Trans World Assurance Blog

Car Financing Strategies, Part 3 (Jeff Burch, Money Book)

Posted on Sat, Jun 18, 2011


“We have credit unions that lend money for cars”:  That is a true statement; however, if you finance your car through their credit union you will pay the commission that they give to the dealer for bringing in your business, which will cost you 1% to 2% or more. 

“Our loan rate is 6%, which is lower than your credit union’s loan rate of 8.75%”: That may be true; however, the dealer might have conveniently forgotten to factor your rebate into that equation.

Example: $14,000 car financed by a dealer at 6% for 48-months, payment would be $328.72 a month. However, by applying a rebate of $1,500 toward down payment, and loan financed through credit union at 8.75%, monthly payment would be $309.50. That would be a nice tidy savings of $922.56 over a 48-month loan.

Important: Make sure car manufacturer sends rebate check directly to your residence.

Buying credit disability insurance or credit life:  These insurance polices pay car payment obligations off in case of death, or if one should become disabled. Typically, they are over-priced policies that you do not need. Consider the policies as optional coverage, no matter what the dealer insists. Besides, even if you decline the policy and die later, your estate is liable for all car payments.

Other solution: Purchase cheap term insurance policy.

Before signing any contract: Make sure that the dealer or lender has not added an insurance policy to the contract without your knowledge. Adding a policy will leave you with a higher payment than expected.   Calculate monthly car payment by using loan table (on right); then make doubly sure this is the correct figure, before signing your name on the contract.

Important:  Several credit unions do not charge anything extra for such insurance policies. 

Bonus: Several credit unions believe that a death cancels loan obligations. 

Getting a loan for the loooooooongest period:  Typically, consumers finance long-term loans, for lower monthly car payments, or when financing a costlier car than they can readily afford. 

Problem: The longer the loan, the more interest you will pay, and on top of it, be charged a higher interest rate. However, when purchasing a used car, the interest rate is generally the same for two or four year loans.

Danger: By borrowing money too long, you may end up paying far more than the car is truly worth, which would be costly if you try selling it.


Example: Financing $14,000 car

 Length          Interest         Monthly          Total
of Loan             Rate          Payments      Interest

 3-year                6%             $425.88       $1,331.68

 4-year                7%             $335.16       $2,087.68

 5-year                8%             $283.92       $3,035.20

 6-year                9%            $252.36       $4,169.92

 7-year              10%             $232.42       $5,523.28


Strategy #3: Lower payments will make it easier on your budget each month, but payments will seem like an eternity. Look for more “reasonably priced” cars that come with affordable payments and shorter pay-off plan. 

Note: To lower and shorten payments take out a loan for no more than 80% of loan value of the car, and then pay difference with down payment.

Calculate payments: The table below will help you to figure monthly payments with a mixture of interest rates and for any dollar amount.

Example: Car costs $14,000, with 48-month loan at 10% interest rate. Divide amount of the loan $14,000 into $1,000: $14,500 ÷ $1,000 = 14. Locate 10% rate on table; then on right, under 48-months you will find the factor of 25.36. Multiply 14 by 25.36 and you will have an exact monthly payment of $355.04.

Interest    36-months      48-months    60-months
  Rate        per $1,000      per $1,000     per $1,000

  11.00           32.73               25.84             21.74

  10.75           32.62               25.72             21.61

  10.50           32.50               25.60             21.49

  10.25           32.38               25.48             21.37

  10.00           32.26               25.36             21.24

    9.75           32.14               25.24             21.12

    9.50           32.03               25.12             21.00

    9.25           31.91               25.00             20.87

    9.00           31.79               24.88             20.75

    8.75           31.68               24.76             20.63

    8.50           31.56               24.64             20.51

    8.25           31.45               24.53             20.39

    8.00           31.34               24.42             20.28

    7.75           31.22               24.29             20.15

    7.50           31.10               24.17             20.03

    7.25           30.99               24.06             19.91

    7.00           30.87               23.94             19.80

    6.75           30.76               23.83             19.68

    6.50           30.64               23.71             19.56

    6.25           30.53               23.59             19.44

    6.00           30.42               23.48             19.33


Lease payments: To familiarize yourself with the complexity of car leases, see:

Tags: Money Book, Jeff Burch, car financing, auto loans

Car Financing Strategies, Part 1 (Jeff Burch, Money Book)

Posted on Thu, Jun 16, 2011

To get a great deal on a new or used car, you have to do more than just twist the dealer into giving you a great price. You also must haggle and bargain for best terms and interest rate for your new car loan. Usually, car dealerships will give in to your tactics to lower the price of car, but will launch a full-scale assault when it comes to car financing. That is because a dealership makes most of their money on car financing.

To be fair, it is the goal of any good business to make money, and that is what a good dealership should do. Furthermore, a dealership has a full arsenal of schemes and tricks to get the job done. However, it is the right of any consumer to research and gain knowledge in order to get the best deal possible. With a little insight, you can fine-tune yourself into a consumer who knows his way around a dealership and guard against dealer traps.

According to, in the United States the average car deal consists of:

 ■ Down payment of $2,400

 ■ Amount financed $24,864

 ■ Monthly payment of $479.

The most popular loan term is 6-years. Nowadays, you can finance up to 100% of the manufacturer's suggested retail price, plus taxes, tags and fees. Even if you are "upside down" on your old car loan (you still owe money after the trade-in), it's no longer a deal breaker.

However, car loans can vary from 0% to as high as 30%. Therefore, it is extremely important to know that dealers put their most gifted, brightest and toughest closers in the finance/insurance office. This is the place where you are shown offers for extended warranties and other add-ons, including tons of paperwork that can exhaust you to the point of giving in.

The following strategies will help prevent you from being “taken for a ride” in a dealer's finance office.

Strategy #1: To begin with, arrange financing first from an outside source. A good place to start looking for a car loan is through local credit unions, which mostly, have the lowest interest rates. If you don’t belong to a credit union already, join one fast. Car loans are only one of many benefits of belonging to a credit union. All military personnel can belong to a credit union. 

To find credit unions in your area, call the Credit Union National Association (CUNA) at 800-358-5710 or visit

Once you find a few credit unions, call them over the phone; compare their loan rates with other institutions offering car loans, such as local banks, thrifts, savings-and-loan, etc.

Once you have your financing in place, start your search for the car you want, but do not tell the salesperson that you already have your car loan secured, until you have the car's price in writing.

Danger: Not researching the best terms and financing before purchasing a car, and assuming that dealers offer the best deal when it comes to financing a car loan, to which, consumers later learn to their angst of longer and higher payments.

Lesson: Dealers are just “middlemen” when it comes to car financing between you and car lending institution.  Dealers typically try to finance your car at a higher interest rate set by their source, so they can increase their profit margin.

Example: If you qualify for a 6% rate, but the dealer charges 8% on a 60-month, $20,000 car loan, you pay over $1,100 more in interest (extra profit for the dealer).

Auto Loan Calculator: Use calculator to check interest rates to see how much car you can afford at:

WARNING: Do not forget to include auto insurance payments, especially, when considering how high a price you want to pay for a car.


This series of articles on Car Financing Strategies from Jeff Burch's Money Book will continue tomorrow.

Tags: Money Book, Jeff Burch, car financing, auto loans