nyca

I don't think pre-payment penalties are legal.

LSM111

there are no prepayment penalties. As someone mentioned the dealership loses the over base rate money that’s made on the back end. So they lie and tell you you can’t pay it off before 3 months. You can in fact pay it off the next day with no recourse

SS22

So this seems to be the way to go. If you feel sorry for your dealer, I like the strategy of paying almost all of it off right away to avoid the interest then waiting 3 months to pay off the little bit that’s left. Seems like a win-win except for the hit to the credit score (which if I’m at 840 and this causes me to go to 830 isn’t a big deal).

ipse dixit

I took the dealer financing with BMW a few years back because they offered $2000 cash back if you financed the car with BMWFS for 60 months. There was no prepayment penalty.

So I financed it, made the first payment just to qualify for the 2000 cash back and paid off the loan after that and pocketed a net of about 1900.

Dealwr even suggested I do this. They win because they get a point for getting a customer to finance with BMWFS and what happens after the loan docs are signed (be it default, payoff, or somewhere in between) is largely irrelevant.

So it’s a win win for everyone.

SS22

This makes sense. It’s actually in the lender’s best interest because 99% of people don’t do this, even if they may initially intend to do so. So it’s better for them to get people to go this route even if a very small number end up paying it off (by the way, you probably still paid a bit of interest with your first payment so technically they lost less than $2k plus, let’s not forget, they also sold a car that they made money on). So yea, win-win for everyone (except, again, your credit score which may have no practical effect depending on your score).

Spiffx

I bought my base 911 in March 2022. I had the intention of buying it cash, but my SA offered lowering the ADM if I took some of the money on loan. I paid $100k cash and put $43k on a loan at 2.99%, which felt high at the time (I got my BMW M4 at 0.9% over 60 months). Interest rates started going up shortly after. I never paid off the loan. I thought I’d do better with the money in the stock market. Needless to say, that wasn’t the case either.

Next one will be paid cash. This time around the dealership isn’t offering to reduce the ADM if I take a loan. Plus, according to my SA, they are currently seeing 7.99% APR with excellent credit.

SS22

That’s exactly what I’m saying! Sorry the stock market didn’t play along for you but you got a better deal on the car. I’ve heard the 7% Porsche APR now too. I wonder if it’s better to lock in whatever price at time of ordering without discussing cash/finance, then when car arrives saying you intend to pay cash unless they lower ADM if you finance? Or better to negotiated with the financing/maintenance package, etc. first before locking in the deal?

Spiffx

I was agreeing with you. And yes, I plan further negotiations around financing and warranty packages once the car arrives. Better to get something out of the ADM; even if I’m not really interested, it’s still some added value.

malba2366

If the dealer forces the customer to use their financing to get an allocation or a lower ADM, then the customer can take the dealer loan and then refinance using a credit union for a better rate shortly after taking delivery of the car. The dealer may say the customer has to wait 3 months, but PFS has no such restriction and the dealer will have no recourse. This is a better deal than paying a higher ADM in return for using outside financing. A couple hard pulls won't affect anyone with good credit, the score may take a temporary hit while there are two large auto loans out there but once one gets reported as paid off that should reverse.

SS22

Yea, I agree too. I negotiated down the ADM, did a “hand shake,” and order is already placed (linked to my account). But I haven’t yet signed anything or paid a deposit. No discussion of paying cash or financing or anything else. You guys think I should further negotiate down the ADM by committing to financing or add-ons or wait until car arrives in a few months?

detansinn

If you made a deal with the dealer that you would keep the loan open for 3-6 months, you should do that, because word is bond, yo. A deal is a deal — even if it’s just a handshake.

Be aware, that paying off a car so early into a loan can have negative credit consequences as well.

IMHO. Seems like a lot of hassle for a couple of grand. YMMV

Spiffx

What color is your Targa? Which blue is that? Looks fantastic!

detansinn

Sapphire Blue Metallic. Thanks!

SS22

Are you saying this to me? If so, I wrote that there’s been no discussion of paying cash or financing or anything. The “handshake” agreement was only on the ADM and order.

av12345

Quite frankly a hard pull on your credit isn’t so bad and falls away after 12 months anyway (it’s a couple of points and won’t change the way lenders see you unless you’re doing like 10 hard pulls a month or something insane). The odd thing is the reason your credit score goes down when you pay off a loan is because you now have LESS credit and potentially a worse MIX of credit (ie fewer types of credit) - these things matter more than the pulls. That being said - if you can make a few grand doing some financing thing it’s probably fine - but it’s just a bit of hassle. Obviously don’t be doing this stuff at the same time you’re trying to get a mortgage or something.

It’s also not always true that you get worse financing after you pay cash for a car. You can get a title finance that will get the discounted rates as long as the car is less than a year old and has less than x miles (I think the miles depends on the lender). A buddy of mine did this in 2021 where he was essentially able to arb the lender by taking the cash and just putting it in a high yield savings account.