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Not really, if he bought it new its somewhat common, and has been for five years or so. My workaday credit union had .9% rates as a special a couple of years ago. Credit score is generally required to be 720-750 minimum for these rates.
The credit unions around here haven't had such interest rates. The lowest I've seen them were 2.9%.
Mine is a Mazda rate. On my own, the rate for a new car would have been about 1.5% - 2.2%.
Having said that, do you serve on the police force or are you ex-military? Secondly, these 0% interest rates depend upon a lot of technicalities. Not every model is offered, the car has to be brand new, and one has to qualify for everything down the checklist - it's not just about credit score. If it was, I should have never paid a dime of interest in my life!
In the end, your circumstance only makes sense if you aren't paying interest, you plan on keeping that vehicle for at least the length of that loan, and you actually do take that money and invest it wisely.
The long and short of it is, more than not, it's better to pay for a car straight out than it is to take a loan out for it.
I have found that you need at least 6mo of payment history on a loan for it to impact your credit in a significant manner.
Really? I didn't use my credit after that for anything big (mortgage) but had no problems getting larger credit card balances and whatnot. It also showed up as being paid off in full in every credit check starting from right after payment for years. It dropped off at some point, but I don't recall when now.
The nice thing about buying cars at the bottom of the depreciation scale is that we have never really lost a bunch of money doing it. In fact, we bought a 95 Subaru Legacy for $1500, drove it for 4 years, sold as a barely running parts car (huge oil leak) for $1100. I think we got our money's worth from it.
I've personally never gotten the math to work that a car payment makes more financial sense than just buying a reasonably reliable bucket in cash at or near the bottom of its ability to depreciate and still run fine. I am not paying any interest, I don't need to carry full coverage insurance, registration taxes are much lower, etc. Yeah, I have to repair it every once in awhile, but I'd have to do that on a financed car too. I spent $600 in repairs for one of my buckets last year. That is what? One to three car payments? And I bought this car for $3k 4.5 years ago. My husband wants to buy another bucket and complains often that this one just won't die. No reason to buy another until there is a catastrophic failure that would require some labor intensive work like dropping in a junkyard engine or transmission. Then maaaaayyyyyybbbeee we might considering selling it for parts, probably could still get $1k for it at least as a parts car.
In the past 10 years, I have paid cash for all my new vehicles, and did not realize that they offer 84 month (7-year) car loans!
"Additionally, loans with longer-than-normal terms, from 73 to 84 months, also set a record representing 29.5 percent of all vehicles financed during the quarter. That’s the highest level since records were kept beginning in 2006, and is up almost 19 percent from the same three months of 2014."
I guess my question is, what if you run into a SHTF situation where you need to get out from under it quickly?
Well, I have six months' of savings for that. If it stretches longer than that, I could sell off some investments that aren't in retirement accounts and stretch that another year or so. I did put about 10% down which was about half of what I sold my old car for though, so I'm not upside by much if anything.
The longest they offered 0% for was 60 months, but I'd be fine with up to 120 months provided the interest rate was right. I generally keep cars for about 7-8 years, so even on a 120 month note I wouldn't be upside down much if anything. If it was a few thousand that would't be a big deal, I'd just pay it off as a balloon payment and use assets rather than equity in my old car for the down payment. I prefer to keep my money in financial assets rather than depreciation ones. The only reason not to is interest expense, hence why I went with the 60 month loan rather than longer.
I understand all of that. You could also put 20% down or have 20% trade in equity, and be fine for almost the entire loan provided you don't put crazy miles on it. My point is that many/most people don't get the longer loan with the intention of paying extra on it. They get it because it affords them more car for less payment. Being way upside down in an auto loan brings an added layer of risk. A longer loan term extends this risk.
Certainly it isn't my intention to pay an extra dime on top of the minimum payments. I used about half of my trade-in on the down, pocketed the rest. Sort of. I didn't trade the car in, sold it privately.
Since I do drive about 30k miles a year and only put around 10% down, I'll probably be upside down. I'm paying an extra $12/month for GAP insurance right now though, so it's not really a concern although it does cost me $12/month. I'll probably cancel it in two years.
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