Getting a Car Loan Question

[Hack&Lube]

Hey a friend of mine needs a $5000 car loan but her bank (TD) will only give loans for $7500 at 12.5% from what she tells me.

I told her she should avoid the shadier car loan places but I'm not really knowledgeable in the matter.

What's the best way to get a good $5000 car loan with a good interest rate? Can anybody with more knowledge or experience in the matter chime in? Maybe just get a general loan or line of credit? Thanks.

[Hockeyguy15]

Sounds odd...Has she looked into a line of credit instead of a car loan?

Line of credit she can ask for a max of $5000, there are no set monthly payment (only the interest) so if you have to skip a month there is no penalty...

[Crazy Bacon Legs]

Yeah I was going to suggest a line of credit as well. I have one I don't use at all, but it's nice having a bunch of available cash just in case. Interest on that account is about 6% at the moment.

[malcolmk14]

Line of Credit for sure.

[Hack&Lube]

Yeah, that's what I recommended. Thanks. Seems car loan rates are high right now.

[THE SCUD]

Make sure she is aware of the minimum repayment requirements on her LoC - some are 6%, so that's at least $300 a month required.

[pylon]

Yeah, I have minimum lending limits on my loans here. Most back will only do $7000 or more, and the good rates start at $15,000 usually.

However, this, is what you do:

1) Apply for a low interest introductory credit card (1.9% or something)

2) If you have a credit card already, pay with a CC cheque using that one, to close your deal.

3) Then when the new low interest card shows up, do a balance transfer, and pay it down in the intro rate pay window. If you don't have it paid down by then, repeat step 1.

I paid of my bike in 2 years this way. I used to low interest intro rate credit cards to do it. Once the intro offer on card one expired, I got another card, and transferred that remainder to the new card. The best rate the banks would offer bikes 3 years ago was 6.5%, I did it this way @ 1.9% for year one and 0.9% year 2.

[albertGQ]

Originally Posted by Hockeyguy15

Line of credit she can ask for a max of $5000, there are no set monthly payment (only the interest) so if you have to skip a month there is no penalty...

Huh?

I've got a $10k LOC

[TurnedTheCorner]

He means she could simply ask for a $5000 LOC, as she doesn't need more for the car. Where the bank was going to loan $7500.

[bizaro86]

Originally Posted by TurnedTheCorner

He means she could simply ask for a $5000 LOC, as she doesn't need more for the car. Where the bank was going to loan $7500.

Line of credit you don't have to take the whole amount. If they offered her a 7500 LOC, she can still only borrow and pay interest on the 5k.

[Hockeyguy15]

Originally Posted by bizaro86

Line of credit you don't have to take the whole amount. If they offered her a 7500 LOC, she can still only borrow and pay interest on the 5k.

Maybe she only wants $5,000. The temptation for some people is too much if they have "money" sitting there to spend, credit or not.

[bizaro86]

Originally Posted by Hockeyguy15

Maybe she only wants $5,000. The temptation for some people is too much if they have "money" sitting there to spend, credit or not.

Fair enough. But if the choice is taking a 7500 LOC at 6% and shredding the access cheques to not spend the rest versus taking a 5000 car loan at 12%, I'm pretty sure I know which of those is the right economic choice.

[lazypucker]

How about borrowing larger amounts of money, say $25k for a used car in a private deal that I need to pay in cash? Should I go for a LOC (which I probably won't get that much) or a car loan with high interest? Any other alternatives?

[bizaro86]

Originally Posted by lazypucker

How about borrowing larger amounts of money, say $25k for a used car in a private deal that I need to pay in cash? Should I go for a LOC (which I probably won't get that much) or a car loan with high interest? Any other alternatives?

If you have greater than 20% equity in a house/condo/property you could get a home equity LOC, which would have the lowest rate.

Second choice would be a regular LOC if you can come up with the rest of the money.

Might be worth splitting the loan. IE get a 10k LOC at a lower rate, use that as a downpayment, and get a 15k car loan for the balance. Putting down a big downpayment on the car might help you get a lower rate.

[Deegee]

Just as a note, our loan rates are generally kind of bunk on under 10K.

If you really want a loan for it, I suggest you go to a Credit Union to get one. I know we do what the person wants instead of forcing them into revolving credit for an asset purchase.

[Deegee]

Originally Posted by lazypucker

How about borrowing larger amounts of money, say $25k for a used car in a private deal that I need to pay in cash? Should I go for a LOC (which I probably won't get that much) or a car loan with high interest? Any other alternatives?

You should be able to get 5.89 -6.5% on a used car loan. That's not too high, imo.

[oilyfan]

Originally Posted by pylon

Yeah, I have minimum lending limits on my loans here. Most back will only do $7000 or more, and the good rates start at $15,000 usually.

However, this, is what you do:

1) Apply for a low interest introductory credit card (1.9% or something)

2) If you have a credit card already, pay with a CC cheque using that one, to close your deal.

3) Then when the new low interest card shows up, do a balance transfer, and pay it down in the intro rate pay window. If you don't have it paid down by then, repeat step 1.

I paid of my bike in 2 years this way. I used to low interest intro rate credit cards to do it. Once the intro offer on card one expired, I got another card, and transferred that remainder to the new card. The best rate the banks would offer bikes 3 years ago was 6.5%, I did it this way @ 1.9% for year one and 0.9% year 2.

No offence but this is bad advice, yes you managed to get a low rate and paid off your bike in two years but have you checked your credit report? It will show all of those transactions, it lowers your credit score, and if you haven't cancelled all those cards you will have less available credit.

[Cecil Terwilliger]

Originally Posted by oilyfan

No offence but this is bad advice, yes you managed to get a low rate and paid off your bike in two years but have you checked your credit report? It will show all of those transactions, it lowers your credit score, and if you haven't cancelled all those cards you will have less available credit.

Having multiple credit cards isn't bad for your credit. The multiple inquiries aren't great if done in a short period of time but not terrible either.

Having available credit isn't necessarily going to hurt your credit score or your ability to get credit. This is all dependent upon your credit score and credit history though, which varies per person. If you close off your CC's when done it would be no harm IMO.


As for the OP, people seem to be suggesting getting an LOC or a low interest loan as if we know that the person would qualify automatically. The bank might not be willing to offer really low rates if the person is young and has little to no assets and bad or non-existant credit history.

Now at most FI's if you have a decent credit bureau you should pretty much auto qualify for $5-10k unsecured LOC, but you might be looking at 8-12% depending on the FI and your credit history.

You could also pursue getting a lower rate if you secure the vehicle against your loan.