Car Loan and LOC

[chicagoschool]

So upon finalizing a car purchase today, I was informed by my local VW dealer that my credit application wasn't approved because my medical LOC (for which I was approved for the full $200k) does not count as an income source.

 

I would prefer not to burden a parent with having to cosign - what are the chances my LOC agent can smooth things out with the car dealer's credit agency?

 

I ask because I've realized med students have more bargaining power than they realize - I walked away from a TD LOC because they insisted on a cosigner; Scotia was happy to have my business without one.

[rmorelan]

So upon finalizing a car purchase today, I was informed by my local VW dealer that my credit application wasn't approved because my medical LOC (for which I was approved for the full $200k) does not count as an income source.

 

I would prefer not to burden a parent with having to cosign - what are the chances my LOC agent can smooth things out with the car dealer's credit agency?

 

I ask because I've realized med students have more bargaining power than they realize - I walked away from a TD LOC because they insisted on a cosigner; Scotia was happy to have my business without one.

 

I guess I am a bit confused What is the interest rate on this car loan?

[tberry3]

Sorry to hijack the original question, but this reminded me of a couple of things I was wondering: do car leases also count as assets on our OSAP applications? I think I've heard that they do, but just wanted to confirm.

 

Also - maybe this is a silly question but I've never owned a car before. How do you know the actual value of your car at any given point in time (for OSAP asset-reporting purposes)? Obviously you know the value on the day you bought it, but how do you know the value any number of months or years after that?

[chicagoschool]

Interest rate to VW is 1.9%, which is better than my LOC; this is why it's better for me to finance through a car dealer instead of paying directly from my LOC.

[rmorelan]

Sorry to hijack the original question, but this reminded me of a couple of things I was wondering: do car leases also count as assets on our OSAP applications? I think I've heard that they do, but just wanted to confirm.

 

Also - maybe this is a silly question but I've never owned a car before. How do you know the actual value of your car at any given point in time (for OSAP asset-reporting purposes)? Obviously you know the value on the day you bought it, but how do you know the value any number of months or years after that?

 

Yes they do - which is stupid, but there you go.

 

In theory you use the Canadian Red Book retail value in Ontario.

[shady]

I apologize in advance if this seems like a stupid question, but are you serious about the interest rate? 1.9%???

 

I thought banks were not allowed to lend < prime

 

EDIT: also, sometimes they make the interest rate so low (sometimes 0% interest for example) but that means if you pay cash you get a discount. In a way, the cost of borrowing is still there, but becomes hidden.

[rmorelan]

Interest rate to VW is 1.9%, which is better than my LOC; this is why it's better for me to finance through a car dealer instead of paying directly from my LOC.

 

I am always tempted to ask them to lower the cost of the car in just cases - I mean the reason the VW is 1.9% is because they have buried the cost they are paying for that in the cost of the car. There is no such thing as a free lunch in business.

 

I haven't seen that appeal to the bank work before (I know of two other people that tried over the past couple years - not exactly a huge sample of course ) - two different systems that don't like to talk to each other. No reason not to try of course!

[shady]

I am always tempted to ask them to lower the cost of the car in just cases I mean the reason the VW is 1.9% is because they have buried the cost they are paying for that in the cost of the car. There is no such thing as a free lunch in business.

 

I haven't seen that appeal to the bank work before (I know of two other people that tried over the past couple years - not exactly a huge sample of course ) - two different systems that don't like to talk to each other. No reason not to try of course!

 

^ exactly

 

10 char

[WtsupDoc?]

The dealership isn't going to count your 200k LOC as income - this is credit and the more access to credit you have, the less likely a new lender is going to approve you for more credit (in the case of someone like a med student with no income). You will probably need a cosigner if you are wanting to finance a vehicle.

 

On the topic of your 1.9% interest - are you planning on paying the car payments with the line of credit? Maybe it would make more sense to purchase an older car that was less money and purchase it outright with the LOC?

[Lonney]

Buying a brand new car is such an horrible deal.

 

If you really want something quite new, look around for 2010-2011. You will get better value for your $$$

[chicagoschool]

Well 1.9% is actually quite a high interest rate for a new car. The standard is 1% and Hyundai is offering 0% right now.

 

It's all about risk pools - the interest rate is determined partially by the number of people that default. If 5% of borrowers default and dont pay, then charging at least 5% interest to EVERYONE makes up for that.

 

In any case, I think I will just have to resort to getting a cosigner.

[rmorelan]

Well 1.9% is actually quite a high interest rate for a new car. The standard is 1% and Hyundai is offering 0% right now.

 

It's all about risk pools - the interest rate is determined partially by the number of people that default. If 5% of borrowers default and dont pay, then charging at least 5% interest to EVERYONE makes up for that.

 

In any case, I think I will just have to resort to getting a cosigner.

 

well it isn't just risk - that is one factor. There is also inflation, opportunity cost and what the market will bear.

 

For one thing inflation estimates for this year are about 1.5-2% depending on your talk to (and of course even they could be wrong ). Loaning something out 1.9% means you are really making only 0.4% interest (1.9-1.5), on a relatively risky investment (people default on car loans of course) - that plays a big factor in calculations.

 

Also the bigger question is why do it at all? I mean for instance you could give loans to medical students instead at 3%. That is the opportunity cost. Why loan cheap when you can loan at a higher rate to others. In theory everyone on this forum would rush to borrow from the owner of the car dealership if they offered an LOC at 2.9% (just below anyone else). Banks are NOT the only ones in the universe that can loan money after all Look how carefully people here are studying the various banks - even very minor effects of their credit cards. Imagine what would happen the rate actually was lower somewhere else.

 

The dealerships don't do these loans, and are quite happy not to. There is a reason for that - a business reason. It is MORE profitable to loan you the car at 1.9%, or even lower as other pointed out. It cannot be the interest rate that is generating the profit - it has to be something else. There is only one other thing left in the equation - the cost of the car.

 

It is just the reverse strategies of what other stores to (sell low but change interest later) - they make their products pretty cheap, with "no money down", pay in XXX days etc. Of course most people aren't disciplined enough to save the money to pay it off in full by then - and then huge interest payments hit. Oh joy. Some are sneaky enough to even charge an admin fee up from worth actually a lot of interest anyway. Sneaky, very sneaky

[shady]

Well 1.9% is actually quite a high interest rate for a new car. The standard is 1% and Hyundai is offering 0% right now.

 

It's all about risk pools - the interest rate is determined partially by the number of people that default. If 5% of borrowers default and dont pay, then charging at least 5% interest to EVERYONE makes up for that.

 

In any case, I think I will just have to resort to getting a cosigner.

 

0% isn't 0% if buying the car outright with cash gives you a $2k discount. It's just a play on words. There is no way they are going to lend you money for free. This applies to the Hyundai offer. If you look carefully, they also have what they call "cash incentives" which are essentially discounts if you pay cash.

 

I would extend this idea and guess that any car loan below prime means some of the price of the car is going to finance the loan. It means you can probably negotiate a lower price for buying outright with cash.

[McMasterHopeful]

0% isn't 0% if buying the car outright with cash gives you a $2k discount. It's just a play on words. There is no way they are going to lend you money for free. This applies to the Hyundai offer. If you look carefully, they also have what they call "cash incentives" which are essentially discounts if you pay cash.

 

I would extend this idea and guess that any car loan below prime means some of the price of the car is going to finance the loan. It means you can probably negotiate a lower price for buying outright with cash.

 

Exactly. Interest rates are illusory and relative - don't pay much attention to them. Negotiate hard on the price of the car and play the walk away game for a couple of days until you get the bottom line price from the manager - that is where you save $

[tberry3]

Here's another OSAP/car related question, if anyone has experience with this:

 

I'm planning on buying a car in second year (i.e. for clerkship at Mac), but I'm curious about how the timing of that purchase will affect my OSAP funding (if at all). Obviously if I buy it early (e.g. the summer before school) then I'll have to claim it as an asset. But what about these options:

1. I buy a car after school starts, but before I receive OSAP. I assume in this case I'd have to send OSAP an update of my current assets and my funding would be adjusted accordingly, is that correct?

2. I wait until after I receive OSAP funding, then buy a car. Would they retroactively adjust my funding or is it a done deal at that point?

[WtsupDoc?]

Here's another OSAP/car related question, if anyone has experience with this:

 

I'm planning on buying a car in second year (i.e. for clerkship at Mac), but I'm curious about how the timing of that purchase will affect my OSAP funding (if at all). Obviously if I buy it early (e.g. the summer before school) then I'll have to claim it as an asset. But what about these options:

1. I buy a car after school starts, but before I receive OSAP. I assume in this case I'd have to send OSAP an update of my current assets and my funding would be adjusted accordingly, is that correct?

2. I wait until after I receive OSAP funding, then buy a car. Would they retroactively adjust my funding or is it a done deal at that point?

 

They can retroactively adjust your funding and ask you to pay back a portion if you were not accurate in your estimates. I have only heard of this done when people underestimate their income, so I can't say with certainty that this happens with vehicles.

 

Have you thought about having a car in your parents name and just paying them for it? That gets around the OSAP issue.

[future_doc]

Yes and for insurance purposes, let them declare you as main driver.

[tberry3]

They can retroactively adjust your funding and ask you to pay back a portion if you were not accurate in your estimates. I have only heard of this done when people underestimate their income, so I can't say with certainty that this happens with vehicles.

 

Have you thought about having a car in your parents name and just paying them for it? That gets around the OSAP issue.

 

Hmm, that is an interesting idea. I hadn't thought about it since my parents have no money to finance an extra car, but I guess if I give them the money in advance, that might be an option! That's another goofy OSAP loophole though... if your parents can afford to buy you a car then the government will give you more free money, but if you have to buy one on your own, they'll reduce your funding? Pretty silly system sometimes.

 

One thing I'm unsure of is how that would affect insurance. Again as someone who has never owned a car I'm just totally new to this kind of thing. If they technically own the car, do they need to be included in the insurance even if I'm the only one driving? Or is it possible to have a car that is owned by my parents, with myself as the only insured driver?

[Leon]

Here's another OSAP/car related question, if anyone has experience with this:

 

I'm planning on buying a car in second year (i.e. for clerkship at Mac), but I'm curious about how the timing of that purchase will affect my OSAP funding (if at all). Obviously if I buy it early (e.g. the summer before school) then I'll have to claim it as an asset. But what about these options:

1. I buy a car after school starts, but before I receive OSAP. I assume in this case I'd have to send OSAP an update of my current assets and my funding would be adjusted accordingly, is that correct?

2. I wait until after I receive OSAP funding, then buy a car. Would they retroactively adjust my funding or is it a done deal at that point?

 

Do not buy a car in your name- it will royally screw you with OSAP forever. A vehicle, especially if new, is considered a significant asset.

 

I purchased a car on financing last year. I'm the primary borrower and my dad is the co-borrower so on the financing contract, both our names appear. However, insurance-wise, he is the primary driver. Since we have two cars, an old and a new, we switched our "roles" (ie. he is the primary driver on the new car, I'm the primary driver on the old car - even though we drive the opposite cars. This worked out best financially).

 

The car is registered and owned by my dad - the ownership is different from who pays for the financing, and again different from who is the "primary driver" at your insurance. However, if you are the main borrower (assuming you're financing), then you're supposed to be the owner as well. I didn't follow that (since I didn't know this at the time of purchase) but it hasn't hurt me.

 

OSAP remains unaffected because when they check with the MTO, the car will not have my name on it at all. I continue to make payments for it through my own debit account, to save my parents the hassle. Hope this helps!

[WtsupDoc?]

When I was in undergrad, I gave my parents cash to purchase a car in their name (didn't have to worry about financing, so that is an extra complication in your situation). I was put on their insurance policy as the primary driver of the vehicle and paid them monthly for the insurance. That way I was also accruing years of driving experience (important for later on down the road, but I'm also pretty sure you have to declare who is the primary driver).

 

By being on the same policy as my parents I also had the added benefit of extra discounts because they had their house and two cars with the same insurer.

 

I think you can get insurance on your own though - whoever's name the car is in would just have to sign off I think (but don't quote me on it).

 

As for OSAP - the car thing it doesn't make any sense to me. I come from a low-middle income family that couldn't support my education at all. I never understood why a lease counts as an asset - I suppose that in OSAP's mind, those monthly payments are funds that could be put towards your education.

[tberry3]

This is all really helpful advice - thanks guys!

[future_doc]

This is Quebec, but I know of a case where the adult son who has no driver's licence bought a car in his name - with his mother (who like you, could not own a car) as the insured driver. There was no problem.

[Lonney]

Your parents are quite nice if they want to take the assurance on your car lol

 

Mine doesn't want at all since if I crash my car they will have a ****load of assurance payment in the future (They own a bmw X3, mini cooper and like a 200k RV)

[McMasterHopeful]

As for OSAP - the car thing it doesn't make any sense to me. I come from a low-middle income family that couldn't support my education at all. I never understood why a lease counts as an asset

 

It doesn't make much sense. What's really sad is they still consider a vehicle an asset when you are completely underwater on it. Example - your lease or finance buy out is 15k and the market value is only 11k. They still consider this an asset even though it would cost you $4000 to get rid of it to qualify for OSAP

[shady]

The system is not perfect and has many flaws. The car is one of them. Another annoying thing about it is in our case (i.e. medicine) OSAP is no where near enough since the estimated cost per year is $40k-$45k, yet OSAP is $15k-$20k (depending on 3 or 4 year MD program). Now if you are a responsible individual you get a job to close the gap between OSAP and costs, right?

 

Wrong. As soon as you get a job or save for your education, they reduce your grants (before reducing your loans) essentially punishing you for your hard work. You still still have that gap, and you will have to borrow from your LOC like everyone else. You essentially end up in the same financial state as someone who spent their summer vacationing, and by then you come to the hard realization that all your hard work was for nothing.