned and gets better gas mileage than the 2014 model year due to the continuous variable transmission (it's rated at 33 MPG vs. 30 MPG for highway driving, which is what we primarily use it for). Since we plan on driving this car for at least a decade, we figured we'd come out ahead with the slightly better fuel efficiency, especially since late-model used Subarus don't come with much of a discount compared to new cars in our area.

In terms of financing, I checked with my credit union and was quoted around 2.5% APR for a car loan, and the Subaru dealership was able to easily beat that with a 1.9% rate with no additional fees. I checked with three local dealerships when I was shopping around to find the place with the lowest price for the Outback model we were interested in, and the cheapest dealership was able to give me a sense of what sort of car loan they could get us assuming our credit cleared (which I wasn't worried about). No reason not to look into both, but I would not be surprised if the financing is cheaper through the dealership. Just keep a lookout for fees; when you're comparing loans with such low interest rates, the difference in fees can more than make up for a slightly lower APR.
posted by iminurmefi at 11:03 AM on April 20, 2015 [1 favorite]

Oh and I should add: comparing my car-buying experience in 2014 with when we bought our Honda Civic in 2006, everything was SO MUCH LESS scammy and pressure-filled. Both times, we contacted several dealerships with the exact make, model, and trim that we wanted and asked what the out-the-door price would be if we came and picked it up within a week, and went with the dealership that had the lowest price.

I don't know if it's a Honda vs. Subaru dealership issue, or a 2006 vs. 2014 issue (last year, most dealerships had an easily-found link on their website to email an internet sales rep for a quote which definitely did not exist when we were contacting dealers in 2006 for a quote!), or just that I live in one of the places where the Subaru sales folks can be really laid-back because the cars pretty much sell themselves. But for whatever reason, it was so simple and easy to get three quotes (took about 2 hours one afternoon) and then arrange to go buy the car the next weekend, and absolutely zero pressure at the actual dealership--we were in and out in an hour, no high-pressure sales crap at all.

I spent some time looking at the forums when I was ready to buy and they had some good information about specific dealerships--the place I went was one of the higher-volume dealerships in the U.S. (located about 2.5 hours away), and I think they were used to dealing with folks via internet who weren't local. I think one of the biggest Subaru dealership in the U.S. is in Chicago (I think it's Grand Subaru). If that's within a few hours driving distance, I'd highly recommend getting an online quote from them, we found the high-volume dealership was able to beat the price of our local dealership by a few thousand dollars and I think their focus on volume vs. margin on each car made the buying experience significantly more pleasant.
posted by iminurmefi at 11:19 AM on April 20, 2015 [2 favorites]

Best answer: Indeed, dealerships sometimes have better rates. Our newer car has a five-year loan at zero percent, which obviously no bank would ever offer. One presumes Mazda-corporate is paying whatever our actual interest rate is for us somewhere behind the scenes.

Whenever you're buying a new car, you pay for the privilege of driving it off the lot. That's it. Let some other sucker pay for that, and then get a better car less money.

This just isn't true like it used to be, especially for Japanese cars. To the extent that there's any chunk off the price for a barely-used car, it just reflects the market-for-lemons problem, and the lower prices for newer Japanese cars have in my experience been very proportional to the lifespan of the car the first owner used up.

How long do you plan to keep the car? I ask because if you're the sorts of folks who are going to drive the car into the ground over 10-15 years, and not everyone is and that's fine, then I'd suggest getting the car you want and not stressing about whether it's new or certified-used or whatever because you'll be living with it for a long time.
posted by ROU_Xenophobe at 11:43 AM on April 20, 2015 [2 favorites]

Perhaps things are different in the US, but our best interest rate for car loans, cheaper than car loans from banks and the dealership was a line of credit secured by home equity. We got near mortgage rates for the loan.

Also, if you do third party financing, don't be shy in asking the dealer/seller for a cash discount. We got $500 last time.
posted by bonehead at 12:07 PM on April 20, 2015

Best answer: BTW, argue the cash discount with the dealer as you not adding the financing costs to the price of the car.
posted by bonehead at 12:11 PM on April 20, 2015

I don't mean to rain on your parade, but do some research about Subarus and head gaskets. Be prepared.
posted by Fleebnork at 1:28 PM on April 20, 2015

You can get a better rate than that. Penfed has rates starting at 1.499%. I've used them for auto loans 3 times now, they're convenient because they give you a blank check that you fill out once you've settled on a price so it's like paying cash as far as the dealer is concerned. I have had the dealer find a better rate for me twice: once I took it because it was another bank I already had a relationship with, and once I didn't because of weird fees that I didn't have time to fully research so I went with my gut. Either way it's nice because you know going into the dealership that you have a decent rate.
posted by rabbitrabbit at 1:51 PM on April 20, 2015 [1 favorite]

Oh and as far as the new vs. used thing... you can sometimes get a better rate buying new than used, so definitely take that into consideration. New is of course nice because you don't have to worry about a shady history. Around here (Pacific NW) used Subarus go for quite a premium so you can sometimes get a better deal on new.
posted by rabbitrabbit at 1:55 PM on April 20, 2015

Fleebnork, head gaskets haven't been a particular issue with Subarus since the early-mid 2000 models. My 2005 Forester and many others on Subaru-enthusiast forums report no issues, and we all love to tell each other about problems so I don't think it's exactly a massive cover-up.

Plus replacing them just takes a while that's all. It's fun!
posted by InsanePenguin at 2:06 PM on April 20, 2015 [1 favorite]

We just bought an Outback. We bought new for a few reasons - the redesign mentioned above, the dearth of lightly used models in our market (and resulting high prices for lightly used Outbacks) and the fact that we plan to keep the car for at least 10 years. I did a per day cost breakdown based on listed used prices and the new and they were close enough that we decided to go new.

Your Subaru dealership should be able to give you a rate breakdown. I'm in Canada so I'm sure it won't be the same but 60 months financing here was 2.9%. I got this information through in advance, as well, for free. I'm sure there must be a US version of this type of website. They also give you the invoice price which is helpful when you go to negotiate. We visited our local dealership, they gave us their price, then we emailed the 7 closest other dealerships asking for their best price on exactly the model/colour we wanted, then emailed our contact at the local dealership back and asked him to beat the best price. He did. This saved us a good chunk and allowed us to still stay close to home.

If you pay cash there is a discount. Up here it was $500 - that's from Subaru. The dealership will give you additional rebates depending on how you negotiate. If the bank will lend you the money for the same % or less you will get the cash discount so don't forget to factor that in. The dealership will try and sell you extended warranties, rustproofing, there was a list of about 8 different things I had to decline.

We also had relatives who told us to finance even through we wanted to pay cash. I looked at the math and the idea of another monthly payment and decided their advice was not good for our situation. Buying a car is like raising a kid, everyone has an opinion and they won't hesitate to share it. Including me apparently.
posted by Cuke at 3:01 PM on April 20, 2015

Best answer: I am a former car salesman. A used car is really the way to go. You should spec out what a new one would cost with the features you want and compare that to the cost of the pre-owned one. If you don't think those extra features will be worth it to you, you can always look for a pre-owned one with just the basics.

With new cars there are often manufacturer backed financing options that will be better than any bank's. But with used cars you should get pre-approved at the credit union but let the dealership try to beat your rate. The dealer's rate, just like most things when buying a car, is negotiable. Even on new cars it sometimes makes sense to get financing from a different bank (through the dealer or one your own) if there is a cash rebate option in lieu of the low rate financing but you have to do some math to figure out if that will make sense. When I was selling cars for a living, our finance department was always able to beat anyone else's rate but you want to have a pre-approval from another source just to have a comparison.

Some people have weird ideas about buy new vs. used. A lot of times the reasons are totally irrational. I get the appeal of a new car but if you're comparing apples to apples the numbers will probably be more appealing for the used car. From your description, the U.S. is pretty similar to Australia when it comes to buying cars.
posted by VTX at 7:54 PM on April 20, 2015 [1 favorite]

Best answer: Nthing Penfed.

Subarus hold their value pretty well, but that's what the dealer will charge for them, not what your car is actually worth. I bought a 2 year old Subaru that was nearly perfect (about 70k miles, all highway) and drove it right into the ground. I got it for a song of a deal, and I'd still be driving it if it hadn't been wrecked by a couple of hit and run drivers.

Look for a gently used Subaru and shop your rates around.

If you insist on going new, try a car buying service to get you the best price. Penfed has one of those.

ETA: the latest craze in car dealerships is telling you how much your payment will be per month and waffling about what the actual total price of the car is. Tell them you want to know the actual price and not just worry about monthly payments.
posted by getawaysticks at 9:31 AM on April 21, 2015

Response by poster: Thanks to everyone here for their advice. With it ringing in my ears we were able to get our car for a good price with an excellent loan rate using the we already have a bank loan gambit a few of you suggested. Heck they were chasing us out the door offering lower & lower rates after we agreed to buy the car, but we'd use the banks money thanks as you didn't offer a low enough rate. So thank you very much for that idea. I also said straight up if he started 4 squaring or high pressuring us we'd walk out as there were 3 other dealerships within easy drive selling the same car, he got very quiet after that & things went well.

We ended up with a Honda CR-V after everything, Mr wwax just preferred how it handled as we were planning on running the car into the ground resale wasn't as much of an issue as we kept thinking it was and it had more features we wanted, thanks again to you guys for making us realize that.

I took advice (and courage) from everyone but have marked best answer to those whose advice had the most direct effect on what we did. Thanks everyone.
posted by wwax at 10:00 AM on April 29, 2015

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