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Newer can be cheaper by the month...... Posted by Mike Lynch [Email]  (#81) [Profile/Gallery]
(more from Mike Lynch) on Tue, 6 Jan 2004 14:54:21
In Reply to: Auto Financing Rules, Ken  [Profile/Gallery]
, Tue, 6 Jan 2004 13:36:04
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Imagine that, a dealer giving good advice, but what they are saying can be very true. An older car doesn't finance nearly as well as a newer car, particularly with "credit challenges" and $5,000 cars don't hardly finance at all, too old.
For $12k ish you can get a pretty decent new car with AC, say a Saturn or a Ford Focus for example. So let's just say she going to put just the tax and license down. Now it's likely that GMAC for Saturn or Ford Credit for the Focus will work extra hard to get her approved as an approval helps the factory sell a new car. The rate will likely be much, much better than a any used car or there may be a factory 0% promotion or something like that. Those kind of subvented factory finance programs usually buy pretty deep which means the take most folks, not just the "A" paper, but the "B"s and "C"s too and maybe even a "D" with a big down payment.
So $12,000 at standard new car rates of say 6% ish is $230 a month for 5 years. Even at 12% the payment is still only $260ish. The car is brand new, 3 year warranty, brand new brakes, tires etc, so all she'll have to worry about for the first 3-4 years is the payment and gas.
Now if she's a friend of yours and she finds a nice low mile '96 900SE with 80,000 miles that goes for $8,000 and she needs to finance it, even with good credit (credit unions are the exception here, they'll offer fairly good terms on older cars, with excellent credit however) she'll pay a much higher rate and the financing will be for a more limited term, say 10% for 3 years and a payment of $255ish. She'll need a major service in another 10k miles and the brakes and tires looked pretty good, but were only about 60% so she'll need alot of advice from this BB and alot of extra cash beyond the payment for maintenance in the near future.
If she is "credit challenged" no lender will finance an 8 year old car with 80,000 miles, 3 years and 50,000 miles is the limit for most lenders in that arena and 15-20% apr is the norm so that $12,000 new car or 1-2 year old "program" (ex rental car type) is now $320 a month for five years.
So again in the "credit challenged" scenario she finds a 4 year old Accord with 55,000 miles for $12,000 and has to pay the big rate for 3 years thats $450 a month! So what's better a cheap new car for $320 and 5 years of financing or a 4 year old car for 3 years (7 years old when the payments are done). It's a no brainer for the lender, they want her in the newer, cheaper car.
If her credit is merely limited (not challenged) then manufacturer's financing will work hard to put her in a new cheap car at a decent rate, IMHO the best option. Get new cheap wheels under her now and then the next car she can get what she wants.
If she is also down payment challenged there may be some advantage to a "program" car or ex rental or the like as they are bought "back of book", but not neccessarily, a new car might also work. With a "program" car you might get something nicer or roomier like a Tauras or a Malibu as opposed to a Focus or Cavalier.
"Special financing" was my specialty as used car manager at Saturn for 8 years.
posted by 207.158.49...
, Tue, 6 Jan 2004 13:36:04, Wed, 7 Jan 2004 07:41:49, Tue, 6 Jan 2004 14:54:21 <-- Viewing This Message, Tue, 6 Jan 2004 19:58:58, Tue, 6 Jan 2004 17:40:30
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