Automotive

Auto Finance Questions

  • Last Updated:
  • Jan 10th, 2019 2:24 pm
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes

Auto Finance Questions

Hello All,

I have a 2-Tier question regarding an auto purchase:

The vehicle and auto terms that I have interest in has the following information:

- 2013 Mercedes GL 350
- 82,000 kms
- $42,000 everything included (with $1,000 doc/registration fee which I am not happy about (and except interest))
- 6.98% interest
- 60 or 72 month terms

My Credit Score just under 800


The dealership put an application in for approval and it was approved with the above terms. They indicated the application was approved at 6.98% at 72 months (He put 72 months just to see if they would approve the term length on this vehicle and I was also curious so agreed)
. I indicated to the finance manager that with my credit score, I have never received an interest rate ever over 6%. He indicated the following information:

- The age of the vehicle is the one pushing the rate up.
- The length of the term is also a reason for a higher rate. He indicate the longer the term, the higher the rate.

I indicated to him that it's too high. Like "this is a joke right?" high.

Question 1: With this information, is he correct about rate with the two factors (age and term length) that he indicated and how the current auto rates are at this time?


Also, for general knowledge as I can't find this answer anywhere:

Question 2: What auto term length corresponds to age of vehicle that lenders look at or approve?

Example:

1-2 years old = Up to 96 months term
2-3 years old = Up to 84 months term
4-5 years old = Up to 72 months term
6 years old = Up to 60 months term
+6 years old = Up to 48 months term

Is this correct, or is it in a different scale? The finance manager was just mentioning that banks/lenders usually don't loan longer than 72 for a vehicle 5+ years. Is this correct? Again, this is just general knowledge for me to understand how underwriters look at loans.

All your answers would be appreciated!

Thanks so much
46 replies
Deal Addict
Apr 18, 2005
1630 posts
416 upvotes
Mississauga
It's basically looked at... the vehicle is collateral until the loan is paid... and it's value is only depreciating. The lender wants protection in case you default and run.... hence why the high interest rates on older vehicles.
Deal Guru
User avatar
Oct 5, 2008
11229 posts
4476 upvotes
Toronto
Looks to me like a poor choice in vehicle and worse loan.
Deal Fanatic
Apr 16, 2007
7079 posts
1979 upvotes
Financial District B…
IAMALPHA wrote:
Jan 7th, 2019 9:40 pm

- 2013 Mercedes GL 350
- 82,000 kms
- $42,000 everything included (with $1,000 doc/registration fee which I am not happy about (and except interest))
- 6.98% interest
- 60 or 72 month terms

- The age of the vehicle is the one pushing the rate up.
- The length of the term is also a reason for a higher rate. He indicate the longer the term, the higher the rate.

I indicated to him that it's too high. Like "this is a joke right?" high.

Question 1: With this information, is he correct about rate with the two factors (age and term length) that he indicated and how the current auto rates are at this time?
He is correct.
Many of the banks won't even offer auto-loans for 2012 year vehicles or older so your choice is at the cusp of what's even acceptable.
IAMALPHA wrote:
Jan 7th, 2019 9:40 pm

Question 2: What auto term length corresponds to age of vehicle that lenders look at or approve?

Example:

1-2 years old = Up to 96 months term
2-3 years old = Up to 84 months term
4-5 years old = Up to 72 months term
6 years old = Up to 60 months term
+6 years old = Up to 48 months term

Is this correct, or is it in a different scale? The finance manager was just mentioning that banks/lenders usually don't loan longer than 72 for a vehicle 5+ years. Is this correct? Again, this is just general knowledge for me to understand how underwriters look at loans.
One major factor you are missing is financed used cars are subject to falling into the negative equity pitfall more-so than new cars.

You want to finance a car for 6 years that is already 6 years old (2013)!!! That car will be 12 years old when you finally finish playing it off.
Vehicles that are 4+ years in age should not be financed more than 48 months.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Deal Addict
Jan 15, 2017
2328 posts
1635 upvotes
Why would you even permit the dealer to seek approval at 6.98% when you consider it a joke? Longer auto terms usually mean lower payments. If you are financing the full $42k at 6.98% you are looking at a monthly pmt of $715 and paying total interest of over $9500.
Sr. Member
Dec 16, 2008
770 posts
299 upvotes
Richmond Hill
If your budget is 42K and you can possibly convince yourself of driving a car may be slightly different than GL350, search for a brand new vehicle within your budget. You may end up paying the same monthly payment due to lower interest rate but have peace of mind of driving a new vehicle with warranty.
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes
Swerny wrote:
Jan 7th, 2019 11:16 pm
Looks to me like a poor choice in vehicle and worse loan.
Elaborate as to why a poor choice in vehicle.

Thanks
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes
mikeymike1 wrote:
Jan 8th, 2019 12:26 am
He is correct.
Many of the banks won't even offer auto-loans for 2012 year vehicles or older so your choice is at the cusp of what's even acceptable.


One major factor you are missing is financed used cars are subject to falling into the negative equity pitfall more-so than new cars.

You want to finance a car for 6 years that is already 6 years old (2013)!!! That car will be 12 years old when you finally finish playing it off.
Vehicles that are 4+ years in age should not be financed more than 48 months.
I upvoted your response as it was helpful.

The 72 months was to see if the lender would accept the term for that year and vehicle. They did.

If I did go with a 72 month term. This would allow flexibility to have a lower obligated payment while allowing me to pay extra on top of that payment every month as it is an open-ended loan. I have structured my other auto loans as such and always came out with the dealer paying me back for my trade in. The vehicles I choose depreciate slowly and my overpayments kill the interest. Positive equity.
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes
skeet50 wrote:
Jan 8th, 2019 7:36 am
Why would you even permit the dealer to seek approval at 6.98% when you consider it a joke? Longer auto terms usually mean lower payments. If you are financing the full $42k at 6.98% you are looking at a monthly pmt of $715 and paying total interest of over $9500.
I agreed to seek for the dealer to seek approval on the term, not the rate.

It was when I asked to see what interest rate was put in, it was actually 7.99. I told the dealer absolutely not, especially with that credit score. They then put it to 6.98%. The dealer then indicated numbers can be tweaked, this just to seek approval. I indicated that, that rate is not good enough.


Another question for all, is what do think about the 6.98%? Is it even a normal/decent rate for this vehicle and my credit score?

Thanks again
Deal Fanatic
Apr 16, 2007
7079 posts
1979 upvotes
Financial District B…
IAMALPHA wrote:
Jan 8th, 2019 3:12 pm
I upvoted your response as it was helpful.

The 72 months was to see if the lender would accept the term for that year and vehicle. They did.

If I did go with a 72 month term. This would allow flexibility to have a lower obligated payment while allowing me to pay extra on top of that payment every month as it is an open-ended loan. I have structured my other auto loans as such and always came out with the dealer paying me back for my trade in. The vehicles I choose depreciate slowly and my overpayments kill the interest. Positive equity.
Then I would say you're a rare breed. Many say the same thing... take the longest term for lowest payment and make additional payments here and there.
The fact is many say it but rarely do so. But if you do then good for you.
Moreover, longer stretched out loans suffer from slower principle paydowns. Many realize these financial positions when they get into an accident and the car is a total write-off before loan maturity.
Or when their vehicle is at the 10+ year mark and major maintenance and repairs are needed and they realize they still have a big loan, sounds kinda nuts.

Nothing personal and don't take this the wrong way but you may be kidding yourself about taking longer terms.
I've been in the auto finance industry a very long time and people who feel the need to take extended terms usually can't afford the car they are buying or just buying too much car.
A lot of buyers have that champagne taste on a beer budget. Longer terms just shoehorns them into a payment bracket. They can't afford the car at 60 months so instead of selecting a lower valued car they stretch the term. Majority of all auto loan defaults are 72 months plus terms, wonder why that is.
If 20 year auto finance terms became the norm then everyone would be buying S-Class Benzs. See the picture?
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Deal Guru
User avatar
Apr 26, 2004
11213 posts
1443 upvotes
Mississauga
IAMALPHA wrote:
Jan 8th, 2019 3:04 pm
Elaborate as to why a poor choice in vehicle.

Thanks
Enjoy the maintenance costs on a 6 year old car (at least 12 years old by the time you're done with it) with a historically poor record of reliability.
Penalty Box
User avatar
Apr 21, 2004
49357 posts
14614 upvotes
I thought MB engines were more reliable than BMW's and Audi's? Or do they all have lots of plastic components that will eventually give?
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes
mikeymike1 wrote:
Jan 8th, 2019 3:44 pm
Then I would say you're a rare breed.

Nothing personal and don't take this the wrong way but you may be kidding yourself about taking longer terms.
I've been in the auto finance industry a very long time and people who feel the need to take extended terms usually can't afford the car they are buying or just buying too much car.
A lot of buyers have that champagne taste on a beer budget. Longer terms just shoehorns them into a payment bracket. They can't afford the car at 60 months so instead of selecting a lower valued car they stretch the term. Majority of all auto loan defaults are 72 months plus terms, wonder why that is.
If 20 year auto finance terms became the norm then everyone would be buying S-Class Benzs. See the picture?
I am.

I am not taking your comment the wrong way, but please be assured that I can afford anything that I am interested in purchasing. I blame this on the environment of this conversation being a forum, and not knowing me or my background.

Every vehicle I have purchased has been a term and interest rate that I am comfortable with to ensure that I can make higher or additional payments on the open loan. Not every loan has to be typically structured and as the majority. One needs to look at their own situation and position in life and work the best strategy to come out on top.

Also, we can erase the assumption that I would keep it the entire term.

Thanks though Mike, I like that you provide good comments
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes
Talamasca wrote:
Jan 8th, 2019 3:46 pm
Enjoy the maintenance costs on a 6 year old car (at least 12 years old by the time you're done with it) with a historically poor record of reliability.
The vehicle I’m trading never had huge maintenance costs at all and is still running like a machine. I guess it is one. That being an Infiniti Crossover. Which is more than 6 years old.
[OP]
Newbie
Apr 21, 2017
74 posts
32 upvotes
That’s what I thought but it tends to be Japanese>German for reliability.

Or are you referring to this exact model?

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