Comments on: How to Finance a Car the Smart Way

By: Louis Rix

Louis Rix — Sun, 17 Jul 2011 19:38:47 +0000

Hi David, great post. I couldn’t agree with you more. I’m writing from 10 years experience from working in the car finance industry in the UK and my advice to people is to always purchase a car that is a few months old or older as with new cars you get hit with a large chunk of depreciation as soon as you drive it off the dealers forecourt. Businesses may wish to lease vehicles as it suits them but for personal usage I’d definitely finance an amount over 36 months or 48 months if the repayments on 36 were too high. A large cash deposit is always a bonus if you have it but always try and put in 10% minimum. My last tip would be to barter with the finance company to get the best deal. Say you’ve been offered a slightly better rate from another finance company and then you’ll see how much they want your business

By: Naveen

Naveen — Sun, 13 Feb 2011 13:45:47 +0000

I really liked these tips. I too buy only the used car and for the same reason which you have outlined. Two of my used cars have lasted more than 5 years and i bought these at pretty low prices after hard bargaining. Personally, i do not like monthly commitment since my balances keep fluctuating widely.

By: JoeSchmo

JoeSchmo — Wed, 19 Jan 2011 13:58:15 +0000

Great information on this blog, David.
I have another tip for car buying. Take a loan for 5 years, but do your personal amortization table to pay it off in 3 or less. This prevents a high monthly payment strapping you down if there are any unforeseen expenses.
Also, many dealers give a larger discount on the price of the car if you agree to finance for a longer period.
If you have to finance, and are disciplined, you can often end up paying less at the end of the loan.

By: Darryl Memering

Darryl Memering — Wed, 27 Oct 2010 07:59:40 +0000

If I can finance a car at very little to zero percent I always do. “GAP” is a beautiful thing. If you pay a car in cash, esp a new one, and it is wrecked or stolen you are out anything that the insurance company deems over the cost. 150 dollars and small interest rate is worth it since I live in a town full of blue hairs that basicaly drive until they hit something. I know a couple people that have been stuck with 1500-3400 worth of car payment… and no car.

By: Jerry halls

Jerry halls — Wed, 19 May 2010 04:47:10 +0000

Good post, I have just purchased a new car by loan. I think it is much better to take a loan rather then purchasing the car on direct cash. Loans are better since you do not feel the load of repaying it as it has EMI system.

By: Simon Norman

Simon Norman — Sat, 27 Mar 2010 13:16:46 +0000

Cathy, thanks for the good comment. I agree that comparing different financing alternatives is quite difficult because it’s not just about the APR which is what people typically look at.

David, I can understand why you can disagree with me, but I think the answer is that it really depends on one’s circumstances. I hope that you would agree that monthly payments on a lease are usually cheaper because you are only paying for the “use of the car” instead of the full asset. Also, you can get very interesting offers on leases because there is more margin in it for the dealer or finance company. If you combine these 2 factors, you may end up paying a relatively low monthly payment to drive a much better car that paying it on finance and you can then switch to an even better car when you get a pay rise 2 or 3 years later! I think this is particularly relevant for young couple who usually need to upgrade cars as the family grows.

By: FX

FX — Fri, 26 Mar 2010 02:08:20 +0000

When changing cars, I always try to pay 30% down which usually comes from the sale of my previous car. This way, I just maintain what I usually pay for my monthly amortization, more or less.

By: Cathy Aron

Cathy Aron — Thu, 25 Mar 2010 04:56:42 +0000

David I am inclined to agree with Simon about investigating a lease. Most people have a misconception about how the numbers wash out in the end. If you compare a lease with a bank finance, side-by-side, you may find it quite attractive. It takes an experienced F&I Manager to review the comparison and consider all the “what-if” factors. For example, the used vehicle market took quite a tumble last year, particularly the fuel guzzlers. Anyone leasing one of those vehicles that came off lease last year was thrilled that they didn’t have to take ownership of a vehicle that was worth thousands less than they would have owed had they financed…even if it was 0%.

By: Johanna

Johanna — Tue, 23 Mar 2010 19:50:20 +0000

We got approved for an auto loan from our credit union before we set foot in the dealership, and got a decent rate. When the dealer found out we were planning on financing with someone else, they beat the rate.

Now, almost two years later, the credit union will beat the rate we got from the dealer, so we’re switching and will lower our monthly payment. I’ll put the difference aside and then have more than enough for insurance when that bill comes due every six months.

The plan, once this car is paid off, is to keep “paying” the regular payment every month, into a dedicated savings account. Then, when the time comes around again for a new car, I’ll be able to pay cash, and won’t really have felt the pain of saving up the money.

By: David Weliver

David Weliver — Tue, 23 Mar 2010 14:41:38 +0000

Unfortunately, Simon, I couldn’t disagree with you more. Unless it’s for business purposes, leasing a car just makes bad financial sense: you pay out thousands over the two years of monthly payments but have nothing to show for it at the end (lease buy-out options are typically awful deals). New cars may depreciate, but at least when they’re paid off you still have transportation.