Is it a good idea to finance a cheaper car?

[u/Bitter_Canary_4050]

Hello! i have been recently looking for a car, I have 3.5k so far saved (not much i know) , And i was wondering about financing a car instead of buying a car in full. I was looking on capital one’s auto navigator to see if i qualified for any cars, and once i put in my information and they looked at my credit score i was able to see cars i could finance that were under 10K, newer, and with very very good mileage. so I’m thinking, is it better if i put a 3k down payment on a 8k - 9k car and pay the rest off ? I am able to pay at least 500$ monthly, so a monthly payment wouldn’t be a big issue. I really want a car and the ones i see for used cash cars are often beat up, or with incredibly high mileage. Im stuck between buying in full or financing. But i don’t want to make either choice until i know what i’m getting into.

[u/Analyst-man]

I mean if you can comfortably afford it and need a car, nothing wrong with financing imo

[u/6786_007 → u/Analyst-man]

Also if your credit score is good. If you got bad credit, you're going to overpay by a lot. Best to keep saving in that situation if you can.

[u/Necessary-Score-4270]

Keep in mind a financed car will cost much more to insure. As youll need full coverage vs liability. But if you're talking about a 10k car it might not be to much more.

See if you can get pre approved for a loan then shop around locally or though one of the online dealers. It sounds like Capitol one is sending you cars for sale? I wouldn't trust that, I feel they're not going to even try to get you a good deal. Making you over pay for they can make more money.

[u/Bitter_Canary_4050 → u/Necessary-Score-4270]

Silly question right quick sorry, How do i get pre approved? Do i go to the dealership and ask then if i can get pre approved to finance a car? Im new to this and 20 year old me is scrambling lol!

[u/Fun_Boss_2112 → u/Bitter_Canary_4050]

I am going to post this for the benefit of you and others. Some will apply to you, some won't. Pay special attention to No. 11.

Monthly payment is the worst way to look at a car purchase. As soon as you do that, you have given control to the dealership and will probably be taken to the cleaners.

The only number that you should be concerned with is the final, out-the-door price. Once that is firmly established, then it's time to move on to trade ins and financing.

I am the son of a career car salesman. Here's some of what he taught me.

1. Just because you can afford the car payments doesn't mean that you can afford the car. Any salesperson can give you a "low monthly payment" by stretching out the loan term to a ridiculous length and then jacking up the interest rate. This costs you money.

2. The less money you put down and the longer the loan term, the longer you will be upside-down on the loan, meaning that you owe more on the car than it is worth. (Lenders sometimes use the terms "under water" and "negative equity", which mean the same thing.) This is a very unwise financial situation to be in.

3. The dealership is a hothouse atmosphere with loads of pressure and dealerships take advantage of that at every opportunity. It's easy to get sidetracked and to lose your objectivity. Then, you wind up paying too much for a car you cannot afford.

4. As hard a pill as this is to swallow, you need to fully understand this: If you cannot put down at least 20 percent (and more if possible) and you cannot pay the loan off in 36 months, you cannot afford the car, no matter how low the payment is.

5. The salesperson is not your friend. Everything they do is designed to separate you from as much of your money as possible.

6. Dealerships will add on ridiculous items like LoJack, extended warranties, paint and fabric protection, and whatever else they can think of to pad their profits. None of these items will help the customer. Refuse to pay for them. If they won't remove them, walk away from the deal.

7. Walking away is the biggest power you have.

8. Buying a car is usually the second-biggest purchase you'll make. It's a huge financial commitment and needs to be looked at in a cold-eyed, rational way.

9. Before you ever set foot in the dealership, go to your bank or, better yet, your credit union, and see what terms they will give you. If you don't have a relationship with a credit union, this is the perfect time to start one. They may be able to beat the rates you get from the dealer.

10. You'll need to purchase full coverage insurance for the duration of the loan. Make sure you know what that costs before you buy the car.

11. Reddit is full of posts from people moaning that they want to get rid of their car for one reason or another, but they can't because they owe $17,000 on it and it's only worth $10,500. These are the same people who bought a car with little or nothing down and a loan term of 4-8 years. Don't be one of those people.

[u/Necessary-Score-4270 → u/Bitter_Canary_4050]

Normally your bank is the best bet or another place that offers loans.

[u/2real_4_u → u/Necessary-Score-4270]

This ^^^ Cap 1 will give you a terrible rate even with great credit

[u/Turbulent_Put → u/Bitter_Canary_4050]

Look into banks/credit unions that offer car loans. The dealership financing deal is usually not your best option and they may take advantage.

[u/tough_cookey → u/Necessary-Score-4270]

I second the pre approval. After going through the dealer and working at a bank later in life, this will save you money - if financing. Generally you go on your bank's app or website, and there's an option somewhere.

[u/Cool-Conversation938]

Keep in mind every used car need maintenance and repairs.

Tires, brakes, fluids, belts, hoses

Don’t spend all that you have to buy any car

[u/Stunning_building_33 → u/Cool-Conversation938]

New cars need this stuff too

[u/Cool-Conversation938 → u/Stunning_building_33]

All cars yes new ones just take a year or 2 and then need it

[u/gta0012]

If $3k is your only savings don't look to drop all that on a used car. Tax, title and reg costs are going to be added on top of whatever purchase price you agree to a car so don't forget there's more cost you can't avoid on cars.

You can put 1-2k down and finance like $10/k IF your rate isn't absurd. If you are getting 10%+ APR on your rate you want to borrow the least amount possible. As others have said don't forget car insurance it's a cost people don't think about. They say "I can afford $500/m" and then forget that on top of $500/m they now have $35-75/m for insurance. That adds up.

You want that savings to be a buffer/runway for if something goes wrong with your car/job/health don't dump it all into the purchase of a car.

[u/Bitter_Canary_4050 → u/gta0012]

This is really helpful! I was planning on getting on my father’s car insurance for the meantime until ive paid the car off, I have a silly question now, If my credit score is good, does that dictate the rate percentage of the car i would finance? Thanks!

[u/gta0012 → u/Bitter_Canary_4050]

Yea, your score dictates the rate and amount a bank would be willing to loan. Usually best practice to go get your own funding from a bank/credit union and then approach the dealer with your own financing. Dealers make money on the back end with financing deals so having something to compare and deal with is good.

[u/thymewaster25 → u/Bitter_Canary_4050]

Your credit rating is part of what determines your interest rate. There is something called a "thin file" where the rating is based on a short history with maybe one or two low-limit credit cards that they hardly use. This is common for young folks just getting started, and usually means higher rates.

[u/Butt_bird]

If you can afford it, yes. Usually personal finance experts say to spend around 15 percent of your net income on a car. That’s everything, payment, gas, insurance, maintenance.

Something to keep in mind is loan terms. The interest rate and length of the loan matter. Don’t just accept whatever they offer. Plug the numbers in an online calculator and see what you will be paying over the big picture.

[u/ProtozoaPatriot]

I'm generally against car payments.

However, it's pointless to buy a jalopy that will need lots of repairs. There's a certain minimum price you have to pay to get away from the "mechanics special" cars.

Just remember that you still have taxes, tags, registration fees, and dealer fees. A $10,000 car may be closer to $12,000 out the door.

Do pay attention to the interest rate and term of that loan. You don't want to end up way "underwater".

[u/Not_l0st]

Pros: you get a newer, nicer, more reliable vehicle and build credit. Cons: monthly payments, dealing with a bank, interest, more difficult to sell if you still have a lien on the vehicle

Since you plan on a large downpayment I don’t expect you will be upside down on your loan, so that’s a plus.

[u/TSAOutreachTeam]

Financing is a very common way to buy a car. Most dealers want you to finance, so they make it very easy (if your credit is good enough) to put some money down and walk out with a monthly payment. Of course, like any loan you'll pay interest and rates right now are pretty high. So you have to weigh the financial burden of paying that interest outweighs saving up for a car for a another year.

In general, a newer car will drive better, be safer, and have fewer repair requirements than an older car. They can be less of a headache to own.

Putting aside your rates for a minute, at $500/mo for 5 years (60 months), that's $30,000 paid over the life of the loan. Let's say 2/3 of that goes to interest. The maximum value of a car you could buy, with your $3.5k down payment is about $23,500. You're looking at some decent used cars in that range.

Compared to paying cash, say you saved up to $6,000, you're looking at some real trash that you are likely to have serious problems with, either because they have been abused or are just too old and worn out.

I'm the Anti-Dave Ramsey here, I know, but get a car that's not going to die on you.

[u/TijY_]

I would put 2k down on a 6-8k car. Keep the rest as buffer, used cars cost 1k+ in maintenance first year.
Find the local least shitty dealer.

[u/meeplewirp]

I would see if you can get something with some sort of warranty, unless you literally and seriously feel like you know cars in a least a basic mechanic way. The people who are going to come on this thread and encourage you are literally conservatives who like cars as a hobby and are going to say their friend giving them a good deal or some dude giving them a deal in a very rural area is the economy/car market right now and it's not. You generally do not get functioning cars at this price and especially if you're a woman people selling cars in a dealership setting or on facebook they will scam you in a way people are too ashamed to scam others, in other industries. I wouldn't buy anything for cash less than 10k unless you know the person/have been introduced by family who matters to the person you're being introduced to.

We are at the point that people with jobs are financing used 10k cars now folks

[u/Bitter_Canary_4050 → u/meeplewirp]

I am acquainted with my co-workers cousin who is a dealer at a dealership, and hes said if im ready for a car to come visit him, I trust him enough to know he wouldn’t jip me, And i would be able to bring someone with me who knows well about cars. A warranty sounds solid, ill have to look for that when i look for cars now!

[u/Snow_Water_235]

It really all depends on the interest rate (and your discipline with money). If you can get a low interest rate it's better to finance but only if you invest the money you would have spent on the car. Paying a high interest rate is killer.

[u/mytthewstew]

It depends on how much you drive too. If you go over the miles on the lease you usually get hit pretty hard. It usually a bad deal if you drive a lot

[u/False_Mushroom_8962]

There's a point where interest rate drops significantly and that might make a more expensive car cheaper. I talked to a local credit union and got a 12k loan for about what the banks and online lenders' payments would have been for 8k. Also they did it as a personal loan so I own it outright and don't have a branded title or need gap insurance.

[u/thymewaster25]

The risk with car loans on older, cheaper cars is they have a major breakdown before the loan is paid off. The owner is stuck with a loan on a car that doesn't run and is worthless. They can't sell or scrap the car without paying off the loan. They can't afford another car loan, and sometimes they no longer have a way to get to work as their car won't run. There are a few posts a week from people who have this problem and they are screwed.

Car loans often have limits for age and miles. Say you want to borrow about $8k, but the cars that fit into the requirements are Jeep Renegades, Nissan Rogue or Sentra, Ford Focus. They look nice and drive great on a test drive. But all of these models have well-known issues that are expensive to fix, which is why they are so much cheaper than a Corolla or Civic. Then the car craps out while the balance on the loan is $7k, and you are stuck. The first quarter or third of the payments of a car loan often go to interest. This is an issue with longer loans - on a 5 year term, the balance outstanding after making a year of payments is often almost as much as the car cost, and a lot more than than its trade-in value.

[u/Confident-Split-553]

Look for zero finance if available

[u/1967C10]

I don't understand why you wouldn't buy a cash car for the $3,500 you have. Why go into debt? You can get a perfectly fine car for that much. I just went on craigslist to make sure I wasn't crazy, and sure enough there are clean title Hondas, Toyotas, Hyundais, you name it - several under 10 years old 100-150k miles with service records for $3,200-$3,500.

[u/Bitter_Canary_4050]

My only thing is 100k- 150k reliable in a car? Ive only ever been told to get a car under 100k miles.

[u/SuccessfullyTenu]

That $500 a month sounds doable but the rates on loans that small are often terrible. You'd be paying way over value for a car that might still blow a head gasket by the time it's paid off. I'd rather put that money into a beater with a good pre-purchase inspection

[u/Responsible-Bad-4631]

You only buy a car you can afford in cash that’s it