Financing the Prius

Hi! I have spent quite a bit of time today researching interest rates and loan offers in order to secure financing for our upcoming '06 Prius. We have a Prius on order with a deposit at one dealer. I am also working with three other local dealers. We hope to drive home a new Prius as soon after 1/1/06 as possible.

Financing options for new cars (as of 12/13/05):

~ Costco (via Capital One) - 5.14% (regular membership) [subtract 0.10% for executive membership, which we do not have]

~ AAA (via Capital One) - 5.34% (30-36m); 5.6% (37-60m)

~ Toyota Financial (online with zip code and 'excellent' credit) - 7.4%

~ North Island Credit Union - 5.49% with automatic payments (5.99% without); 5.49% HELOC with auto pay (rate varies each quarter...interest is deductible on our taxes)

~ San Diego County Credit Union - 4.5% variable auto loan; 5.75% fixed auto loan

~ Mission Federal Credit Union - 5.99%

~ Point Loma Credit Union - 5.99% with certain basis points reduction based on other factors (auto pay & dollar amount of loan)

~ Navy Federal Credit Union - 2.9% (up to 36m); 4.5% (37-60m); 3.75% HELOC intro rate for 6 months, which becomes prime + 2%; 4.9% home equity fixed rate loan (interest is deductible on our taxes)

We would qualify for any of these loans and we are either already members of these credit unions or we are eligible for membership. Toyota may offer us something different when we show up to take delivery and we could always return any other loan we obtained previously, but I want to secure financing today. A friend in the industry says rumor has it rates are going up again.

I am inclined to go with Navy Federal Credit Union, but am not sure which loan would be the best option. A 36-month loan on a Prius is going to result in steep monthly payments. We have cash set aside for a down payment and that could lower the monthly payments to reasonable levels. We really need some tax breaks due to some lucrative 1099 work my DH has been doing, which would make the home equity loan very attractive. Unfortunately, when I call them, I have to either be in the consumer loan area (auto loan) OR in the mortgage products area (home equity loan). The customer service reps are only trained in their specific areas and cannot give advice that crosses over nor comparisons. I already tried that earlier today. Nor will they comment on taxes, of course, since they are not tax advisors. Anyone got any experience with this? Know of a good comparison calculator? Our financial advisor is on vacation this week, naturally...

Thanks in advance!
Karin

 

You are the third person to mention cash to me.

We actually have been saving for a long time and had intended to buy DH's '04 Camry with cash. However, our savings (mutual funds) were paying us a much higher yield than the loan rates would cost us at the time (2.9% loan). That is still the case today, so I am reluctant to drop our savings in order to pay cash. Even with a 4.5% 60 month loan, we are yielding higher rates from our mutual funds.

 

Well, I decided to call our financial advisor to see who she put as her contact while she was on vacation. Turns out I had the wrong week. She'll be on vacation NEXT week. YAY! So, after discussing my findings, she recommended we go with the home equity loan because we need the tax write-offs and it is a very good rate (4.9% with NFCU) with no closing costs or annual fees or prepayment penalties. If we went for the 36 month 2.9% auto loan, we'd have to put $10k down in order to have 'reasonable' monthly payments. She felt that $10k was doing more good where we have it now. I applied for the loan over the phone a few minutes ago. Let's hope it gets funded prior to our Prius arriving.

 

FYI: It is not a HELOC with a teaser rate. It is a fixed 4.9% home equity loan with no fees or closing costs. And the money is not earning my advisor a dime. I got all my mutual funds at NAV when I was in that industry years ago.

 

I like 0%! Is that a short term rate, though? Do you have to constantly find a new 0% rate every six months or year? Or is it for the life of the balance?

 

Thanks for all the replies! It is interesting to see the various points of view.

 

Well, the loan processor called today to process the home equity loan and when she was going over the disclosures, I was dismayed. We have to close/fund the loan before 12/31/05 in order to pay no closing costs (which I knew). This is not a loan that we can just turn down after the fact (say Toyota offers us some great financing when the car is actually here). (It is not a check that we can choose to not cash, for example...funds are wired and the loan is a done deal at closing, which can take 2-3 weeks.) When it is funded, it is funded and we begin our payment schedule. There are no prepayment penalties, PER SE. However, the 'catch' on the no closing costs is we have to keep the loan for 24 months. If we paid it off immediately (in the above example where Toyota offered us some great financing) or if we just paid it off up to month 24 for whatever reason, we would then have to pay the closing costs incurred on the loan at origination. If we paid it off in month 25 or later, it would work out great. When I ran the numbers with a mortgage calculator (and our taxes), the closing costs would negate the tax savings for sure in the first year and is about a wash by year two. That is more risk than we are willing to take. Who knows what Toyota is going to offer in January or February or whenever our car arrives??? So, I withdrew that application and we are back to square one. I'll get back to this project later tonight.