What’s the best way to pay?

It’s a whole different game when you’re buying used. Here’s how to have the edge if you need a car loan The financing options available to new-car shoppers are well advertised but what’s out there for shoppers of pre-owned vehicles? Unlike new-car dealerships, whose low, low financing rates are subsidized by the manufacturers to keep their assembly lines humming, used-vehicle dealers remain at the mercy of the lending market. And despite the fact interest rates are at historic lows, used-car lots are borrowing at 5.99 per cent right now – a good rate, but not a great one. Yet consumers won’t be seeing that number on their loan agreement. The dirty secret of the finance world is that your chartered bank would rather loan the money to dealers than to their own customers. In fact, auto dealers earn a cash incentive from the banks to loan that money out at the highest possible interest rate. “Banks pay a flat commission for a base rate loan, and incentives if the borrower has good credit and can be bumped to a higher interest rate,” explains George Iny, president of the Automobile Protection Association (apa.ca). “For a $10,000 loan, the best rate from the small dealer I contacted is 7.25 per cent; the dealer can get a commission of about $150 (from the bank). By bumping the rate by 1.5 percentage (points), the dealer will collect $400.” “It incentivizes the dealer not to give you the best rate,” says Iny. As a general rule, car loans valued at less than $10,000 are levied a higher interest rate, while larger sums are cheaper to borrow. Car loans are almost always negotiable. When pressed, most dealers can shave a half-per cent off the quoted rate to win your business, but to really get their attention, utter the two most hated words in the car business: credit union. “A credit union can offer car loans at 6 to 6.25 per cent to their best customers,” Iny says. “Dealers hate that. It’s like showing a crucifix to a vampire.” The best bank rate for a larger loan on a more recent model can be as low as 6.5 per cent. But to qualify for their lowest rates, banks want to see substantial money down: about 15 to 20 per cent of the vehicle’s transaction price. The banks’ dealer plans are available for vehicles as old as...
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