Need advice on interest rates buying a used car from dealership
 

Hi,

I have recently visited a car dealer in Victoria, BC to try to get a pre-approval for a car loan. The cost of a 2013 Toyota Corolla S model that has 29,000 km mileage is $16,990.

I offered a down payment of $5,000 so I only owe them $12,000 for the cost of the car only, and add up to that the taxes and (maybe) surcharges, which the car dealer did not really explicitly tell me (and I forgot to ask either due to information overload as he was explaining to me).

Here's the breakdown of my car loan terms:
Car Price: $16,990
Down Payment: $5,000
Loan Term: 60 months
Bi-weekly payment: $171.00
Interest rate: 7.18%

I tried a calculating the overall cost of the car after paying it off (5 years), and it looks like I will be paying half of the cost of the car to cover for the interest rate. A 171 bi-weekly payment will turn to $4,104 per year, and 20,520 for 5 years. Add to that the $5,000 downpayment, the total cost of the car would then be $25,520.

$25,520 - $16,990 = $8,530 --> half the cost of the car

What do you think about the rate? Is it bad, not too bad, or good?

Thanks,
Rucus

That math does not add up to me. First of all, you need to know what the actual out the door price of the car today is. That's $16,990 + ??? fees + 12% of the total (including fees) for taxes.

However, when I work backwards the information you are giving me: 7.18%, 5 years of biweekly payments (ie 130 payments), $171.00 a payment, it would work out to you paying $23,655.86 (including your downpayment) today.

I really feel you have fundamentally not copied or not correctly understood what they are offering. Go back, get the exact out the door price, confirm the payment amount, number of payments, and we will calculate the real rate for you.

Mark

171 bi weekly... why don't you just get a brand new car :suspicious:

I just priced out a 2016 corolla S and its 183.50 biweekly for 60 months at .48% @ 5000 down :lol

Thanks, lowside67

Indeed, I may not have understood it correctly. They do it so fast I can barely catch up nor have the time to ask questions. They even offered me to take the car with me, but I refused saying I need to review the amount, so here I am.

It looks to me though that
$171 * 130 = $22,230. So add the $5000 DP to that would mount to $27,230.

Out of curiosity, may I ask how the $23,655.86 was derived from your calculation? And do you mean there is a mismatch between the interest rate they have given to me vs. my bi-weekly payment?

Thanks,
Rucus

It's a present value calculation, the PV of 130 bi-weekly payments of $171.00 with an annual rate of 7.18%. The PV of that is $18,655.86, then you add your $5,000 to get "today's dollars".

The bottom line is that cannot be correct. Either the payment or rate is wrong, there is no amount of fees and taxes on a $17,000 car that would equal an out the door cost of $23,655.86 today.

Mark

Hello Rucus.

Like lowside67 mentioned, it really, really doesn't add up.

I was already going "huh" 5 seconds into reading your post.

7.18% won't end up costing you half of the cost of the car to cover your interest.

I am estimating, perhaps, 25% to 30% of the car.

Get the firm final price with everything included, and go from there.

Use an easy online calculator:

Car Loan Calculator ~ Auto Loan Payment Calculator

Oh, and 7.18% is a high rate.

If you want to try, you can go to your local bank to get a lower rate around the 4% to 5% range.

If you really want the car, and don't want it to be sold to someone else (while you try a bank), put a deposit on it (and make sure it is refundable), and then try out a bank loan (which sometimes takes up to 4 business days to get approved).

I think the best interest rate they can give to me is 7.18% for a loan term of 60 months. I think partly because I do not have any credit history in Canada. I am in my early 30's and a working professional so I cannot see any reason why they can not give me a good rate except that I do not have a credit history (except for a credit card that I pay faithfully).

A brand new 2016 Corolla S at 183.50/bi weekly is really a good offer. I would take if I find an offer like that. :)

Thanks,
Rucus

Thanks, Marshall Placid.

That's a good suggestion. Maybe I can try asking my bank first. I think and I hope that I get a better explanation there than the dealer I talked with in the car dealership. I do not have credit history in Canada so I think that's one of the reasons why I get a 7.18% interest rate. I just arrived in January 2016.

Thanks,
Rucus

Hi Mark,

I am sorry I cannot get my head around calculating this PV. May I ask how you calculated this figure so I can ask the dealer for clarification about it, just in case I come back there tomorrow.

Thanks,
Rucus

If you have a decent career/salary, have you tried asking your (or a few) banks/credit unions to see what their loan rates are?

This is from toyotas website. A toyota dealer should be able to help you out.

Hi lowside67,

Can I find any tool that would do the present value calculation for me? I am curious how your PV value was derived. I cannot get it no matter what I use (bi-weekly payment or the interest rate). Would greatly appreciate to hear your input.

Thanks,
Rucus

A bit unrelated, but why in the world would you want to buy a used 2013 Corolla for 25k?
In 5 years when your done making your payments the car will be worth under 5k. You can get them used for under 10k right now.

thanks, BoostedBB6 for your message.

Got your point. Indeed, I may have been aiming for something not worth. I initially thought it's a good deal at $16,990 with about 30,000 km mileage and nice interior and exterior features (it's a sport version), but I am thinking now of buying a brand new one if I just need to pay a little extra. Some realizations are getting in place now.

So if the website says I am going to pay the said amount, is it more or less accurate or is it way off from the reality? I don't really know what to think if I try to ask for quotation/payment breakdown from websites. I am not sure if it's one of those marketing tricks.

Even the dealership uses the website as the calculator. Shitty thing about toyota is they can't take much off of the MSRP.

Only thing thats in your way right now is your credit score.

I would just buy new if I were you no sense in paying for a used 2013 when you can get a new 2016 with almost the same pricing and payments...also 7% plus is way too much...this is how the dealers make up their money...

Perhaps consider a line of credit to make the purchase? Better interest rates than a used car loan.

I see. Thanks for pointing this out. What is the typical interest rate for used car loans from a dealership?

I am sorry I think I did not understood it well. Did you mean here making loans from multiple banking institutions?

A line of credit would be a loan from the bank. Most often at a much lower interest rate than you would see with a used car loan or a credit card.
If you went that route you just have to be sure to make your payments and dont stretch it out to long otherwise you will end up paying tons of interest over time.

I see. Thanks for that important piece of advice!

Thought you made up your mind and will buy new. If that's the case, just finance it through Toyota Canada. Nobody will beat their rates other than maybe your parents who may give you a zero interest loan.

Unless you have bad credit and Toyota won't fund you.

I think I'm on the other side of the spectrum -- I have no credit history built up as of the moment, except for my credit card that I pay faithfully.

If you have that and hold a steady job, pretty sure you'll have no problems getting approved. If that still doesn't work, find a cosigner.