Financing 101

PAB_OH · Oct 24, 2005

I am looking at buying a tractor soon, not soon enough, but within the next 3-6 months. I am still wrangling w/ brand, etc... but I need to start looking at financing options. If I buy new which I really hope to do I'm sure it will be easy but I'm not sure who I should apply for credit with or how in case I want to buy used from a private party.

Anyone out there buy their tractor used? I was planning on putting a good chunk down on a new tractor but some unexpected expenses came up and ate most of the money. By spring I should have $2k+ to put on a tractor but I would still like to stretch the payments out. I will probably pay it off early but I want to know that if something happens like it did recently I will be able to make a low payment.

Should I just wait untill I have enough to put down on the tractor of my choice to make the payments low enough using a "conventional" 36-48 mont loan? I think I have found a REALLY nice tractor for a REALLY good price but it's privately owned and I don't have the cash to cover the full cost so I need to look at financing. Is it possible to get a used tractor financed as new if the hours are low enough?

TIA.

HGM · Oct 25, 2005

My recomendation would be to wait as long as possible to get exactly what you want. I see from your profile that you have 5ac. So, I'll assume you mean a compact or smaller tractor($10-12K new). All the MFG's have speciall financing deals to get you hooked, some go to 72mo. The financing is easy, payments would be reasonable and usually requre 20%dn.

I bought a Yanmar 2000, because I needed a small tractor for 2ac and maintenance of our hunting property. It fits my needs very well. The dealer I bought it from had a bank he used and I got the package deal of a new trailer, brush hog, box blade, used tiller and tractor(mid 70's) for much less than a new tractor the same size alone. Payments are higher used, but manable. Plus, used financing is typicaly only 36mo at the longest.

If you could use a home equity loan, you would also benifit from the tax deduction and reasonable rate for a used tractor. Personal loans are given a high rate, and are less desireable. DONT use a credit card. It may seem like a quick easy deal to get your tractor, but you'll pay much more in financing and likely never get it payed off, probably paying at least double for it over time.

TC18guy · Oct 25, 2005

In my area used compact tractors are hard to find and when you do they cost almost as much as new. I decided to wait and catch a 60 mo. 0% financing special from NH.

PAB_OH · Oct 25, 2005

They are hard to find in my area too. I found one and I think it's a pretty good deal though. Basically everything I want for about $4k less than new, including a trailer to haul it on. The only thing is it's not exactly "compact", more of a utility tractor I think. But like I said in my post over in the Kioti forum, my land is all open, no obstructions, and I plan to do some medium duty dirt work so a bigger tractor will be handy there.

Thanks for the advice so far. It helps tame the urge to buy "right now". I think I need to take a step back and look at the deal objectively and leave emotions out of the thought process.

Who knows though, I might end up with this one in the end anyway. I just need to make sure I know what I'm getting and that it fits my needs.

That is why I am

MessickFarmEqu · Oct 25, 2005

I would not wait, I fully expect the end of 0/36 finacning to come very soon.

Panache · Oct 25, 2005

Are you a member of a credit union or bank? Talk to them about financing. Mine were financed just like a car at the same rate.

unreconstructed · Oct 25, 2005

I guess I am a Dave Ramsey kinda of fella, but sometimes we want something bad enough to go into hock--just the way it is. Just my point of view--home equity loans make sense on paper when talking about income tax and interest rate, but from a philosophical point of view I think a paid for home provides a lot of security for one's family. Its bad enough that the local tax authorities have a life time lien on your castle without running up debt on the homestead. Again, my point of view with no offense intended to anyone.

PBinWA · Oct 25, 2005

( I guess I am a Dave Ramsey kinda of fella, but sometimes we want something bad enough to go into hock--just the way it is. Just my point of view--home equity loans make sense on paper when talking about income tax and interest rate, but from a philosophical point of view I think a paid for home provides a lot of security for one's family. Its bad enough that the local tax authorities have a life time lien on your castle without running up debt on the homestead. Again, my point of view with no offense intended to anyone. )

Amen to that! Dave Ramsey = good advice.

Noodlearm · Oct 25, 2005

I agree with Neil, as long as rates keep climbing like they have (and the fed seems to insist that they will), I don't see how these companies can keep the 0%, I am sure you will still find some pretty low rates but I think the 0% may be gone. That being said, if rates are still low enough and you don't need the tractor for a another 6 months, I don't see any sense in making 6 payments on something your not using. The payments wont go up that much even if you had to pay 5% (which is unlikely if financing new through the dealership) you would only be paying about $30 more per month on a 3 year $10,000 loan.

unreconstructed · Oct 25, 2005

I think interest rates will continue to climb, although at a slow rate. Greenspan has made some noise about the risks of the real estate bubble, especially for homeowners. I don't know if the continued increase in rates is to cool off speculation in the housing market but certainly it seems as if the fed is raising rates as is its standard inflation fighter. ( I would also caution against home equity loans given the current bubble in homesteads--again my opinion). I don't know anything about Greenspans replacement, but I don't guess it matters, after all, Greenspan was a gold standard guy back "in the day". /forums/images/graemlins/confused.gif /forums/images/graemlins/tongue.gif I wouldn't base a decsion on predicting the Fed though--that's kinda like figuring out the wife. /forums/images/graemlins/grin.gif

flwiii · Oct 25, 2005

Here in Phoenix the orange and blue dealer has dropped the 0% 36 month but now offers 0% 24 months. The green dealer is still offering 0% at 36 months.

BarryinMN · Oct 25, 2005

Realistically the "0 % " cost of capital is built into the sales price of the machine there is no free lunch...

Buying now or later you still pay...

My local off brand dealer had sources of subsidized ag investment capital, ie discount rates. They help keep business local, banks, CU's etc. Talk to local dealers they know how to put financing together.

I didn't follow up as I didn't finance anything but was surprised by the unadvertised specials.

unreconstructed · Oct 26, 2005

No doubt the ) percent financing is built in to the price of the tractor. I had saved enough to pay cash for mine even though the salesman couldn't understand why I did not go the payment interest free method ( the Dave Ramsey thing again). I wasn't smart enough to ask him for a cash discount since he had already beat my first quote by a large margin. /forums/images/graemlins/frown.gif

Has anyone on TBN asked for a cash discount?

If no discount for cash, then the cash customers are paying interest too. /forums/images/graemlins/blush.gif

MikePA · Oct 26, 2005

even though the salesman couldn't understand why I did not go the payment interest free method 
While I like having no debt as much as the next guy /forums/images/graemlins/grin.gif paying cash instead of getting a 0% loan, means you're losing whatever interest you were earning on the money.

flwiii · Oct 26, 2005

Of course there is no free lunch, but which would you choose if you had no other option than to finance. With the price being the same since i'm financing, I would rather have 36 payments with no more interest than 72 payments with another 4.9% thrown into the mix. If you can afford to pay cash by all means do so because the value of money today is worth more than the same amount 5 years from now.

flwiii · Oct 26, 2005

Unreconstructed:
I asked for one when I bought my LT180 as I paid cash for it. It cost $3000 whether I financed or not, so by the information provided by BarryinMN, cash customers here pay the cost of capital too.

MikePA · Oct 26, 2005

because the value of money today is worth more than the same amount 5 years from now. 
This is only true in an inflationary period. /forums/images/graemlins/smile.gif Not sure we're in one now, maybe the start of one?

The only time it makes sense to pay cash for an item is if the interest rate to borrow the money is greater than the interest rate you're earning on the money. In the case of a 0% loan, you will lose money by paying cash. If this logic is wrong, help me understand. /forums/images/graemlins/grin.gif

Also, if the dealer doesn't offer a discount for cash it might be because he's receiving an incentive from the manufacturer or from whomever is handling the financing.

jjcc246 · Oct 26, 2005

I was going to pay cash for mine, but they offered 0% for 60mo. I took my cash, invested it a fed. bond. While that's making interest i'm paying NH no interest. There was no discount for cash. I think now is the time to by while the 0% is still offered. Just go to the dealer of choice, make your best deal and say "charge it". If you wait you may not get the deal later. I think we can all agree these "TOYS" are a big investment and if your going to do it, do it now, while you have the advantage of low financing. A used tractor (unless it's an exceptional deal) will cost you just as much because banks charge a higher interest on used equipment often a personnal loan which can easily get to the 8% range. good luck.

flwiii · Oct 26, 2005

MikePA:
I agree with your viewpoint that taking money from an interest bearing account to pay for something as opposed to a loan at a lower interest rate than you are earning is not wise. My point was based on the money being in a non-interest bearing account such as a basic checking account that does not earn interest (IE spending cash). Money devalues over time no matter; because inflation occurs eventually. Ten grand 10 years ago bought you more than 10 grand today. What someone could retire on 15 or 20 years ago and live comfortably won't cut it today. Taking money from an interest bearing account would be a last resort for me. The lower the principal the less interest you will earn.

BarryinMN · Oct 26, 2005

I hear you. Making sure you can cash flow the monthly expense in wost case scenarios is important as cash is always king.

Getting the same quoted price cash or credit makes sense as the manufacturer carries the note, not the dealer & dealer acquisition cost is the same either way. (Ignoring potential dealer inventory financing expense, loan fees, commissions, etc.)

A local financial institution may have better terms & conditions to fit your cash flow especially if you buy used from a private party. Remember cash is king & talks louder on a private party sale /forums/images/graemlins/grin.gif

Marketing 0% dealer financing has moved a lot of hardware, but is not really 0%. Dealers are trained masters on solving problems and making it easy to transfer your pocket full of money to theirs /forums/images/graemlins/confused.gif

On my tractor, I surveyed stocking dealers within 1000 miles on pricing. My local dealer was still lowest, he pays cash for his inventory, & I took the cash back option from the manufacturer.

Have fun & keep your options open /forums/images/graemlins/grin.gif