Interest rate /car loan question

[Myrina]

Hi! I am so pleased to find this group!!

I have been working to repair my credit score over the past year & am finally in the 'good' range.
Mortgage, student loan and a small credit card ($500 limit, $120 balance) have all been current for +1 yr.

I recently talked with my insurer (State Farm) to get a quote on insurance for a used car I'm looking at, and my agent mentioned "Hey! We have car loans too!" so I figured what the hell & let him run me a quote.

The terms I "qualified" for were shocking. The car is a 2008 with 27,000 miles on it, blue book is $21,000, dealer is asking $19,999.
I would be selling my current car outright so putting about $5k in cash down, therefor only needing to finance about $15k.

The loan was 48 months (max for that old of a car, he said) and my interest rate was 10.5%!!!! With good credit???
Are they kidding?

What could possibly be the reason behind such a high interest rate, and would I be better off trying thru the dealer, or - since my credit now has the hard touch from State Farm - am I screwn for 6 months?

Thanks!!!!

[Common Sense Party]

1. I'd definitely get a quote from the dealer and from a credit union.

State Farm says on their site they have car loans as low as 2.59% for used vehicles, so I'd imagine they are dinging you more for the credit score.

But the agent is also getting a commission, and that's factored into their rate as well.

Shop around and borrower beware.

[A HERETIC I AM]

2. Cars make for crappy collateral.

What I mean is, you can drive it away (and I mean FAR away) and there isn't a damned thing the loan company can do about it!

I agree with CSP above. Get several quotes. Go to your bank and ask them. You might be really surprised.

State Farm is primarily an insurer, but they also offer lots of financial products including annuities. It comes as no surprise they approached you to finance a potential new car purchase.

The dealer will run the loan quote through perhaps dozens of lenders. You should absolutely see what they come up with.....

BUT...

It is always best to walk in to the dealership with your own financing already sorted out.

That was the case 30 years ago and it is still the case now. Think of it as cash in hand.

[SheilaT]

3. In addition to negotiating the loan rate,

you should also negotiate the price of the car.

When you say Blue Book is $21,000, I'm guessing that's the dealer price. You want to go back to the blue book site and put in the specs for that car and find out what its trade-in value is. The dealer probably has no more than that invested in the car, and that's the number you should start with when negotiating the price.

Another thing, if you belong to a credit union talk with them about car loans.

Good luck.

[Myrina]

4. Thanks for the feedback!

I went to the dealer that I bought my current car from & they were able to get me 60 months at 4.9%, and gave me good money for my trade since they sold it to me new & all the service was done there. So I pick the new(er) cruiser up tomorrow night.

Holy moly!!

[lastlib]

5. Congrats on the new wheels!

Glad you got a better deal than the insurance guy offered!

Now that you have the loan, my advice is to pay as much extra on the principal amount right now as you can without cutting into your other obligations. Then pay extra on it any time you have a little spare cash. That will save you a HUGE chunk in interest, that will be in YOUR pocket, not the lender's. I did that with my last car purchase, and saved over $3500 in interest, PLUS cut the time I was paying on it from 60 months to 18. I effectively paid the first two years' worth of principal within two weeks of getting the loan, so I was essentially getting charged interest for the last three years' worth. Making essentially double principal payments after that cut the term of the loan to 18 months. It also does wonders for my credit score! I recently had a car salesman look up my credit score awhile back--when he saw it, he actually did a double-take, and said, "Wow. That's the highest credit score I've ever seen."

Remember--extra payment on principal!