# personal line of credit vs car loan



## daddybigbucks

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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## Mall Guy

daddybigbucks said:


> 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 :biggrin: 

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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## Sampson

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


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## daddybigbucks

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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## sprocket1200

daddybigbucks said:


> 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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## heyjude

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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## doctrine

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.


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## daddybigbucks

sprocket1200 said:


> 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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## sprocket1200

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???


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## daddybigbucks

sprocket1200 said:


> 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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## sprocket1200

Actually, we overpaid for the car as it was spring. We would have been better off buying in the fall.

We're does your wife like to shop? Maybe we should both profit her with the stock! Let her know our day spa is always open for her. Haha


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## MrMatt

heyjude said:


> 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?


Because you're still most likely getting the loan from a bank. 
They also often offer cash purchase incentives, which are the difference between 0% and current car loan rates.

When I bought my car I got 0% financing, which really turned out to a normal BMO car loan, but they discounted it by several thousand dollars so that I'd have the same payment. I then transferred the balance to my LOC which had a lower rate than the car loan.


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## sprocket1200

MrMatt said:


> Because you're still most likely getting the loan from a bank.
> They also often offer cash purchase incentives, which are the difference between 0% and current car loan rates.
> 
> When I bought my car I got 0% financing, which really turned out to a normal BMO car loan, but they discounted it by several thousand dollars so that I'd have the same payment. I then transferred the balance to my LOC which had a lower rate than the car loan.


Kinda makes you wonder when they will start with negative interest rates.... Haha


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## MrMatt

sprocket1200 said:


> Kinda makes you wonder when they will start with negative interest rates.... Haha


I wouldn't be surprised if they did, it's a great advertising campaign, wanna go half in on a business method patent? Couldn't you see people going for this?

This car is $20k cash, but if you spread the payments out to 5 years, you only pay $146 biweekly for a total of $19k, we want you to have this car so bad we'll actually PAY YOU one thousand dollars to take this low payment over 5 years.
If you go to 7 years, the biweekly payment will drop to $99, for a total of only $18k, that's another THOUSAND DOLLARS, by using our special extra low payments, we're actually paying you to buy a car today!


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## sprocket1200

From a business mindset I'd love to go for this. There are definitely enough financially illiterate Around to make millions from.

However, from a compassionate human being point of view, I must decline as I would much rather help educate the masses and save them some heartache by being informed.


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## murphygx

*car loan comparison*

fastlaneloans.ca will compare loans from all dealers in your area getting them to compete and ensuring you the best rate (yes i signed up as an affiliate but they really do compare rates for free so no risk in at least trying and seeing the rates.)


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## banjopete

MrMatt said:


> we're actually paying you to buy a car today!


I think they do this already, cash back car loans are frequently adverstised. I'm sure you've heard those "bad credit history, no money down, $1500 cash back, you're approved" ads.


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## carlaonfinance

daddybigbucks said:


> 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).


Auto Loan Service can help you in this respect. Auto Loan Service is a resource for the many people who have not been able to get financing to buy a much-needed car because of a poor credit score. Search the internet for the ratings and reviews.


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## internalaudit

murphygx said:


> fastlaneloans.ca will compare loans from all dealers in your area getting them to compete and ensuring you the best rate (yes i signed up as an affiliate but they really do compare rates for free so no risk in at least trying and seeing the rates.)


With one post, where's the credibility? The site is gone, haha.


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