Please help me understand my aunt's car loan

Submitted by FunElephant7 t3_zxgkvn in personalfinance

My aunt (70 years old) recently bought a brand new car (2022 Honda CR-V EX AWD). Unfortunately, it looks like she has some buyer's remorse for various reasons. She originally reached out to me asking what the best way to deal with this was, so my first question is:

  1. What are the best available options for getting rid of this car and ultimately getting a different one while trying to minimize losses? (Can be reselling this car, opportunities through the original dealer, trading, etc).

When I started looking into this question for my aunt, I asked her for her paperwork. I don't have much experience with car loans, but there were a couple things that caught my eye. I'm seeing the following info:

  • Annual Percentage Rate: 6.94%
  • Financial Charge: $11,078.26
  • Amount Financed: $ 41,194.94
  • Total of Payments: $62,273.20
  • Total Sale Price: $54,273.20 (including Down Payment of $2,000)

So my second question is:

  1. How does a 6.94% APR, which I assume is applied to the Financed Amount of $41,194.94 result in a $11,078.26 Financial Charge (which is 26.89%...)? Also, where does $62,273.20 come from? I can see that $41,194.94 (Amount Financed) + $11,078.26 (Financial Charge) + $2,000 (Down Payment) = $54,273.20 Total Sale Price. Basically, how do these numbers fit together? What do they mean? Where do they come from?

My last question is:

  1. How does a car with an MSRP of $30,810 end up costing $62,273.20? I understand there's taxes, various fees, dealer's profit, APR, etc, but something seems a bit off to me as the end total price is more than double the MSRP. Perhaps a more knowing person can explain?

Thanks in advance!

Update: Looks like my questions have been mostly answered. Thank you to everyone who responded. Specifically, I got a helpful reminder in how the APR is applied!

I guess my follow-up question would be whether anyone has recommendations regarding selling a car. Has anyone used CarGurus? Perhaps some other sites/methods for selling a car either to an individual or a company?

5

Comments

You must log in or register to comment.

absurdamerica t1_j209dal wrote

The 54k sales price is nuts. Guessing she got various insurance (tire and wheel gap etc) add ons? Paint protection products maybe? What does her financing paperwork show?

11

FunElephant7 OP t1_j209yxy wrote

I’m seeing Service Contract for $2,995, Maintenance for $1,020, and Road Hazard for $1,479. Are any of these even worthwhile?

2

DoubleHexDrive t1_j20bywp wrote

The Honda service contracts are a pain to work with… whe she wants an oil change, etc she has to ask for exactly the right service otherwise it won’t get applied. Sounds like they loaded her with every upsell they could think of and then she financed it, I’m guessing for 84 months?

She got screwed. Only way I’ll buy a new car these days is directly off the delivery truck: no dealer tint, add ons, no extra anything.

5

FunElephant7 OP t1_j20gtwk wrote

Yes, 84 months. I assume this means she needs to bring in her car to a Honda dealership for servicing/maintenance (didn’t realize there was a difference between these two). I’m betting she’s not aware of this. Thanks for bringing it to my attention

1

DoubleHexDrive t1_j20hbbb wrote

Yep, and to get the value out of the service contract, she’ll need to make them aware of the contract. Don’t assume they’ll figure it out on their own and apply it correctly.

4

FunElephant7 OP t1_j20hi0g wrote

Good to know. I’ll be sure to make her aware of this!

1

Cheaper2000 t1_j2069gc wrote

Your aunt got ripped off because she’s 70 years old and elderly people are easy targets. Get rid of the car, buy something older and cheaper. No shot she’s gonna be driving enough over the next 7+ years to justify a brand new car, and clearly she doesn’t have the love of cars or financial means to justify it.

10

FunElephant7 OP t1_j208mon wrote

Thanks for answering.

So am I fair in assuming she could have gotten a more competitive price (not necessarily MSRP, but at least close to it)?

She actually drives quite a lot. Still pretty active. My assumption is that the newer electronics in the car are throwing her off (specifically the non-mechanic key). Perhaps I can help her learn about them.

2

nkyguy1988 t1_j205lu6 wrote

Any option you have results in paying off the loan. Whether that is by trade, private party sale, or payoff. Given the market trend, you probably won't get what was paid for it.

Your interest calculation. It's just wrong. The 6.94 rate is per year. On a monthly basis you have around .55% of the load balance added to the remaining principal to find the interest accrued.

You end up paying that much in dealer markup (pure profit over MSRP), add on packages, service contracts, plus fees as you mention. You get to this point by not knowing what was being signed and being sold a bunch of things they probably didn't need.

6

FunElephant7 OP t1_j206env wrote

Thanks for your answer!

Definitely not expecting to get what was paid for it. Just minimizing losses.

Understood regarding the interest calculation being yearly and based on the principal decreasing.

Yeah, pretty sure my aunt didn’t read into what she was buying closely enough. Wish she had.

1

Triscuitmeniscus t1_j22ewpw wrote

I don’t know where you live but chances are a lot of the add-ons she undoubtedly purchased like tire and wheel coverage, service plans, warranties etc can be cancelled/refunded (prorated to how long she’s owned the car of course). Look at the contracts for information on how to cancel them. And expect it to be kind of a PITA and for the people at the dealer to try to talk her out of it.

5

S7hapaa t1_j20avvk wrote

She got taken advantage of sadly :(

This is absolutely not an appropriate cost for the car she purchased.

Dealerships add bunch of random extra crap: add ons, questionable(usually unnecessary) warranties, service packages etc, to the sale of the car, thus inflating the price of the car. Then they tack on the APR on top of all this stuff they added. You really have to go through the list one by one to see what you are buying otherwise they will easily rob thousands of dollars off of you.

I hope this will help you make informed decision in the future in case you find yourself in the market for a new car. Dealership people are not your friend.

4

FunElephant7 OP t1_j20hdeb wrote

Definitely a lesson for the future. Hopefully my aunt will call me before she signs next time!

1

[deleted] t1_j20552e wrote

[deleted]

2

wanttostayhidden t1_j205woa wrote

>Many states have a 10-15 day cool down period that lets buyers return cars and essentially cancel the deal

People need to stop posting this garbage. There are very few or no states that have a cooling off period for a vehicle.

12

BoxingRaptor t1_j205mmm wrote

> Many states have a 10-15 day cool down period that lets buyers return cars and essentially cancel the deal

That is not really true. If you happen to have a link to a source that says otherwise, I would definitely be interested in seeing it.

7

g92592 t1_j2120bs wrote

There is no link, it's not true. Just imagine if you could buy a BRAND NEW vehicle, drive it for 10-15 days, change your mind, and return a USED vehicle.

6

BoxingRaptor t1_j23n1b5 wrote

Lol, yeah I know...I just like to challenge people when they post myths like that.

1

FunElephant7 OP t1_j205wl8 wrote

Thanks for your answer!

  1. It looks like she bought it Oct 28, 2022, so it seems we’re past the cooldown. I know she tried going back to the dealership and the refused to take it back. This is in NY state.

  2. Thanks, I see how it calculated now. And I do see the monthly payment amount and number of payments.

  3. So this is a normal price to pay? Or is my aunt just bad at negotiating?

2

SomeInternetRando t1_j205pf8 wrote

>Basically, how do these numbers fit together?

6.94% APR means that every month, 0.58% (6.94% / 12 months) of her current balance gets added to how much she owes. Those numbers come from assuming she keeps that going while making only the minimum required payments.

>I don't have much experience with car loans

This is how nearly all debt works, from credit cards to mortgages.

2

FunElephant7 OP t1_j207mch wrote

Thanks, this helps. I guess I should say I don’t have experience with loans in general, but I do remember learning about this in school a long time ago, so this was a good reminder of how it all works.

1

BlazinAzn38 t1_j2066or wrote

Interest is applied daily, it's not simply Sale price X interest rate so that's why the total cost is not what you expect. As far as getting rid of it you can see if your state has a cool down period or if the dealer has their own. If not then you can see what the dealer can do for you in terms of a buyback/trade-in but private sale will probably net you the most

2

peter303_ t1_j222mwv wrote

You didnt say the length of loan. But six years 7% APY is 50% added to the amount financed.

2