Question about different loan amounts.

[phemminger]

Hi,

I recently graduated from college and I am looking to buy my first car. I have basically no experience with loans of any type. My question is basically about different loan amounts, but I will explain further.

Please correct me if I am wrong, but here is how I see things. I can buy a car at a dealership and trade in my old car, or buy a car at a dealership and sell my old car privately. However, I can't be without a car, meaning I can't sell the old car privately before buying the new one. I know I could get more selling it privately as well.

Here is my question: How does what I decide affect the overall cost of the loan.

For example, If I want to spend 20k on a car (assume no down payment in this example, but there will be a decent down payment), I could take out a 20k loan, paid off over x months at y interest rate. I could then sell my car privately, and get, say, 5k, and put that straight back into the loan. Or, I trade in the old car, get, say, 3.5k for it, and take out a 16.5k loan over x months at y interest rate.

Now, from what I can tell, if I got the 20k loan and put the 5k right back into it, the monthly payment wouldn't change, it would just require less months to pay off the balance of the loan (assuming I am the standard monthly payment for the life of the loan).

If I got the 16.5k loan for the same number of months, the monthly payment would obviously be lower, but would require the full number of months to pay everything off (assuming standard monthly payments).

I would assume I could adjust the total number of months to make the monthly rates similar. For example, the 20k loan over 72 months would have a similar monthly payment to a 16.5k loan over 60 months (not sure on the math here, but you get the idea).

Please let me know if anything is confusing, it is hard enough to keep things straight in my head.

There is a similar situation for me as far as the down payment. I am going to be coming into some money at the end of the year, but if the right car comes along at the right price, I need to know if I can jump on it without being hurt in the long run.

This is just all what would make sense to me and I am not sure if it is all correct. I am looking for advice on a couple things: Is there any advantage/disadvantage to one way over the other? Is there any reason to not pour 5k into a 20k loan right off the bat? Is there something I am missing? Just tell me what you think, I am soaking up all the information I can get.

[Ray paulsen]

(1) SELL PRIVATE VS TRADE
looking at your numbers, you figure selling private you gain $1500., that may be right, but then also take into consideration you will now be paying tax on the full amount of the price on the new car not the difference, play with those numbers and sometime it's not worth the hassle selling private.

(2) FINANCING
Most auto loans I have been involved with you can pay out the full amount anytime and only pay interest on the portion you used, but you cannot add extra payments as you go, the only way then is to re-finance, and that involves new set up fees.

[phemminger]

Thanks for the reply.

Assuming the numbers above, and the sales tax here, it would only be a difference of about 300 bucks. However, I had not added that into the equation. I would hope I could get 1500 more, but I don't really know.

Anyone else have any insight?

[corbinse]

Not sure if this will help or not, but here goes ..
If you get a loan for

$ 20,000
Dealer handling say 294.50
Tax rate of say 8.60%
Intrest rate of 7% (should be real close to Credit Union rates right now)
No dealer funny stuff … extended warranties… under coating

60 month loan (5 yrs) $437 or so..

With trade value of 3500 your loan would be 362$ or so..

Now if you sold your trade your self.. (make sure there are no pre payment penalties with the bank) selling your car sometimes seems easier than you think (unless it’s a high demand vehicle) but if you can sell it and put that back in to the loan it will reduce the interest you pay to the bank .. but the payments will stay the same. The length of the loan will decrease though.

Hope that helps.

http://csbuyersguide.blogspot.com/