Buying a Vehicle: Interest Rates

[GP_Matt]

Hey, I was wondering what the norm was for interest rates on new and used vehicles. I have only ever financed through a line of credit or the promotional rate when they have a 0.9% or something like that.

A girl at work was talking about it yesterday and for her first car she went to a dealership who convinced her to sign up for their credit (re)building program. She doesn't have bad credit, just not very much credit. AFAIK previous to the car she had a credit card for a few years and hasn't missed a payment but does carry a balance. They told her that because she didn't have much of a history she needed to start building credit and that they would help.

They then sold her a car for $15000 and setup financing at 29.9%. The schedule has her paying them $30000 over 5 years. They told her that she should make the payments for a year then come back and trade the car in for something new and if she makes all her payments then the next car will be 25% interest. Another year and they will sell her another car at 20% interest.

I was pretty dumbfounded when I heard this and told her that she should go talk to her bank about refinancing the loan at a better rate and bypass the dealer. The bank offered 11% right up front and will save her thousands of dollars the first year. That still seems high to me but far better.

She is young and went by herself but I still think they took advantage of her. In my opinion there are so many things wrong with what the dealership did to her. If nothing else, why would trading in your car every year help you improve your credit/ get a lower rate? Why not just refinance every year to get the lower rate.

Anyway, the whole thing got me thinking about rates and wondering if there are very many people who pay these crazy rates. I thought they were only for the guy who has declared bankruptcy recently and wants to borrow $2000 to buy a crappy car.

[rotten42]

The bank was offereing me 5.25% on a used car for a loan. It would be less for a new car.

[albertGQ]

29.9% rate? Man, your coworker got gang raped by the dealership there. How did they convince her to sign on the dotted line?

[Table 5]

The dealer will "help" her build credit! Wow, that's so generous of them.

Sounds like your friend knows absolutely nothing about money, but that's an absolutely atrocious rate. What dealer was this?

We currently pay 4% on my wife's car. And we didn't have much credit here either since we moved back to the country only a few months before we bought.

[Northendzone]

duid she buy the car from a place that purposely mispells it's name (i.e. use a Z for an S) or a place with a backwards letter in it name?

Hopefully she can get out of this deal.

[ken0042]

It sounds like she has no credit; as opposed to "just not very much credit." meaning she doesn't have a credit card; or if she does she has never carried a balance. The bank's offer of 11% is on par with her having a chequing account for many years, and never had an issue.

The 29%- yes that is for people with horrible credit.

Has she already bought the car and signed the agreement? If so, she may still have a huge penalty to get out of it. While I agree it is very high; I know back when my credit sucked having a high interest loan was better than not having a car. Those plans exist for a reason; it's unfortunate that your friend didn't shop around before she signed.

[AR_Six]

I can't even remember what the threshold is but that strikes me as practically usury. There are, in fact, provincial legal limits on the amount of interest you're allowed to charge.

It seems to me that on a used vehicle right now, a good rate is 5%, a bad rate is 8.9% or so.

[Table 5]

When you have ####ty or absolutely no credit to the point where someone will only sell you a car with a 29% interest rate (or even 11%), that's probably a good sign that maybe you shouldn't be buying a 15k car.

[pylon]

Sounds very fishy. Is this a used lot? Like one of those good credit, bad credit, no credit places?

The only times I have been forced to use 29.9% is for absolute worst of the worst credit. Like double bankruptcy, or multiple repos. Or 18 years old with zero credit experience. And I feel like a total fataface for using that rate because it is 1/10 of 1% from being a crime, instead of a loan.

Have her contact me and will sit down with her and see if I can put her into a market rate loan, or even a subvented manufacturers loan. Also if she is a recent University grad (within 2 years) I can definitely make something work.

PM me if you need help. I hate finance managers that prey on people like this. It is not how we roll at our dealership, even if she is credit challenged, I will make sure I run the gauntlet and give her the straight goods. Sounds like someone may be putting her together.

[Table 5]

Well well, look who decided to show up... Mr. I-don't-need-CP-to-enjoy-life!

Welcome back.

[The Yen Man]

Wow, 29% sounds nuts. Most credit cards aren't even that high.

[pylon]

Originally Posted by Table 5

Well well, look who decided to show up... Mr. I-don't-need-CP-to-enjoy-life!

Welcome back.

Hey, one someone has credit needs, that is my bat signal to jump into action and save the day.

My Spidey senses tell me this girl is getting hosed.

Yeah, that's right. I am Spidey-batman.

[GP_Matt]

We are up in Grande Prairie and it was from one of the large used dealerships.
She bought last year and only brought it up because her year was up and she was going back to buy a new one for a lower rate. She is just young and doesn't really know anything about finance.
I definitely agree that she doesn't need to spend $15000 on a car.

Also, welcome back Pylon.
I am starting to feel special. It was a post of mine that brought Springs1 back to the forum and now Pylon.

[Bertuzzied]

Isn't 30% like loan sharking rates?

[pylon]

Also to answer the question "What is a fair used car loan rate?"

Right now the lowest rates I have is 4.95% fixed up to 96 month amortizations available on anything newer than an 07 from a few lenders.

I have 4.65% variable available as well up to 84 month amorts.

Most banks cap the term at 60 months on lower rate loans but will let you amortize up to 96.

Most peoples own banks are offering fixed rate car loans in the 5.5-6.5% range, and are opting to use us to get loans right now. Some people get kinda pissy at their bank when they find out I can get them a better rate than their branch. I then explain to them not to be, since if they were buying 50 cars a month form their bank, they would probably look at giving them a better rate...lol.

And always I have lots of 0%, 0.9%, 1.9% etc loan available from the manufacturer, but right now the advantage on most stuff seems to be cash out the manufacturer cash rebate, and take a bank rate loan.

[albertGQ]

Originally Posted by GP_Matt

We are up in Grande Prairie and it was from one of the large used dealerships.
She bought last year and only brought it up because her year was up and she was going back to buy a new one for a lower rate. She is just young and doesn't really know anything about finance.
I definitely agree that she doesn't need to spend $15000 on a car.

Also, welcome back Pylon.
I am starting to feel special. It was a post of mine that brought Springs1 back to the forum and now Pylon.

Don't take too much credit. Pylon posted twice in the Neil Armstrong death thread

Welcome back Pylon. You were missed!

[Canehdianman]

Usury is anything above 60% interest.

[First Lady]

Holy frack - that's crazy.

We just picked up a brand new Hyundai - no down - no interest.

I think the worst interest I've ever paid on a vehicle was around 14%, that was a lot of years ago and whilst having crappy credit rating.

[DownhillGoat]

I never got the mentality of paying huge amounts of interest to build credit. I managed to build credit with a low fee card (without carrying a balance), a few monthly bills and then snowballing from there.

29% is disgusting, and at that point I would be walking and saving to buy the car cash.

A buddy of mine with bad credit was in that scenario, repo offered him a 25% rate, his bank gave him 12%. I suggested he get a bit of a down payment first. He didn't, and 5 years later is still paying off a $12k truck...

Hopefully pylon can get something worked out for your friend, but hopefully your friend reads a few issues of money sense in the meantime. Sounds like she's in dire need to some financial basics.

Also, that "buy a new car every year" to reduce the rate is a complete bs move to move cars.

[albertGQ]

If you want to build credit. A secured credit card with a low limit is the way to go.

Just use it sparingly and pay off your purchases right away