Personal Finance

How to finance a 12k used car?

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  • Jan 6th, 2021 11:25 am
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[OP]
Newbie
Jun 17, 2015
79 posts
5 upvotes

How to finance a 12k used car?

I would like to buy a 12k used car either mazda 3 or honda civic from a private sale and i have 16k in savings but I would rather keep it as emergency fund. I don't have access to a HELOC so would my only option be an LOC or personal car loan to finance the car? I know personal car loans are anywhere from 5-6-7-8-9% interest rate so is LOC the only cheaper option?
22 replies
Deal Expert
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Jan 27, 2004
45189 posts
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T.O. Lotto Captain
cellucc wrote: I would like to buy a 12k used car either mazda 3 or honda civic from a private sale and i have 16k in savings but I would rather keep it as emergency fund. I don't have access to a HELOC so would my only option be an LOC or personal car loan to finance the car? I know personal car loans are anywhere from 5-6-7-8-9% interest rate so is LOC the only cheaper option?
Pick either

-Revolving line of credit
-Fixed term personal loan.
-Dealer financing

Look @ that... RFD. Lol
Sr. Member
Jun 14, 2018
946 posts
1033 upvotes
The interest rates on those loans are quite high. Couldn't you just use your savings to buy the car and then put away that money that would have gone towards monthly car payments towards your emergency fund instead? Or maybe even use some of the savings and finance the rest to at least save some interest?
Deal Addict
Sep 14, 2012
1427 posts
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Montreal, QC
cellucc wrote: I know personal car loans are anywhere from 5-6-7-8-9% interest rate so is LOC the only cheaper option?
I just wanted to mention that you should be careful of the lower rate of the unsecured line of credit. The terms of usage for unsecured lines of credit generally indicate that the institution can change the rate at any time with ~30 days notice (or some other day's notice). With the unsecured lines of credit that I have access to, regardless of how much you have outstanding in terms of usage balance, you will be paying the new interest rate once the notice period is over. It doesn't matter if when you borrowed/used the line of credit, the rate was Prime+2%. The institution can increase it to Prime+5% once you've used your line of credit.

Depending on the line of credit rate and how much you can get a fixed term loan which won't change for the duration of the loan, a slightly higher rate might be worth considering.
[OP]
Newbie
Jun 17, 2015
79 posts
5 upvotes
MarinersFanatik wrote: The interest rates on those loans are quite high. Couldn't you just use your savings to buy the car and then put away that money that would have gone towards monthly car payments towards your emergency fund instead? Or maybe even use some of the savings and finance the rest to at least save some interest?
I thought about that but saving 12k would take a while so ain't I better just to pay some interest and keep the savings? Maybe I am seeing this wrong financially.
lmcjipo wrote: I just wanted to mention that you should be careful of the lower rate of the unsecured line of credit. The terms of usage for unsecured lines of credit generally indicate that the institution can change the rate at any time with ~30 days notice (or some other day's notice). With the unsecured lines of credit that I have access to, regardless of how much you have outstanding in terms of usage balance, you will be paying the new interest rate once the notice period is over. It doesn't matter if when you borrowed/used the line of credit, the rate was Prime+2%. The institution can increase it to Prime+5% once you've used your line of credit.

Depending on the line of credit rate and how much you can get a fixed term loan which won't change for the duration of the loan, a slightly higher rate might be worth considering.
I know that the rate is variable, I was thinking of taking the amount borrowed and figure out if I want to pay in 3 year and make payments ao that ita cleared in 3 years. I know the rate can raise between that time so I would adjust accordingly. I know for car loans the rates are fixed but I think they are alot higher?
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Jun 11, 2001
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Use the cash and rebuild the emergency fund back up... those rates are brutal.
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Sr. Member
Jun 14, 2018
946 posts
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cellucc wrote: I thought about that but saving 12k would take a while so ain't I better just to pay some interest and keep the savings? Maybe I am seeing this wrong financially.
Do you have enough money to make monthly payments on the car if you were to use the loan? So instead of making monthly payments towards the loan, let's say you pay the car using the savings and then put those monthly payments towards replenishing your emergency fund. It's essentially the same thing except you don't have to pay extra interest, which is like ~$700-$1000 a year. Huge waste of money
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Apr 16, 2006
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So long as you're disciplined, diligent, and are willing to either pay it all off within 10 months (fully or temporarily and repeat the cycle), your best and least expensive way to finance your new used vehicle purchase (assuming you HAVE to borrow money from somewhere) is via MBNA 0% BT:

mbna-cards-bt-promos-2210803/

Sign up for the Lakehead Alumni or Nipissing Alumni credit cards (no, you don't actually need to be an alumni of either), take advantage of the 0% BT offer (1% fee), and use that to re-top up your emergency fund (as applying for the card, getting the card, and then getting the funds will all take about 2-3 weeks from start to finish) and enjoy dirt-cheap interest on your used car loan.

I did this when I purchased my new (used) car. I had the funds available to pay it all off immediately, but like you, I didn't want to drain my emergency fund. Also, the interest rate I was offered was a hilariously high 6.75% despite me having rock-solid credit. So I used this method to effectively self-finance on the back of my good credit.

The excess cash I got from the BT that I didn't need to put towards the purchase of the car I put into a TFSA HISA so it'll earn interest tax-free (effectively reducing my cost of borrowing) while I continue to contribute to it throughout the year so that I'm ready to make my payment to pay it all off after 10 months. If I haven't saved enough by then, I'll just repeat the process using another MBNA 0% BT card for another 10 months.

Again though, you have to be disciplined and diligent, because if you aren't this could be a dangerous path to developing bad credit, many headaches, and major financial problems.
Last edited by Octavius on Jan 4th, 2021 9:57 pm, edited 1 time in total.
Deal Addict
Sep 14, 2012
1427 posts
1008 upvotes
Montreal, QC
cellucc wrote: I thought about that but saving 12k would take a while so ain't I better just to pay some interest and keep the savings? Maybe I am seeing this wrong financially.



I know that the rate is variable, I was thinking of taking the amount borrowed and figure out if I want to pay in 3 year and make payments ao that ita cleared in 3 years. I know the rate can raise between that time so I would adjust accordingly. I know for car loans the rates are fixed but I think they are alot higher?
Yes, the interest rates for car loans at financial institutions are normally a lot higher than an unsecured line of credit.

I was just mentioning that unsecured lines of credit rates can increase at any point in time with the ~30 days notice (depending on contract/terms of the financial institution) since some people assume that because they have prime+adjustment, that they have this rate for the the life of the line of credit which isn't the case.

I also mentioned what I did mainly if purchasing a car at a dealership where the rate is close to what the consumer has with an unsecured line of credit (where the unsecured line of credit isn't significantly lower than the fixed car loan offered by the dealership)
Deal Fanatic
Apr 16, 2007
7979 posts
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Financial District B…
UrbanPoet wrote: Pick either

-Revolving line of credit
-Fixed term personal loan.
-Dealer financing

Look @ that... RFD. Lol
Private sale, does not qualify for captive subvented dealer financing
----------------------------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 Fanatic
Apr 16, 2007
7979 posts
3270 upvotes
Financial District B…
cellucc wrote: I would like to buy a 12k used car either mazda 3 or honda civic from a private sale and i have 16k in savings but I would rather keep it as emergency fund. I don't have access to a HELOC so would my only option be an LOC or personal car loan to finance the car? I know personal car loans are anywhere from 5-6-7-8-9% interest rate so is LOC the only cheaper option?
You should first contact your lender and ask them how far back will they offer secured lending for automotive.
Many banks won't offer auto loans for 5,6 year old cars. Few will offer loans on 7 year olds.
The interest rate is usually higher for well aged vehicles.
----------------------------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 Expert
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Jan 27, 2004
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T.O. Lotto Captain
lmcjipo wrote: I just wanted to mention that you should be careful of the lower rate of the unsecured line of credit. The terms of usage for unsecured lines of credit generally indicate that the institution can change the rate at any time with ~30 days notice (or some other day's notice). With the unsecured lines of credit that I have access to, regardless of how much you have outstanding in terms of usage balance, you will be paying the new interest rate once the notice period is over. It doesn't matter if when you borrowed/used the line of credit, the rate was Prime+2%. The institution can increase it to Prime+5% once you've used your line of credit.

Depending on the line of credit rate and how much you can get a fixed term loan which won't change for the duration of the loan, a slightly higher rate might be worth considering.
So far i know of only one bank that does it that ruthlessly.
Cibc.
Other banks will only raise it if you really start screwing your credit.
Deal Addict
Sep 14, 2012
1427 posts
1008 upvotes
Montreal, QC
UrbanPoet wrote: So far i know of only one bank that does it that ruthlessly.
Cibc.
Other banks will only raise it if you really start screwing your credit.
TD Canada Trust also does this as some posters mentioned in td-personal-line-credit-interest-rate-2 ... #p33306667

I have a TD Canada Trust unsecured line of credit and I escaped the increase that happened in November but then again, I haven't used my line of credit since I got it ~10 or ~15 years ago.
Deal Addict
Jul 21, 2005
1777 posts
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Alberta
cellucc wrote: I thought about that but saving 12k would take a while so ain't I better just to pay some interest and keep the savings? Maybe I am seeing this wrong financially.
You are seeing this wrong financially, very wrong. You have the funds to basically finance yourself at 0% interest...yet you are seeking 5%+ loans...doesn't make any sense at all. Unless that 16k is making you money above and beyond what you will be charged in interest, you are losing money doing anything else. Pay off the car cash, put money you would be throwing at payments into savings. No offence OP, but you need some financial literacy training. I really don't mean it in a negative way, but Canada is like #1 in household debt....think most people need some financial literacy training in general.
Sr. Member
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Aug 30, 2020
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YEG/YYZ
Just pay the $12k.

An "emergency" may or may not happen, and if it does and it costs more than the $4k then you still have a LOC to fall back on.

If you take a loan then you're going to pay interest no matter what.

Best case scenario - No emergency comes up, you never pay interest, you slowly start building up your money again

Worst case scenario - An emergency comes up, you use your $4k and possibly LOC to cover, pay interest if you do
Deal Addict
Apr 21, 2014
2261 posts
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Alberta
cellucc wrote: I thought about that but saving 12k would take a while so ain't I better just to pay some interest and keep the savings? Maybe I am seeing this wrong financially.



I know that the rate is variable, I was thinking of taking the amount borrowed and figure out if I want to pay in 3 year and make payments ao that ita cleared in 3 years. I know the rate can raise between that time so I would adjust accordingly. I know for car loans the rates are fixed but I think they are alot higher?
Hmmm let me get this right. You have the money, but you would rather pay interest on something that is going down in value? Makes sense to me (sarcasm). I would buy the car with cash and refill the emergency fund. No brainer to me.
Deal Addict
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Oct 13, 2007
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Edmonton
cellucc wrote: I would like to buy a 12k used car either mazda 3 or honda civic from a private sale and i have 16k in savings but I would rather keep it as emergency fund. I don't have access to a HELOC so would my only option be an LOC or personal car loan to finance the car? I know personal car loans are anywhere from 5-6-7-8-9% interest rate so is LOC the only cheaper option?
I would re-visit my choice of car as you can buy a new car for $20,000 with full warranty, worry-free driving and 0% interest.

If the monthly payments for $20,000 are too high for you, just use half or $8,000 of your savings to apply against the loan.

You end up with a brand new car, a warranty and retain a healthy chunk of your savings.
Member
Nov 30, 2006
259 posts
106 upvotes
starchoice wrote: I would re-visit my choice of car as you can buy a new car for $20,000 with full warranty, worry-free driving and 0% interest.

Perhaps I am a bit out of touch, but what car can you get for 20k with 0% interest these days? Certainly not out the door. I've looked at the usual suspects at Hyundai, Toyota and Nissan and none of those are viable. Just curious.

EDIT - I got a budget stripped out 21' Nissan Versys for $19,209 with AB tax. I guess its an option. Makes me sad how the website defaults to an 84 monthy term at 2.9 percent. "but its only $220 a month!" /s
Jr. Member
Apr 30, 2020
141 posts
130 upvotes
Vancouver
if you have 16k in cash and considering financing a 12k car, i'd pay it in cash for sure...
if you're worried that the 4k leftover would not be enough of an emergency fund, then i'd recommend you don't buy a 12k car, maybe you should consider buying a 7 or 8k car?

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