How do car loans work?
Published over 4 years ago
My wife is getting a new car, and we've been shopping around for car loans. Unfortunately, the rates aren't that great right now. We just got a quote from USAA for 6.74%, and my wife has great credit. (In my experience, I was able to get a 2.99% loan through Toyota.)
During this loan-shopping process, I was wondering how car loans work obtained at lenders other than the dealership work. At USAA, once you are approved, you can get a check sent to you in 3-5 days at no charge, or expedited for an $8 fee. I was wondering how that worked, if they give you a check, or if they pay the dealer. In the case of USAA, they send your your auto loan check. I'm guessing its made out to you, as you might not know where you are going to buy a car.
When I spoke with the salesperson at Toyota, he said that they can shop around for loans at a few different locations, and the bank will then transfer. So I guess in that case it does work a little different.
Russell Coker says:
The problem with car loans is that initially the value of the car decreases faster than you will pay off the loan. It's also easy for a car owner to do something that violates their insurance agreement while destroying their car and remove the majority of the asset value.
Get a mortgage on a house to buy a car, even with the sub-prime mortgage foolishness that's upon us (it's hitting Australia too, but to a lesser extent) a sensible person who doesn't borrow excessively can still get a decent mortgage rate.
Every time I've borrowed money to buy a car it's been on a mortgage.
Also note that you don't need to own a house to get a mortgage. If you have relatives who trust you then their house can be used as security for your loan (the bank doesn't care, they just want an expensive asset which won't go away as security).