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Let's talk financing rates
- Thread starter flashflooder
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- Model 3
CrazyCoconut
Member
Not sure I know what you mean. What downsides are there for you the borrower vs a secured loan? It's LS that's taking the bigger risk here.
voip-ninja
Give me some sugar baby
Why don’t you elaborate on what you perceive the downside is.
About the only one I can think of is that some lenders throw in gap coverage which really only matters if you are upside down on a loan and your car is a total loss.
As others pointed out LS takes on significantly more risk doing an unsecured loan.
They have no collateral and their only recourse if you stop paying is to take you to court.
There’s a reason they only give these loans to individuals with outstanding credit and the means to make a cash purchase instead of using a loan in the first place.
Yup. It's been over a month and still waiting to become a member. Have people talked about it on here?
Yes, we do understand -- that there are less downsides than a secured loan. Not sure what you're concerned about with it...
Allegacy is limiting the loan amount to 90% of MSRP only for Teslas... so that was me bringing $8K more of a down payment than the $3500 already given to Tesla. No thanks -- false advertising on their site since it says 110% of MSRP with no other restrictions on their website. I'm not dealing with a company that has integrity issues and poor business practices.
Just a heads up for everyone.
Just a heads up for everyone.
voip-ninja
Give me some sugar baby
I don't know that you can say it's false advertising or not.... they might be willing to cover 110% at a higher interest rate, or only for customers with a certain credit score and income to debt ratio.
I've personally never understood the logic of someone rolling their taxes/title/fees into their auto loan and paying even more interest dollars over the life of the loan, but okay, go with that.
Both of the ones I applied to gave me a blanket approval. USAA and LightStream. USAA is terrible though, I'd avoid them. LightStream beat them by 2%.
wbhokie
Member
Yeah USAA has never been stellar on their rates. Their customer service is top notch, but I never count on them for the lowest prices. Insurance Claim? Credit Card Dispute? Then you are happy you have them.
man, i got excited and went to check out lightstream.. 3.49% for 72mo from usaa and lightstream was 4.54% to 7.29% (i have excellent credit, so i would expect the 4.54 but jeez that's high. sadly, 2 yrs ago USAA gave me 1.99 on a 72mo loan, wish i could get that again.
Pandamoanium
Member
Pros pointed out I get. This reminds me of people doing the 97 mortgage that's so hot right now.
Sure, you own the car free and clear when it comes to the title. Should someone default and get taken to court, garnished wages is almost a 100% outcome assuming the person even still has a job. Extreme end would be forced liquidation of assets and anything else to pay the debt. Credit will be shot down with it being so bad they'll likely not recover. Legal fees etc.
Now this is a worst case scenario and likely not going to happen to most people here. But unless you can call the economy and markets this would be worse. Sure the vehicle will not be directly there as leverage, doesn't mean they cannot go after it should that be the banks recourse. I don't think 50K - 70K is a big deal, but that doesn't mean the people stretching to even purchase the car should be pointed in this direction. I'm a cynic, what can I say. It's tempting though for sure.
CrazyCoconut
Member
In theory, I agree with you. Here is the thing though - LS only approves the loan as unsecured IF the borrower has great credit score (the lowest I've seen is 795), low revolving debt, stable income, and significant liquid assets. In otherwise, they only do it for people who don't NEED the loan. If a borrower does not meet their strict requirements, they will offer only a secured loan. The (calculated) risk is minimal for the ones they choose to extend the unsecured loans to.
voip-ninja
Give me some sugar baby
1. If people are stretching to purchase this car they more than likely won't get approved for an unsecured loan. If they are approved for an unsecured loan from a traditional lender it will be at a very high rate of, typically over 8% even with pretty good credit.
2. You continue to speak authoritatively about what will happen if someone stops paying on their note and implying that losing things they own (homes, etc.) is a risk. It's not. If you run up $10K on your Mastercard and stop paying it are you going to lose your home? Sure you can have wages garnished, etc., which can also happen with a secured loan if the repossessed vehicle (assuming repossession is successful) doesn't cover the bank's costs.
3. I invite anyone who really wants to understand the pros cons to simply do a google search of "unsecured auto loan pros cons" and read one of the many articles that come up.
4. Generally speaking, the historical downside to an unsecured car loan was that it would come at a much higher interest cost to consumers and for most consumers with excellent credit this additional finance charge wasn't worth paying. Now that you can get an unsecured loan at similar or even better rates to traditional financing there are very few reasons not to consider it.
I'll give you a hypothetical scenario that came from a Reddit /personal/finance thread in which a few people were perplexed about "what the catch" was of a low interest rate unsecured loan (short version, there IS NO CATCH).....
You get an unsecured loan for a $60K vehicle. You now own the vehicle. A couple of years down the road you decide to do a home improvement project and want to borrow $30K to do it. Instead of getting a HELOC or other loan you go down to your local credit union, hand them your vehicle's title and get an auto refinance loan at a very low interest rate (sometimes as low as 1.5%) on a car you already own.
While I wouldn't do this, it does demonstrate the kind of flexibility an unsecured loan offers.
CrazyCoconut
Member
That's a good example. I haven't even thought of that. I was thinking more in the lines of if you ever want to sell your vehicle privately before the loan is fully repaid, you don't need to do the whole song and dance of sending the payoff amount to the lien holder, wait for the title to arrive, then have liquidity tied up with the car while you try to sell it.
voip-ninja
Give me some sugar baby
Here's another hypothetical scenario in which having an unsecured loan on a vehicle is a huge advantage.
You have an unsecured loan and own the car (have title). Some catastrophe hits you and you are financially devastated to the point you can't pay your note to LS, have to move, take a new job, etc. Maybe your dog bites someone, you foolishly don't have an umbrella policy and you are sued into oblivion losing your personal business or whatever.
With a traditional auto loan, the bank will repossess your vehicle. To someone in one of these devastating situations this is a double whammy as they are starting from scratch (potentially with a bankruptcy, etc.) and now don't have the means to get to a job.
With an unsecured loan and having possession of the car you can take the credit hit, take the eventual garnishment of your wages, etc., but still have the use of the vehicle as it is your personal property and in almost all cases immune from seizure under bankruptcy laws.
P.S. Anyone who has materially high net worth is extremely foolish not to carry at least a $1M or $2M umbrella policy from a major insurer.
Pandamoanium
Member
Articles and reddit are not my preferred sources to make financial decisions unless I feel like a YOLO. I like the opinion of my CPA and lawyer more. People wanting to perform a house improvement which cannot pay 30K IMO shouldn't even be considering a car over 20K, so this example to me is a great made up one which fits your opinion.
I'm not arguing or being authoritative so it's unfortunate if that's how it's being read in your head. Low rates is actually the only reason I'm considering it since being able to get it down to below 2% is no lie, tempting. I agree with you when you say you'd never put your car up for a loan, but the thing that makes me think of the downside, is that people are doing exactly that mixed in with buying homes and such.
I think it's just me and my grim outlook on the markets (stock, homes, debts etc.). This is a positive for me due to liquidity but I like to know what I need to hedge ahead of time versus fire mode.
voip-ninja
Give me some sugar baby
Your Lawyer and CPA say that an unsecured loan is riskier than a secured loan? Based on your comments around losing your home, etc., maybe you should shop for some new ones.
I'm not saying an unsecured loan is the be all and end all, I'm saying that if the rate is the same there's virtually no downside and all upside to getting an unsecured loan.
You can feel free to disagree but you've provided nothing even somewhat tangible to back your opinion up.
You've also retreated a couple of times to the "people are stretching themselves too thin" argument.... I don't really quite understand what you are implying. I could write a check tomorrow for multiple Model 3s, that doesn't mean that there aren't reasons to use credit as a tool.
One of the first lessons I learned in finance/econ (I'm an engineer but took one class as an elective) was "let someone else take the risk". If the money is cheap (which it is) then it's better to keep your own liquidity and borrow money for things like car loans, home improvement, etc.
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