Car Loan Question
 

Hi All,

I've searched around online and couldn't find a good overall resource for this. I'm looking to get my first loan to buy a used car. Looking at a 2012 Mazda 3 Sport Skyactiv. My credit I think is half-decent, I've been at my current job for about 5 years - never had a loan before, but have a few credit cards and I don't carry balances often - and have no other debt.

I am leaning towards buying used from a dealership, but if I find one used privately, I wouldn't mind doing that either.

Some people have been telling me to go to the dealership - and ask them to find the best rate for me. I've heard some people tell me to go to the bank and approved for a car loan and then just take the cheque to the dealership? I heard Vancity has a green car loan (which apparently my car qualifies for), which has a prime plus 2 rate for used cars - which isn't bad.

If I end up getting it through the Mazda CPO Program (I've read pros and cons to them), they have a guaranteed rate of 3.9% for a 60month, and 2.9% for 48 months, but their cars are generally more expensive.

Just trying to work out the best way to approach this. Any insight into this would be super helpful! thanks!!

Are you dead set on this particular Mazda3, Gars? Currently, OpenRoad Mazda (in Port Moody) is doing 0% financing on all their 2014 and 2015 -- the promotion expires on Jan 2. With CPO cars, in particular, they are often not that much cheaper than something brand new -- and then you have no idea how the previous owner treated the vehicle.

Obviously you gotta do some math to see if it is worthwhile. But don't write off buying brand new just because..

I would go brand new and try to find a 2014 model which would get you 0% for 48 months

Generally I would look at monthly payment on a used vehicle vs new due to interest. Many OEM's offer 0% financing on new vehicles.

Just a heads up, bank rate on a used car is between 3-6% depending on credit. I would suggest pulling a credit score from Equifax.

Hmmm, that's a very tempting offer, but I'm definitely not ready to buy one right now. I was still planning on doing research and was hoping to buy one in the next 6 months or so. I'm getting married this year and was hoping to buy a car that my fiance would feel comfortable driving as well.

I didn't realize that a new car wasn't that much more expensive though...

...You do realize how much changes in a month, let alone six right? 90% of the info people will give you won't apply then.

I was more asking about how best to approach buying a used car - in terms of financing. Should I approach a bank to get a loan or try to secure the loan from the dealership? As well, if I do buy a car privately, would a bank issue a loan for that, or would I have to resort to other lenders?

Sorry for being vague...

If you have real estate and can qualify for a line of credit against it, that is typically your best option in terms of both rate and flexibility of repayment.

If this is not an option and you are simply going to apply for a "vehicle loan" then it is unlikely that the terms will be better from your bank, best case being comparable. If you apply for a loan on a used vehicle, you may qualify for an incentive rate of some sort through the manufacturer, but most loans on used vehicles are done by 3rd party lenders - banks, finance companies, etc.

If you are considering a new car, crunch the numbers carefully - 0% financing will likely not outweigh the depreciation and higher purchase price on the car, although some models with limited depreciation like say a Toyota may make this decision harder than say a BMW which will very seldom be worth a new vehicle on a financial basis.

-Mark (ex finance guy at a car dealership)

Here's how I would approach it. Use the online Mazda build-a-car (or go in the dealership) and set up your baseline on a new car.

Put in how much you want to put down on a deposit and fiddle with it until you get something realistic that you can pay per month (or bi-week). Now you know how many months, how much down payment and how much you pay check goes to a new car.

Now check your CPO and craiglists/loan from the bank. I don't have any experience in this area so I won't say much.

But you might be surprised at how affordable a 0% (or whatever mazda is offering right now) is especially when the bank will not give you a 0% loan.

In the past, Mazda Canada tends to hold factory clearance sales some time in the Feb / March time frame, so keep an eye out for that. Two slight problems are, the 3 is Mazda's most popular car (in Canada), and dealerships don't tend to have a lot of leftover stock from the model year before. Additionally, they have just had a factory rebate promotion in November, so I am a little skeptical about whether they would put cash on their cars' hood again this soon after the last one.

This.

Good credit history and decent savings is probably enough to get you a 10-20k LOC. Then you can buy whatever/wherever you want.

I actually might look into that. My Fiance has a secured LOC through our condo, so that might be the best rate if I'm looking at used. I just wanted to weigh all my options before approaching her about it.

Thanks for the info guys!

Best advice right here. 0% on a new car can be tempting, but you will likely take a bigger hit on depreciation.

Another point to consider: With a used car, often you will have more negotiating room with the dealership. Especially on a previous gen Mazda3 compared to a brand new one sitting on the lot.

For my first car loan, my parents borrowed off their line of credit and I paid them back monthly. I saved quite a bit of money on interest vs borrowing myself. If your financee can offer you a similar deal, I would happily accept. Loan rates on used cars is almost always a rip off.

To specifically answer your question about dealership vs bank for a loan, there's no difference really. A loan's a loan. Pull out your calculator, do the math, and go with the best deal.

rule of thumb, never buy a new car unless you hit the lottery or keeping it till it dies, but when you drive the car out the lot, you already lost at least 30%

try to find a vehicle that is 2 years old or so cuz the big depreciation has set in and at least still have remaining factory warranty

as per loan/financing, try to get a pre-approval from the bank first then you can negotiate from the dealership for another rate

and last thing, do you really want to finance a depreciating item over 5 years?
try to get around 2 years financing by paying it off more each month

I'm not sure about now, but previously the advantage with borrowing from banks was you can usually get a 2-4k+ cash discount when buying a new car. Or the alternative is 0% or 0.9% financing over the term but no discount. It sounds like Mazda is offering a decent financing rate for their CPO vehicles, but maybe selling the vehicle at a higher price to compensate.

I bought new once, and will never buy new off the lot again. The immediate 1-2 year hit to depreciation is too big, I don't mind driving 2-4 year used and letting somebody else take that hit.

Another option to look into is maybe a lease takeover. Maybe a bit more limited in terms of selection, but if you can take over someone's lease obligations for the remaining couple of years basically paying for the car's depreciation, then figure out if you want to buy the car out afterwards or move on to something else without any hassle or obligation