car loan tatics ?

[pwm88]

Typically I would say that the car dealer hope they could squeeze alittle money from us by using their financing packages when buying their cars.
Generally, if we tried to bargain for a good car price, the car-dealer would lower the price BUT increase their loan rates hoping to offset the difference.
Now suppose if I have bargained for a good car price while I am obligated in using their loan packages, can I pay the whole balance amount of money the next day(if I have enough cash) ??
Question is... is there is something I should watch out ? such as if there is a pre-payment penalty typically used by car-dealers ?
Thanks.

[bazanna]

i think i was pondering a similar payoff situation about 9 years ago and what i found out was that in my scenario, there was no way i could get out of paying at least $160 in fees and "interest," even if i paid it off the day after i signed the loan contract.

[CPSDarren]

If you keep close track of the actual cost of the car, this can be a good tactic. Dealers get kickbacks for loans and may well offer a somewhat lower price if you use their financing. If you will be paying off in the first month, it doesn't even much matter on the rate or type of loan. Just make sure you read the fine print about early payoffs.

Every bank and loan may vary, some may have prepay penalties or other catches. The only way to be sure is to read it every time. Also, if it may be a few months before you pay it off, you should be sure to get a "simple interest" loan. Many loans calculate their interest on the "Rule of 78s" which means you pay more interest at the beginning of the loan even though the payments are the same. This is very unfavorable if you payoff early.

Good luck!

[pwm88]

Thanks darren and bazanna,
I called up a couple of dealers, they simply said it is a simple financing scheme, no early paid off penalty etc. In fact, one of them said "it is just a simple scheme and the earlier we paid off, the more we save".
But I am not sure about "78" thing that they would charge more interest in the first couple of months, what would be the typical clause of such (or typcially how people phrase this in the contract)? However, even with "78" if we pay up whole within first week, it should still be alright I guess ?
I wonder if I start asking/poking too much on these questions, would the car dealers know what I am doing and might impose penalty or other funny tricks such that they make sure they earn some money even if I paid off early ?
Thanks !

[CPSDarren]

Banks usually offer simple interest loans. Corporate financing from GM, Ford, etc is usually the Rule of 78s. Each time you make a payment early in the loan, less of it goes to principal. You make up for that by paying all principal late in the loan. This penalizes people who might payoff a 5 year loan after 2 or 3 years. At that point in a 78s loan, they are mostly paying principal anyway and have already paid the non-refundable interest up front. If you payoff after within a month or so, the difference is not that great. Even paying that plus a small fee may still be better than a dealer tacking on more than that to the car if you don't finance with them:-)