Overhaulin'

Buying my first car: Cash, Credit or Dealer Finance?

I need help! I am 19yrs old and completely lost on making my first car purchase. I know very little on finances and credit cards. After a lot of hassles and dealing with unfair, dishonest private owners and dealerships when shopping for a used car, I decided the risk of buying a used car wasn't worth it to me. I'd rather save up a few more thousands and just go with a brand new model. Get me some peace of mind there's nothing mechanically wrong that will end up costing me more than I purchased. Where I live, people tend to explode their cars in mileage. It's a car-dependent state, but cars are sold well over their worth, despite the car's heavy use. I'm planning on a 2012 Honda Civic. It wasn't long ago when I got approved for a $5000 credit limit from Chase. It's been a year, but I haven't used it out of fear, so I still rely heavily on my debit card. I don't have all of the money yet for a new car, but I desperately need one to get to work. If the car is worth a starting price of about $17,000 (estimate w/o taxes & fees), I only have about half that amount. That's why I was thinking about financing one on a payment plan. Maybe giving a down payment of $10,000 using my debit (when I save up to this amount) and financing the rest. I forgot exactly how credit cards work, and half the stuff I read online doesn't make sense to me. I keep reading that buying a car with a credit card, even partially, can burden you on interest. But doesn't that apply ONLY if you fail to pay at least the minimum every month? If I'm going to get charged interest even if I pay more than my minimum every month, I'm gonna end up paying more in the end! If that's the case, what's the point of having a credit card? Also, there is the dealership's financing. In layman's terms, how in the world does that work? Is it better/worse than financing through your own bank? What fees can I expect from finanancing with a dealer? Thanks.

Public Comments

1. First and foremost DO NOT USE A CREDIT CARD in place of a car loan. Credit Card interest is calculated completely different than a car loan and you'll end up paying double for the car. Credit card interest is calculated every month on the account balance. The minimum monthly payment barely covers the interest accrued. It will take you 35 years to pay off a $15,000 credit card balance if you pay only the monthly minimum. A car loan interest is calculated using the total amount borrowed and it amortized (reduced) over the length of the loan. It is sometimes called simple interest. So forget the Credit Card and use it to buy a new suit or a new cell phone but DO NOT use it to pay for a car. As far as loans are concerned you should get pre approved for a loan before you go car shopping. Go to your bank for a loan application. Go to a local Credit Union and see what they have to offer you. You'll get the best rates from these lenders. If you get pre approved you'll know in advance how much you can spend, where the money is coming from and how much it will cost you each month. That way you can spend the majority of your time at the dealer negotiating the PRICE of the car, not the monthly payment. You should always ask the dealer for their best loan terms, if they can beat your pre approved offer then take the lowest offer. If they can't beat your local bank then you already know the money is there waiting for you once you decide which car to buy.
2. If you can just out right buy the car you should. The interest will kill you if your credit is not half decent. The interest does not rise throughout your finance loan, so paying more every month will not hurt you. With some finance companies, they have penalties if you pay the car off early, so check into that. You don't know much about interest, its the way the bank makes their money for giving you the loan. (Lets say your loan is $11,000, When you get done paying it off, you may end up paying back about $15,000 or even double.) So financing is not always the best solution. And they may stretch the loan out so your payments a month are less, this causes your interest to be more and higher. Even if you get with credit union and they approve you for a loan, their interest will always be better. This is why I say just save and buy the car outright. You'll save a lot of money this way.
3. Perhaps, since this your first car, you ought to look into leasing. It carries a lower monthly payment than buying, and at the end of the lease term, you can opt to buy the car, trade it in for another lease, or just walk away. If you are dead set on buying your car, get your financing prior to shopping for a car. Talk to your bank. When you get a loan at the dealer, you give them all the power. They control your interest rate. You may be approved for 6%, but they tell you 9%. Then they get a kick back from the bank for getting you to agree to the higher interest rate. That's why I tell my friends to have their financing in place prior to shopping for a car.
4. the dealers are offering good deals as well as financing.but they confuse you so much that you don't really know what you paid.i recommend that you join a credit union by opening an account.they offer very good rates on auto loans.once you have become a member of a credit union of your choice,then talk to them about approval for a loan.then do some research online as to the car you want.Edmond's.com is a great place for auto reviews.then ask your credit union if they have a service that finds and makes a deal on your behalf.i have done it before.i decided what car i wanted and they did the shopping and negotiating for me.it's a great service and they know what their doing.now for a good car for you.take a look at the Mazda3 as they are in the price range tat you mentioned,and are getting great reviews.you can type in online"good new cars in the 17000.00 price range to start "
5. Find a mechanic you trust. They sell cars too. Drive the car you want to buy, to him. Pay him $50 to look it over. Pay cash and be done with it. New: Use your bank. You will get low rates. You pay higher interest for used car loans. If you do go new do your homework and get the lowest price you can find. Dealers have two prices MSRP (includes 20% profit) or the we need to move this now flooring price usually last years model with maybe 1k-2k miles. They are usually a better buy depending on the dealer. They can offer better long range terms. But rem: Longer term=$$$$$$.