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Discussion Starter #1
I'm actually thinking about paying for the car well before I get it. For reasons having to do with an equity line of credit and a disbursement at the time of closing, I can knock a quarter point of interest off. Problem is the closing will likely be weeks before I get the car. I called the dealer and they said I'm not the first person to do this. Anyone here have any experience with this type of thing? I see no downside other than paying a small amount of interest before I have the van in hand. The dealer said of course I'd get all my money back if the deal didn't go through.
 

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If everything works perfectly you'd save about three and a half bucks a month. Is the risk worth it?

Calculations:

$30,000 @ 6.00%/60 months = payment of $579.98
$30,000 @ 6.25%/60 months = payment of $583.48

Difference = $3.52/month

Pay for it in advance and you lose all leverage with the dealer - what if there is a problem with the paint, say, and you don't want to take delivery?

"The dealer said of course I'd get all my money back if the deal didn't go through."

First off, you'd need to have an extremely high degree of trust in the dealer. One local dealer I trusted promised to give us our deposit back; it took quite a long time and many visits and phone calls before we got the check. They had a zillion reasons why they couldn't refund that $500, like I had to have ALL the original paperwork, I had to come during certain hours, I had to come back when the rep wasn't out at lunch, they didn't take refund paperwork on weekends, etc.. And that was just for $500, not $30k.

Minor point, you would have to pay interest on the money between when you borrowed it and when you returned it.

Regards,

Maugham
 

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If it's a mortgage situation, just take the money out of the mortgage and stash it somewhere until needed.

The mortgage lender doesn't car what you do with the money. Take whatever disbursement is required at time of closing and stash it away. If you're lucky, it'll earn more than what you're paying in interest.
 

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I bailed on Dealer A and went to Dealer B at the 11th hour and got a van that I preferred. I wouldn't have had the flexibility had I prepaid. At the 10th hour I would have said there was no way it could ever happen.

Food for thought.

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dMax
'02 GG EX-L w/fog lights
 

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Discussion Starter #5
Thanks for your replies.

Re a couple of points. I'll admit I haven't crunched the numbers yet, but I assumed it wasn't such a big amount. To fully analyze it you'd actually have to put into the equation the tax differential of being able to deduct higher interest rates.

The bank officer I'm dealing with told me the money has to go to a third party for "a major purchase" or debt payment. She said I couldn't write a check to my brother. But she wasn't one hundred percent sure so I'm asking for a copy of their rules to see how I could stash it.

Point well taken about losing any leverage with the dealer, but they have a pretty good reputation.

Whatever I do, the closing isn't until a month away but now with the financing in hand I can start calling around the 20 to 50 dealers within half a day from me.

One advantage of living in the Northeast.
 

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Can your line of credit equal the rates that Honda offered me??? They couldn't match my 5.49% for 72 months, but they did offer me 5.5% for 60 months.

The amt of interest you would pay over the term of the loan for a home equity loan at say 6.5% wouldn't compare... I'm assuming you want to write off the interest.

In the first year you might see $1400 in interest, but that will decline over the years...

Assuming you are in the 28% tax bracket That $1400 the first year would be worth about $350. So over the term of the loan, especially when you get in the last few years of it, your write-off would be almost no gain.

The difference between %5.5 and %6.5 would be about $780 less. And then the van wouldn't be "tied" to your property.

If you are able to pull %6 or better on your line of credit then go for it... if it is a point or better, then think it through...

My buddy is still paying for his '89 Accord that he bought that way, and then rolled the balance into a refinance of his mortgage... (the car is long gone...)


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2002 EXL-RES Redrock Pearl

2001 Chevy 2500HD crewcab 4x4
 

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Sorry for the long previous post...

I guess all I'm trying to say is that for the first time that I can really remember, car loan rates are lower than a line of equity....

You'll really have to do your research on this one...

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2002 EXL-RES Redrock Pearl

2001 Chevy 2500HD crewcab 4x4
 

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Discussion Starter #8
I just did the calculation and the numbers are even piddling when your balance is signifcantly less than 30k.

Seemed like a good idea at the time.

Have you seen auto loans lower than prime?
 

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My credit union is offering %5.49. That's the lowest I've seen...

Like I said before, the finance guy at the dealership could match it but only for 5 years, and I wanted to go 6 years...
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2002 EXL-RES Redrock Pearl

2001 Chevy 2500HD crewcab 4x4

[This message has been edited by Shaners (edited 12-28-2001).]
 

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Hey ahh..... Whats the name of that CU? Maybe they have a open/limited enrolment for certain classifications of employees or something.

I seem to recall that the feds require a broader membership guidelines at CUs now....
 

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<font face="Verdana, Arial" size="2">Originally posted by BobN:
Hey ahh..... Whats the name of that CU? Maybe they have a open/limited enrolment for certain classifications of employees or something.

I seem to recall that the feds require a broader membership guidelines at CUs now....
</font>

General Electric Employees Federal Credit Union.

I know family members can join, but I don't know about friends...

That 5.49% even applies to used vehicles at the moment!!!


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2002 EXL-RES Redrock Pearl

2001 Chevy 2500HD crewcab 4x4
 

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Discussion Starter #12
I do agree that pre-payment, which would yield, only a quarter point difference in interest yields piddling amounts over the life a loan.

But to respond to a point about interest rates in general. My home equity line of credit will have a basic rate of prime, which is currently 4.75 percent--with a ten year payout on the loan. I see nothing coming close to this out there--except for 0 percent deals not available for Honda. The downside to an equity line of credit? It's a variable rate, but I don't see interest rates climbing into Jimmy Carter territory any time soon, and I expect to pay the loan well before 10 years are up. (Plus the interest is tax deductible.)
 

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Discussion Starter #13
Update.

I think I'm going to prepay. Bank just told me if I do a 25K plus disbursement when my home equity line of credit closes, not only do I get prime minus a quarter for the initial disbursement, but for all further uses of the line of credit throughout its 10 year lifespan.

I've heard only good things about the dealer I'm buying from. Here's a fellow poster's assessment of my dealer:


"We just picked up our 2002 LX EP from Brandfon Honda in Branford.They are great!!! No pressure and quote MSRP, not $2000-$3000 over. Highly recommended!!!"
 
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