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What many on here are forgetting (or don't realize) is that car dealers have a long list of creditors who they work with. Some may be traditional "banks", but most are not. Traditional banks are a little picky when approving loans, while some other creditors specialize in those with marginal (or bad) credit. They'll give you a loan that a bank or credit union wouldn't, but because there's more risk involved, they'll charge a higher interest rate. (I've heard of 20% loans, even in this day and age!) And, of course, if you want those interest-free or 1% loans, those will be going through the dealer/manufacturer -- but you've got to have decent credit to be approved.
The dealer wants to have a crack at you. That loan you're "approved" for may be at 15-20%. If you have a sizable down payment, they'll be able to find you a lower interest loan, but they'd rather not mention that, because while you're saving up for the down payment, you may buy elsewhere.
I don't know if I'd call it a "shady" practice. They just want you there so they can run a deal past you. That's the first step in making a sale.
I agree with others who have said it's better to pay cash for your cars. Many of us can do that. Some need RELIABLE transportation for their jobs and must pay more for that reliability than what they have saved.
OP, this is what they do. As soon as you submit a credit app, they start calling and using their salesy speak to try to get you down there. Just go with a clear head, pay attention to interest rates, and be firm about how much you're willing to spend.
Oh, so we're supposed to encourage her into getting taken by bankers? Save cash, get qualified friend to help shop for cars, by directly from the owner, NEVER EVER buy from a used car lot.
The interest rate is what they are mainly trying to hide. That and they want you to ignore the total amount you are paying and focus on monthly payments.
Saying you have to choose a car first before they can let you know the rate and amount you qualify for is the kind of a lie that may have a small element of truth to it, so you need to decide if you want to do business with them.
They just want you to come drive something and become emotionally attached to it because they know they can't actually sell you something over the phone.
When you borrow money to pay for a vehicle, you are leveraging the banks money to get it. As long as you stay solvent when making the payments and are accepting of the amount of interest you pay and the risks that come with a loan then there is nothing inherently wrong with making the executive decision to take a loan out for a vehicle.
Oh, so we're supposed to encourage her into getting taken by bankers? Save cash, get qualified friend to help shop for cars, by directly from the owner, NEVER EVER buy from a used car lot.
You don't have to encourage her to do anything. You could have answered the question that was asked, or you could have bypassed the thread. Do you stop by the Automotive forum to lecture people on the horrors of a car loan on a regular basis? Do you feel the need to tell everyone that you know that car loans are evil?
I certainly understand the value of avoiding car loans whenever possible, but this obviously isn't always possible.
Based off of the OP's post, it seems to me as if she isn't all that familiar with this process. That means that this might be her first financed car? If that's the case, cut her some slack. I think even Dave Ramsey talks about financing your first car, then saving and buying your next one with cash.
Heck, cut her some slack anyway. Many, many people take out car loans without any issues or regrets. Something tells me that you aren't necessarily concerned about the OP being "taken" by banks and are simply interested in sharing holier-than-thou "advice" instead.
I'm also not sure why everyone is starting in with the "if you can't afford to pay cash" crap.
I agree and don't think it's sound advice. I have over an 800 credit score and make a ton of money, and wouldn't pay cash for a car even if I had the cash. Loans are convenient, build credit, and dealers make money off loans so it can help you negotiate. I often use credit and then pay things off early to save interest. If I'd have had to pay cash for a car, I wouldn't have been able to get to work until I was 30 years old.
The interest rate is what they are mainly trying to hide. That and they want you to ignore the total amount you are paying and focus on monthly payments.
Saying you have to choose a car first before they can let you know the rate and amount you qualify for is the kind of a lie that may have a small element of truth to it, so you need to decide if you want to do business with them.
I agree that they're trying to hide the interest rate, but I do believe it has to do with a car. A newer car that has depreciated less will have LESS of an interest rate. Older used cars have higher interest rates. A 1 year used car will have an interest rate close to a new car. A 12 year old beater will have a higher interest rate because if the car craps-out on you, there is a higher chance you will abandon the loan and allow foreclosure. My husband and I had NO problem getting a loan for $50K new car we just purchased, and had to show collateral to get a $5K loan for a "fun" beater car 3 months prior. The car REALLY does make a big difference.
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