Financing a used car for a better deal?

[englishteacheralex]

So my husband and I are in the process of looking for a solid used hatchback (Mazda 3 or Toyota Matrix) for around $5000. Obviously we will be paying cash. We are hoping to find a bargain via a private seller on craigslist, but we're open to going to a dealer.

From online research, I've learned that apparently used car dealerships actually don't like it when customers pay cash, and will give you a better deal if you finance the car, since that's where they make all their money. Is it a smarter strategy to come in as if we want to fully finance the car, looking for a lower price but really high interest, and then just pay the whole thing off immediately?

Also, would this screw over the dealership/salesman, or does he get a good commission no matter what we do after they issue the loan?

[redcedar]

Go for the best deal that you can get. Don't worry about the salesman. Sounds a bit crass but trust me, you will not think about the salesman 6 months from now while driving the car to meet friends, grocery shop, or whatever.

[GetItRight]

Best price for the best condition car. Dealers offer nothing except a high markup over market value. Warranties are worthless as they can weasel out of anything. I admit while looking for my last vehicle several years ago I was open to and did check some dealers inventory, as the particular vehicle I wanted was rare as hens teeth... Took me almost a year to find one and had to travel several hundred miles. Some dealers did have them but they wanted about 2x market value and were farther away than the few hundred miles I had to travel, so never got to the point of looking or making an offer at a dealer.

Focus on Craigslist (Searchtempest) within your reasonable travel distance, use eBay to help establish market price (sold listings). If a dealer has a screaming deal sure you can consider it, but I'd wager it has strings attached. I wouldn't jump through hoops unless it was saving me at least a grand or two on a $5k car or maybe was a few miles away vs 500.

[englishteacheralex]

Best price for the best condition car. Dealers offer nothing except a high markup over market value. Warranties are worthless as they can weasel out of anything. I admit while looking for my last vehicle several years ago I was open to and did check some dealers inventory, as the particular vehicle I wanted was rare as hens teeth... Took me almost a year to find one and had to travel several hundred miles. Some dealers did have them but they wanted about 2x market value and were farther away than the few hundred miles I had to travel, so never got to the point of looking or making an offer at a dealer.

Focus on Craigslist (Searchtempest) within your reasonable travel distance, use eBay to help establish market price (sold listings). If a dealer has a screaming deal sure you can consider it, but I'd wager it has strings attached. I wouldn't jump through hoops unless it was saving me at least a grand or two on a $5k car or maybe was a few miles away vs 500.

The trouble is, we live in Hawaii so our options are limited (nowhere to go but on island). Sellers know this, so screaming good deals are hard to find. If you turn your nose up at dealerships, you're potentially cutting off a possible ok deal (sometimes a car has been on the lot for a while and the dealer just wants to get rid of it). I did pretty well at a dealership fifteen years ago because I paid with cash, but times seem to have changed since then.

As for not caring about the salesman--I just don't like to use deception as a matter of policy. I'd probably tell the salesman the truth about our plan, which is why it matters to me if it would have a negative impact on his bottom line.

[magicj]

I find the $5k and under cars are best found through a private owner like everyone has said. In Hawaii I am not sure if there is a strong car auction presence, but in FL most likely a car that a dealer has taken in on trade in this price range would go straight to the auction. I assume a car a dealer has listed for $5k, they took it in on trade for $3k.

I wouldn't think about the salesperson's commission. It's you buying the car in the way you can comfortably pay for it. I personally like to search out the deals from private owners that have service records, but if I was to go to a dealer I would negotiate the price before you tell them whether you are doing cash or financing. If they ask, then you can tell them you haven't decided how you would like to pay for the car. "I don't decide the payment method until we have worked out a price". That way they don't try the tricks of working in some sort of "deal" with financing.

On a side note from the $, go with the Matrix. Have a bunch of guys that drive them in our company that have over 300k. I think one of the guys has 400k+.

Good luck!

[lthenderson]

So my husband and I are in the process of looking for a solid used hatchback (Mazda 3 or Toyota Matrix) for around $5000. Obviously we will be paying cash. We are hoping to find a bargain via a private seller on craigslist, but we're open to going to a dealer.

From online research, I've learned that apparently used car dealerships actually don't like it when customers pay cash, and will give you a better deal if you finance the car, since that's where they make all their money. Is it a smarter strategy to come in as if we want to fully finance the car, looking for a lower price but really high interest, and then just pay the whole thing off immediately?

Also, would this screw over the dealership/salesman, or does he get a good commission no matter what we do after they issue the loan?

I disagree that dealers don't like it when customers pay cash. They get their money today to invest how they see fit versus years down the road and for a fixed interest rate that won't change.

Also, many car loans have pre-payment penalties to avoid people paying off their loan early and stiffing them of their money. Read the fine print.

[MustachianAccountant]

I disagree that dealers don't like it when customers pay cash. They get their money today to invest how they see fit versus years down the road and for a fixed interest rate that won't change.

Also, many car loans have pre-payment penalties to avoid people paying off their loan early and stiffing them of their money. Read the fine print.

Huh, I was under the impression that car dealerships didn't finance the cars directly with the consumer, but rather that there is a middleman who handles the loan (bank or other). I always thought the dealership gets the money immediately whether you pay them cash, or the financing company pays them cash, and collects from you later.

[Spitfire]

I did this with my current car 5 years ago. I bought used and they offered an extended warranty from the manufacturer if I financed (same price on the car either way). There was an early payoff penalty for the first 3 months, so I paid it down to about $500 in my first payment then $250 twice to avoid it without paying too much interest. It cost me about $100 in interest to get the $2k warranty.

[englishteacheralex]

I find the $5k and under cars are best found through a private owner like everyone has said. In Hawaii I am not sure if there is a strong car auction presence, but in FL most likely a car that a dealer has taken in on trade in this price range would go straight to the auction. I assume a car a dealer has listed for $5k, they took it in on trade for $3k.

I wouldn't think about the salesperson's commission. It's you buying the car in the way you can comfortably pay for it. I personally like to search out the deals from private owners that have service records, but if I was to go to a dealer I would negotiate the price before you tell them whether you are doing cash or financing. If they ask, then you can tell them you haven't decided how you would like to pay for the car. "I don't decide the payment method until we have worked out a price". That way they don't try the tricks of working in some sort of "deal" with financing.

On a side note from the $, go with the Matrix. Have a bunch of guys that drive them in our company that have over 300k. I think one of the guys has 400k+.

Good luck!

Great info. We found a 2003 manual transmission Matrix with 98k miles for $3300 (private sale) and a $3600 2004 Mazda 3 automatic transmission with 80k miles (private sale). Test driving both of them today. We've test driven a handful of cars at dealerships over the weekend but just cannot figure out how to get those guys to come down on their prices to a place that seems acceptable to us. Waving cash at them does not work at all. I'm not mad at them--they're in business to make a profit--but it looks like a private sale is going to be best in this case.

[Slee_stack]

Dealers can make a little money on a finance referral.


I've financed several used vehicles.  I don't care if I take a loan up front (from a dealer) or get a third party loan/check ahead of time (if private seller).

Regardless, I end up using PenFed.  Its 1.99% 3 year loan (presuming great credit).  It doesn't matter if its a refi or a straight up loan.  (I think there may be a fee if you ask for an expedited loan check.  I've never done that myself)

Why pay any cash when a third party will give a 1.99% rate?  If the used car price were small enough, I probably wouldn't hassle.  For $5k and up, its probably worth the effort.


Caution: I did get bit by a $75 early loan termination fee one time when I refi'd from a dealer initiated loan.  Beware of fees listed in the initial loan!

There's also the mental challenge of knowing you have a car note.  Some people will chide you for having one.  I'm very cold with money though.  If I have low risk and true opportunity cost for that cash, a loan it is!

[lthenderson]

I disagree that dealers don't like it when customers pay cash. They get their money today to invest how they see fit versus years down the road and for a fixed interest rate that won't change.

Also, many car loans have pre-payment penalties to avoid people paying off their loan early and stiffing them of their money. Read the fine print.

Huh, I was under the impression that car dealerships didn't finance the cars directly with the consumer, but rather that there is a middleman who handles the loan (bank or other). I always thought the dealership gets the money immediately whether you pay them cash, or the financing company pays them cash, and collects from you later.

It depends on the size of the dealer. My local dealer outsources all his loan for a small commission. The larger dealership up the road (actually is about six or seven large dealerships) does their own financing in house. Either way, the dealer makes money setting up the loan and if they do it in house, closing out the loan by paying it off early. Most of their loans are different than home loans in that they front load the payments to collect most of the interest for the duration of the loan so even if you don't get penalized for paying it off too early, you still have paid most of the interest you would have paid if you had made minimum payments for the life of the loan.

The key is to remember that there is no FREE money. Somebody always pays and usually it is the consumer.