A bit confused about car (bike) loan...

Afan

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One of those things when you know it exists but never asked yourself about it...
What's the difference between taking a car loan on, e.g. $10K and putting $3K as down payment, or just taking $7K car loan and $0 down payment?
My son just asked me and I was not sure what to say what's the difference? I'm assuming it's lower API with down payment?
Not my "field of expertise" :D
 

Janus

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What a hard question to Google o_O

I think the short of it is that there probably isn't a difference. And you might have a future economist on your hands. It's an interesting question that you should ask to the local credit unions as you shop around for the best rates.

However this article on Loan To Value ratios is pretty helpful in understanding what lenders are considering when looking at a loan. I'm not sure if they would give you a vehicle loan for anything less than the value-at-sale of the vehicle in order to establish a value of the collateral that they will use against the debtor.

To avoid that you would need another source of collateral or implied fiscal trustworthiness of a top tier score, and get a personal loan. Something a young man would have a hard time coming by in even the best times. But then it's a question of which type of loan, vehicular or personal, has a better APR for the credit score.
 

Penguinsfan82

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The only difference I see would be the impact to the debt to income ratio. Being a secured term loan limits the impact to a credit score because the amount owed should never be more than the day it was initiated.
 

Afan

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What a hard question to Google o_O

I think the short of it is that there probably isn't a difference. And you might have a future economist on your hands. It's an interesting question that you should ask to the local credit unions as you shop around for the best rates.

However this article on Loan To Value ratios is pretty helpful in understanding what lenders are considering when looking at a loan. I'm not sure if they would give you a vehicle loan for anything less than the value-at-sale of the vehicle in order to establish a value of the collateral that they will use against the debtor.

To avoid that you would need another source of collateral or implied fiscal trustworthiness of a top tier score, and get a personal loan. Something a young man would have a hard time coming by in even the best times. But then it's a question of which type of loan, vehicular or personal, has a better APR for the credit score.
So, you're assuming I didn't do any research on Google before I posted? Why? :rolleyes:
And, BTW, your response actually doesn't have anything with my question...

Anyway... Admin can close or delete this Thread.

Thank you.
 

Afan

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The only difference I see would be the impact to the debt to income ratio. Being a secured term loan limits the impact to a credit score because the amount owed should never be more than the day it was initiated.
I see that in case of buying home, larger loans, where debt to income ratio is more prominent (if this is correct word :D ). It could be in a car loan as well, I agree, but maybe not so often?
My community bank has APR for specific year of cars kind of "set in stone",. E.g. for 2015 cars is 3.44 - and that's it. W/ or w/o down payment it's gonna be the same. The monthly payment and the interest paid after 5 years (e.g.) is the same. So, in general there is no difference.

BUT! No things are"created" w/o a purpose, there must be "something" and I can't figure out. And it "bothers" me. :D

Anyway, thanks for your post.
 

Doc True

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In one instance you're buying something worth $13K and the other you're buying something worth $7K
 

Janus

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So, you're assuming I didn't do any research on Google before I posted? Why? :rolleyes:
And, BTW, your response actually doesn't have anything with my question...

Anyway... Admin can close or delete this Thread.

Thank you.
I did not assume that. I found it to be a difficult question to parse into a search function. Additionally, I did discuss 3/10k loan vs 0/7k loan. Sorry you didn't like it. But sure, delete it all lol
 
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I'm no expert, but I'd imagine the only difference would be where it's a secured loan, and assuming the value of the item and the price were aligned, the 10k /w 3k down would be better because the collateral has a 10k value.
Assuming you're looking at the exact same item (value) then the collateral would be the same, and the lending institution would likely not care about anything other than you're borrowing 7k to buy said item.
But what would I know, I'm an engineer, not a finance expert :p
 

Afan

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I did not assume that. I found it to be a difficult question to parse into a search function. Additionally, I did discuss 3/10k loan vs 0/7k loan. Sorry you didn't like it. But sure, delete it all lol
It looked to me. But if you didn't, and I don't have a reason to not believe you, I apologize.
 

ld_rider

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Principal is the same but there are two other factors needed to calculate any differences. You need to know the term (loan length) and interest rate of each.

Given that the principal is the same and presuming the term and interest rate are the same, there would be absolutely no differences in the loans.
 

Madison Sully

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Depends on if you are buying a $10k bike and putting $3k down, or if you are buying a $7k bike, borrowing the entire amount.
The bank wants to see you put some skin in the game, so if you are buying that $10k bike with $3k down and a $7k loan, what they see is you have 30% collateral. You are therefore much less likely to walk away from the loan, compared to a situation where you have zero collateral. You should get a lower rate on the first scenario where you have that skin in the game.
 

Afan

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Depends on if you are buying a $10k bike and putting $3k down, or if you are buying a $7k bike, borrowing the entire amount.
The bank wants to see you put some skin in the game, so if you are buying that $10k bike with $3k down and a $7k loan, what they see is you have 30% collateral. You are therefore much less likely to walk away from the loan, compared to a situation where you have zero collateral. You should get a lower rate on the first scenario where you have that skin in the game.
In my Community Bank the rates are the same, defined by year of the car's production. It's 3.44% for 2015. I'm still shopping so I didn't have a chance to eventually negotiate the APR, but I doubt.
The numbers for 5 years, 3.44% APR are totally the same in both cases, $10K - $3K down, or just borrowing $7K.

As I mentioned earlier, probably it makes big difference if you buy a house, or really expensive car.

I will (I hope :D ) pay the visit to my bank soon and I'll know more, and post it here.
 

ld_rider

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You should get a lower rate on the first scenario where you have that skin in the game.
You would think, right? But that isn't how many lenders see it.

The three common factors usually considered when offering a rate on a vehicle loan are:

# 1 Your FICO score

#2 The Term of the Loan (Longer term = higher rates)

#3 The age of the vehicle or mileage on the vehicle (Older vehicles or high mileage = higher rates)


For most lenders, the down payment is moot unless there are special circumstances.


Check out your local Bank or Credit Union's rate sheet (most are posted online) and you will see the the rates are tied to those three factors. Down payment? Not so much. I belong to two credit unions and bank with two different institutions. None have down payment requirements. If you meet those three factors and have the DI ratio to support the payment you are golden.

Not suggesting that every vehicle lender does this, or that no lender will consider the amount down, but it isn't nearly as important as most of us think. That goes for new and used vehicles.

Having "collateral" has not been a good indicator of a borrower's ability to pay back the loan. Having the desire to pay is there for sure, but desire alone doesn't pay the bills. Custom designed FICO software created by engineers with input from Business Intelligence Architects (there are over 39 different, industry specific FICO scoring models) have proven to be much more predictive and accurate. That is why once you are rocking 760ish the credit world opens up with the lowest rates. Even if you don't have a job or down payment ;-)
 
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