Apr 10, 2008

Our car buying experience - Part Two: Financing and the Trade-in

Read Part One: The Negotiations and Part Three: 5 Lessons Learned.

As soon as we got serious about buying a new car, I started looking into financing options. I checked the rates at all of our banks, including credit unions, as well as Nissan's rates. Nissan offered 3.99% with a $1,000 rebate or a $1,250 rebate with no dealer financing. When I went through USAA's car buying service, I discovered that they had an online auto loan application with 4.99% financing, so I applied online and was approved within minutes. I simply printed out an electronic check to take to the dealership. (Note: The 4.99% rate was for online applications only, and required automatic payments set up with a bank account.)

When we got to the dealership, I intended to put down a hefty down payment of over $10,000 on my credit card (which I pay off in full each month) - but I was told that they only will charge a maximum of $5,000 to a credit card. The money for the down payment was sitting in our liquid CD account, which is generally highly accessible. However, it takes a day or two for funds to be transferred into a different account. I considered giving the dealership a check and asking them not to cash it for a couple of days, but rather than risk bouncing the check, I opted to finance a greater amount than I had originally intended. Once the loan was completed, I set up an electronic principal payment that brought the loan amount down to the amount I wanted it to be in the first place.

Setting up our financing through USAA was super easy, and gave us a net gain over dealership financing because of the additional $250 rebate. The dealership, knowing that a check from USAA would never bounce, had no problems with the set up. In fact, the only hiccup occurred because we registered the car in both our names, but the loan was in my name only. Marc had to sign a release before the loan could be finalized.

The Trade-in
We had a 1997 Honda Accord EX sedan to trade in. I looked up the trade-in value at Kelly Blue Book and Edmunds.com, and also spoke to a friend's husband who's knowledgeable about used cars. Edmunds' low value was about $2600. KBB's low value was about $3500. My friend's husband said we could expect to get about $4000 to $5000 in a private party sale, and about 30% less than that from a dealer.

The first time I mentioned the trade-in to the salesman was the morning of the day that we were going in to buy the car. All of the negotiations were done at that point, and I made a final call to confirm that the car was actually at the dealership before we drove out there. I decided to mention at the end that we'd be bringing in the Honda, and I could detect a bit of perturbation in the salesman's voice when I did.

But when we arrived at the dealership, everything went fine. We test drove the new car, agreed that we wanted to buy it, and the salesman went over the Honda, then left us in his office while he took the papers over to the appraiser. Based on the numbers I'd collected, I was prepared to negotiate for $3000. It was still a shock, though, when the salesman came back with an offer of $2300. Marc and I looked at each other and prepared to leave - we'd agreed before arriving at the dealership that if the trade-in value wasn't acceptable, we'd walk away. After all, the new car wasn't an urgent purchase. The salesman tried to guilt us into taking the offer by telling us that he'd gone out of his way to bring the car in (repeating his story that it was highly unusual for them to get the car on the lot before the paperwork has been completed) and complaining that we hadn't mentioned the trade-in to him before (as if that should have any impact on the purchase price of the new car).

Finally, the salesman ran to get his boss, who was probably the sales manager but also was apparently at least somewhat responsible for selling the used cars, since he talked to us about what he personally was going to do with the Honda - something about selling it at auction. He told us in his most sincere manner that the most he could get for the Honda at auction was $2700, so he would give us $2700 and hope to break even on it. Marc and I discussed the offer for a minute and agreed to take the offer. (Read this if you're wondering why we didn't just sell the car ourselves - and read Patrick's post, too.)

Some thoughts on financing
As you might recall, one of my goals this year was to pay cash for a new car. Obviously, that didn't happen. But we should have the car paid off in June, which is pretty darn close to my original goal. (We took the loan out in March and will have it paid off in less than three months.)


Kacie said...

Interesting about the trade-in situation.

I read an in-depth piece on Edmund's that showed how car dealers handle trade-ins.

Usually, they know about the possibility of a trade-in as soon as the customer comes in to the dealership.

If the customer demands a certain price for the trade in (for example, no lower than $3k) then the dealer will say, OK.

They'll then not give as much wiggle room on the purchase price of the car, or offer harder financing options to make up the difference.

Anonymous said...

Kacie points out why it's best to do what you did - wait until the price has been negotiated for the new car before discussing the trade-in. :)

Nice job. Nice blog too!

Patrick said...

Great job negotiating! Trading your car in is much easier, and the dealer was probably telling the truth - most cars over 5 years old are auctioned off unless they are still highly desirable and can be moved quickly.

I love USAA as well. I bought my last car through them.

Father Sez said...

I am not sure if we can finance cars for 3 months or less in Malaysia. The usual norm is hire purchase from 3 - even 9 years.

Your settling within 3 months is just as good as buying in cash.

How are the various fees structured, if any?

Chief Family Officer said...

@Kacie - I was surprised that the salesman was surprised that we had a trade in. I figured almost everybody does, so it made his reaction a little irritating :)

@Joe - Thanks!

@Patrick - Thanks to you too! Isn't USAA great? :)

@Father Sez - It's actually a 5-year loan, but there's no prepayment penalty, so I'm happily paying it off in three months. There weren't any fees to getting the loan itself - I don't think there usually are any for car loans, but maybe someone can correct me if I'm wrong.

Anonymous said...

Too little, too late, but their limit of $5000 on a credit card is against Visa and Mastercard rules. Check out this post:

Chief Family Officer said...

@MITBeta - Thanks. I knew that merchants can't create a minimum, but I didn't know that they can't create a max either.