personal line of credit vs car loan
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Thread: personal line of credit vs car loan

  1. #1
    Senior Member daddybigbucks's Avatar
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    personal line of credit vs car loan

    Just when the world was starting to make sense, my wife wants a newer vehicle.
    I asked her to get pre-approved for a car loan at the bank.

    She call the bank and got the following rates, her line of credit rate is 5.75% a year but a car loan will be from 6% to 12% per year.
    Now why would the auto loan, which will be backed by a vehicle, be a higher interest rate than a personal line of credit that has no backing?

    Makes no sense to me (on the surface).


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    Quote Originally Posted by daddybigbucks View Post
    Just when the world was starting to make sense, my wife wants a newer vehicle.
    I asked her to get pre-approved for a car loan at the bank.

    She call the bank and got the following rates, her line of credit rate is 5.75% a year but a car loan will be from 6% to 12% per year.
    Now why would the auto loan, which will be backed by a vehicle, be a higher interest rate than a personal line of credit that has no backing?

    Makes no sense to me (on the surface).
    Not suppose to make sense, its banking

    Keep in mind the LOC is backed by your personal covenant and all your assets. With a car loan, you maybe be liable beyond the value of the vehicle, but they have to realize on that security first, then go after any short fall. Very expensive and time consuming process. And you are also just required to pay interest every month, not principle and interest for a fixed term like a car loan. So in a car loan, you pay your $500 a month for 4 or 5 years, and your done. With the LOC, you pay your $100 in interest, and maybe make a principle payment. And your now set up with a LOC to use for other things !!!

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    I guess it tells you what the bank thinks of 'vehicles as assets' - worthless, or more accurately, a liability.

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    Senior Member daddybigbucks's Avatar
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    i'm not sure.
    I think its because banks are selling line of credits as a secondary credit card to people that aren't responsible with their money.
    You can have a balance on your LOC and just pay the interest. As opposed to a loan where you have to set the payments.

    ahh banks, gotta love them and their ways to pay those high dividends.

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    Quote Originally Posted by daddybigbucks View Post
    i'm not sure.
    I think its because banks are selling line of credits as a secondary credit card to people that aren't responsible with their money.
    You can have a balance on your LOC and just pay the interest. As opposed to a loan where you have to set the payments.

    ahh banks, gotta love them and their ways to pay those high dividends.
    Just point out to her she can have a newer car when she saves for it. A great used car can be had for under $10,000.

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    Senior Member heyjude's Avatar
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    The auto companies' finance divisions are offering way better rates than that. I recently financed a new Honda for 0.99% over 36 months. Some vehicles can be financed at 0%. Why bother with the banks?

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    It's true, the car companies are by far the best. Sometimes you can get 3-4% over a 7 year term. That's not 3% a year, that's 3% on the total, divided by 84 months. It's effectively free money, and is actually a huge discount after you consider inflation - your car payments after 5-6 years are effectively 15% lower.

  9. #8
    Senior Member daddybigbucks's Avatar
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    Quote Originally Posted by sprocket1200 View Post
    Just point out to her she can have a newer car when she saves for it. A great used car can be had for under $10,000.
    Just a wild guess here, but your not married are you?

    she ended up going with the car company Honda and getting financed for a used vehicle and getting same rate as the LOC.

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    Fortunately, yes, to a saver. 11years married and 4 yr old twins. We just bought a 2002 BMW convertible for $10,000 that included $2,500 in hardtop and windscreen accessories. The thing is a rocket. Third party, no family deals either...

    We will never be able to afford a new car. They depreciate too fast. And how do they get those rates so low???

  11. #10
    Senior Member daddybigbucks's Avatar
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    Quote Originally Posted by sprocket1200 View Post
    Fortunately, yes, to a saver. 11years married and 4 yr old twins. We just bought a 2002 BMW convertible for $10,000 that included $2,500 in hardtop and windscreen accessories. The thing is a rocket. Third party, no family deals either...

    We will never be able to afford a new car. They depreciate too fast. And how do they get those rates so low???
    a wife thats a saver? lucky man.

    i can give my wife all the rational help and plans needed to save for whatever she wants, but one of her greatest pleasures is to walk into a place and get what she wants without looking at the price tag.
    I thought it was a female thing but who knows.

    But good for you getting a car your happy with for your price.


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