Auto financing can come from one of several sources, including banks, credit unions, and auto dealerships. If you're serious about buying a car, you need to investigate the various possibilities. Here are the top mistakes some people make when seeking and securing an automobile loan
1. Not investigating all your options. Many people use credit unions for automobile loans, while others find good deals from their local banks. The key is to investigate all potential lending options, including the dealership. Several sites, such as RoadLoans.com, LendingTree.com, or E-Loan.com will help you make financing comparisons, and in some cases, secure loans.
2. Going by rate alone. The rate is only part of the equation. You need to know how much you'll be putting down and the terms of the loan before making a decision.
3. Following your emotions. Make sure that you have done your research up front, and you know which car you want and what you are prepared to pay. Do not cave in if the dealer pushes another color or model, for instance, or will not waver on price.
4. Not reviewing your credit ratings first. You should access your credit report and know what your FICO score is. This way you'll know exactly what the dealer is looking at, so that he or she cannot tell you your number is lower than it actually is. Additionally, if there are any errors, you can inquire about them beforehand.
5. Being quick to accept the dealership financing offer. Dealerships typically offer higher rates because they buy financing from banks and other sources, and raise the rate to make a profit. Shop around.
6. Focusing on payments over price. If you are focused more on low monthly payments than on the price of the car, you may be paying more in the end. Know the overall price of the car and consider the APR, terms, and length of the loan.
7. Looking for the car first. If you are serious about buying a car, you will want to look at financing rates first and determine how much you can afford.
8. Not being able to walk away. Once you begin negotiating, especially at a dealership, you are not obliged to stay. If you do not like the offer or the manner in which the negotiations are headed, walk away.
9. Not taking the shortest term loan. Keep in mind that cars depreciate quickly, so you'll want to pay off the loan in a short time period. While the monthly payment will be higher in the short term, the interest payment will be lower.
10. Not determining what you can comfortably afford. Unlike a home mortgage, in which people look long and hard at what they will be able to pay over the next 10 to 30 years, car buyers do not always take such payments into careful consideration. "It is only for three years" is a familiar excuse for not evaluating the impact of such payments on your budget. Before buying a car, you need to consider how much money you can put down, and how much you can afford to pay on a monthly basis.
Wednesday, May 30, 2007
Helping You Use Your Own "Smarts" to Protect Your Identity.
Top 5 Identity Protection Tips that you can use every single day.
Sure, Identity Thieves may be smart, but using these techniques can help make you smarter than any thief out there.
Sure, Identity Thieves may be smart, but using these techniques can help make you smarter than any thief out there.
- Keep an eye on your credit file. Make sure your credit is consistently monitored so you'll be aware of any suspicious activity or possible signs of identity theft.
- Checks and balances. Keep a watchful eye on your monthly statements (even review your statements daily, if possible), because the sooner you spot and report suspicious activity, the better.
- Less is more. Carry as little information in your wallet as possible. In case of its loss or theft, the less information an identity thief has, the more protected you are.
- Ask for help. When you travel, consider asking a trusted friend or neighbor to pick up your mail, rather than notifying the post office or letting your mail pile up.
- Keep it to yourself. Unless you initiated contact, don't give personal information over the Internet - particularly PIN, Social Security and credit card numbers.
Tuesday, May 29, 2007
12 Secrets Your Car Insurer Won't Tell You
Knowing how the industry works can save you a lot of money and grief. Here are the secrets behind the premiums, and how you can save after an accident.
By MSN Money staff
Getting a good deal on auto insurance is hard enough. Keeping your premiums from rising? That can feel like playing a game where the rule maker refuses to tell you the rules.
Here are a dozen ways the industry works, with tips to help you save:
If you have good credit, you'll pay less. Almost all insurers -- including the top five -- pull your credit report. Why? Studies have shown a direct correlation between your credit score and the likelihood that you will file a claim. Insurers also know that if you pay your bills in a timely fashion and have had the same credit accounts for a long time, you're more stable than someone who pays late and frequently opens and closes accounts. They use this information to create your "insurance risk score," which is one factor that determines your auto-insurance rate.
Tip: Your insurance-risk score is not available to you, but it may be similar to your credit score. If you have unusual credit activity, wait a month for it to return to normal before buying auto insurance. If your credit history is shaky, clean it up as soon as you can.
Your car model affects your premium. You won't get these numbers from your insurer; in fact, you may not be able to get them at all. But the auto insurers do have a rating system for every car make and model. Most use a system devised by the Insurance Services Office, which starts with the cost of the vehicle and then factors in safety and theft data. Cars are given a rating from 1 to 27, and the higher the number, the higher your premium.
Pay in full to avoid installment fees. "Fractional premium" fees are usually charged when you pay your annual premium in installments rather all at once. Payments usually are offered on a six-month, quarterly or monthly basis, but almost every insurance company charges an administrative fee for breaking up the payments. The more you break it down, the more those fees add up.
Tip: Ask about fees for paying in installments. If the fees are small enough, it may be worth it. Remember that insurance companies can cancel your policy for late payment, many times with minimal notification, so make sure you won't miss an installment. If you can pay the premium up front, it may simplify the process and save you a few dollars.
That Pearl Jam CD in your car isn't covered. Stolen or damaged personal items like compact discs aren't covered by your auto insurance.
Tip: You can file a claim on your home insurance. Most home-insurance policies will cover smaller, less expensive items such as compact discs. However, if you carry expensive items such as computer equipment, ask about a rider to your home-insurance policy. It's wise to take photos or video of any expensive personal items before they go missing.
Bad drivers will pay You'll pay for your bad driving. The industry standard is to increase your premium by 40% of the insurer's base rate after your first at-fault accident. For example, if the company's base rate is $400, your premium will go up by $160. Not all auto insurers play by this rule, though, and some may increase your individual rate by 40%. Regardless of what formula they use, in the majority of cases, your rates will go up.
Tip: Some insurance companies have a "forgive the first accident" policy. The qualifying variables are wide-ranging, so ask your company if it has a forgiveness policy and how to qualify.
You'll pay for your friend's bad driving, too. If your friend borrows your car and crashes it, you'll have to file a claim with your insurance company. You'll have to pay any deductible that applies, and your rates will probably go up as a result of your claim.
Tip: If your friend didn't have permission to take your car, in most cases you won't be held liable for the damage. But if your friend is uninsured and causes damage that exceeds your policy limits, the injured party can come after you for medical and property-damage expenses. Best bet? Don't lend out your car.
The value of your "totaled" car may surprise you. Auto-insurance companies don't use the standard Kelley Blue Book or National Association of Automobile Dealers value. Instead, each company has its own proprietary list of car values, and most have specialized software for valuing cars in each region. They take into consideration the car's mileage and pre-accident condition.
The insurance company may also ask local dealers what they'd charge for a similar replacement car. However, the insurer will consider quotes from suburban towns as reasonable estimates, even if you live in the city. You might have to drive several hours to reach the cheapest dealer, just to save the insurance company money. And they might be quoted a better deal than you could get if you walked onto the lot.
Tip: If you disagree with your insurance company's value determination, there are several things you can do:
Next time, get "gap" insurance. It will pay the difference between what an insurer will cover and what you owe, which can be several thousand dollars.
If you have maintenance records that show you've had the oil changed every 3,000 miles and you've had the car checked routinely by a mechanic, present copies to the insurance company to show the car was in good condition. If you've been paying premiums on any special parts or upgrades, make sure those are included in the insurance company's evaluation.
Get price quotes on replacement cars from three dealers within a reasonable driving distance and submit these to your insurance company. Ask the insurance company for a list of dealers within a specific distance who can sell you an equivalent car for the value the company is claiming.
If you still aren't satisfied, you can step up the process and go to mediation or arbitration. Mediation involves presenting your case to a neutral party for help in reaching a compromise; arbitration is a binding decision. You can also, of course, take the issue to court.
Check into "diminished value." Say your car has been in an accident, but repaired. Is it worth less than the exact same car that hasn't been in an accident? It's a hot topic, but some say yes. In 14 states, you're allowed to file a claim with your insurance company for that lost value.
Tip: Thirty-six states and Washington, D.C., allow insurance companies to exclude payments for diminished value, so if you live in one of those states, you won't get to claim the loss. But in Florida, Georgia, Hawaii, Kansas, Louisiana, Maine, Maryland, Massachusetts, North Carolina, South Dakota, Texas, Virginia, Washington and West Virginia, you have a chance of getting a diminished-value payment. If you weren't at fault in the accident, you often can make a successful case against the insurance company of the driver who was at fault.
You may not owe sales tax on your replacement car. Twenty-eight states require auto insurers to pay for the sales tax when you replace your totaled vehicle with a new or used car: Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Vermont, Washington, West Virginia and Wisconsin.
Tip: Make the request; don't expect the insurer to offer to pay upfront. Even in states that do not require sales-tax reimbursement, you should request it. Many auto insurers will not deny the request because the policy requires that they make you "whole," returning you to where you were before the accident at no cost to you.
-Accident value of your car. If the insurance company values your car at $10,000, and you purchase a new car for $20,000, the tax will be calculated on $10,000.
Odds and ends
Hit by an uninsured motorist? Try to "stack." Stacking uninsured/underinsured motorist (UM/UIM) coverages means collecting from more than one auto-insurance policy that you hold. Most states forbid this practice, but 19 states allow it or don't address it.
Tip: Check the language of your policy to see if stacking is allowed.
There are two scenarios for stacking: First, if you have multiple cars on your policy with UM/UIM coverage on each, you can collect the limit of your UM/UIM coverage under as many vehicles as necessary to cover full payment for damages. Second, if you have more than one policy with UM/UIM coverage, even if they're from two different insurers, you can make a claim under each policy until all your damages are recovered.
You can wait to add your teenager to your policy until he or she is licensed. You are not required to add your teenager to your policy just because he or she has reached driving age. In most cases, you can wait until he or she has a license -- or, if you're in a high-risk insurance pool, a permit.
Tip: Don't forget to tell your insurance company that you have a licensed teen. If you have to file a claim on his or her behalf, your insurance company is entitled to charge you back premiums from the date your teen received a license.
You must officially cancel your insurance policy when you switch insurers. Your policy most likely states that you can cancel your coverage at any time by notifying the company in writing of the date of termination. However, most people assume that if they decide to terminate the policy at the end of the coverage period, all they have to do is ignore the bill. The insurance companies don't see it that way. They will send you another bill for the next premium payment, and when you don't pay it, the company will cancel you for nonpayment. That goes on your credit record.
Tip: Call your insurance agent or the company and let him know you are canceling your policy. Give a specific date, or you may end up uninsured for a period of time. The company will send you a cancellation request. Most often, the form is already filled out and all it requires is your signature. Make sure you read it to check for errors.
You may have to prove to your former insurance company that you have new coverage. And if you've financed your car through a dealership, update the dealer on your new insurance information, because purchase contracts often require proof of coverage.
Updated April 18, 2007
By MSN Money staff
Getting a good deal on auto insurance is hard enough. Keeping your premiums from rising? That can feel like playing a game where the rule maker refuses to tell you the rules.
Here are a dozen ways the industry works, with tips to help you save:
If you have good credit, you'll pay less. Almost all insurers -- including the top five -- pull your credit report. Why? Studies have shown a direct correlation between your credit score and the likelihood that you will file a claim. Insurers also know that if you pay your bills in a timely fashion and have had the same credit accounts for a long time, you're more stable than someone who pays late and frequently opens and closes accounts. They use this information to create your "insurance risk score," which is one factor that determines your auto-insurance rate.
Tip: Your insurance-risk score is not available to you, but it may be similar to your credit score. If you have unusual credit activity, wait a month for it to return to normal before buying auto insurance. If your credit history is shaky, clean it up as soon as you can.
Your car model affects your premium. You won't get these numbers from your insurer; in fact, you may not be able to get them at all. But the auto insurers do have a rating system for every car make and model. Most use a system devised by the Insurance Services Office, which starts with the cost of the vehicle and then factors in safety and theft data. Cars are given a rating from 1 to 27, and the higher the number, the higher your premium.
Pay in full to avoid installment fees. "Fractional premium" fees are usually charged when you pay your annual premium in installments rather all at once. Payments usually are offered on a six-month, quarterly or monthly basis, but almost every insurance company charges an administrative fee for breaking up the payments. The more you break it down, the more those fees add up.
Tip: Ask about fees for paying in installments. If the fees are small enough, it may be worth it. Remember that insurance companies can cancel your policy for late payment, many times with minimal notification, so make sure you won't miss an installment. If you can pay the premium up front, it may simplify the process and save you a few dollars.
That Pearl Jam CD in your car isn't covered. Stolen or damaged personal items like compact discs aren't covered by your auto insurance.
Tip: You can file a claim on your home insurance. Most home-insurance policies will cover smaller, less expensive items such as compact discs. However, if you carry expensive items such as computer equipment, ask about a rider to your home-insurance policy. It's wise to take photos or video of any expensive personal items before they go missing.
Bad drivers will pay You'll pay for your bad driving. The industry standard is to increase your premium by 40% of the insurer's base rate after your first at-fault accident. For example, if the company's base rate is $400, your premium will go up by $160. Not all auto insurers play by this rule, though, and some may increase your individual rate by 40%. Regardless of what formula they use, in the majority of cases, your rates will go up.
Tip: Some insurance companies have a "forgive the first accident" policy. The qualifying variables are wide-ranging, so ask your company if it has a forgiveness policy and how to qualify.
You'll pay for your friend's bad driving, too. If your friend borrows your car and crashes it, you'll have to file a claim with your insurance company. You'll have to pay any deductible that applies, and your rates will probably go up as a result of your claim.
Tip: If your friend didn't have permission to take your car, in most cases you won't be held liable for the damage. But if your friend is uninsured and causes damage that exceeds your policy limits, the injured party can come after you for medical and property-damage expenses. Best bet? Don't lend out your car.
The value of your "totaled" car may surprise you. Auto-insurance companies don't use the standard Kelley Blue Book or National Association of Automobile Dealers value. Instead, each company has its own proprietary list of car values, and most have specialized software for valuing cars in each region. They take into consideration the car's mileage and pre-accident condition.
The insurance company may also ask local dealers what they'd charge for a similar replacement car. However, the insurer will consider quotes from suburban towns as reasonable estimates, even if you live in the city. You might have to drive several hours to reach the cheapest dealer, just to save the insurance company money. And they might be quoted a better deal than you could get if you walked onto the lot.
Tip: If you disagree with your insurance company's value determination, there are several things you can do:
Next time, get "gap" insurance. It will pay the difference between what an insurer will cover and what you owe, which can be several thousand dollars.
If you have maintenance records that show you've had the oil changed every 3,000 miles and you've had the car checked routinely by a mechanic, present copies to the insurance company to show the car was in good condition. If you've been paying premiums on any special parts or upgrades, make sure those are included in the insurance company's evaluation.
Get price quotes on replacement cars from three dealers within a reasonable driving distance and submit these to your insurance company. Ask the insurance company for a list of dealers within a specific distance who can sell you an equivalent car for the value the company is claiming.
If you still aren't satisfied, you can step up the process and go to mediation or arbitration. Mediation involves presenting your case to a neutral party for help in reaching a compromise; arbitration is a binding decision. You can also, of course, take the issue to court.
Check into "diminished value." Say your car has been in an accident, but repaired. Is it worth less than the exact same car that hasn't been in an accident? It's a hot topic, but some say yes. In 14 states, you're allowed to file a claim with your insurance company for that lost value.
Tip: Thirty-six states and Washington, D.C., allow insurance companies to exclude payments for diminished value, so if you live in one of those states, you won't get to claim the loss. But in Florida, Georgia, Hawaii, Kansas, Louisiana, Maine, Maryland, Massachusetts, North Carolina, South Dakota, Texas, Virginia, Washington and West Virginia, you have a chance of getting a diminished-value payment. If you weren't at fault in the accident, you often can make a successful case against the insurance company of the driver who was at fault.
You may not owe sales tax on your replacement car. Twenty-eight states require auto insurers to pay for the sales tax when you replace your totaled vehicle with a new or used car: Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Vermont, Washington, West Virginia and Wisconsin.
Tip: Make the request; don't expect the insurer to offer to pay upfront. Even in states that do not require sales-tax reimbursement, you should request it. Many auto insurers will not deny the request because the policy requires that they make you "whole," returning you to where you were before the accident at no cost to you.
-Accident value of your car. If the insurance company values your car at $10,000, and you purchase a new car for $20,000, the tax will be calculated on $10,000.
Odds and ends
Hit by an uninsured motorist? Try to "stack." Stacking uninsured/underinsured motorist (UM/UIM) coverages means collecting from more than one auto-insurance policy that you hold. Most states forbid this practice, but 19 states allow it or don't address it.
Tip: Check the language of your policy to see if stacking is allowed.
There are two scenarios for stacking: First, if you have multiple cars on your policy with UM/UIM coverage on each, you can collect the limit of your UM/UIM coverage under as many vehicles as necessary to cover full payment for damages. Second, if you have more than one policy with UM/UIM coverage, even if they're from two different insurers, you can make a claim under each policy until all your damages are recovered.
You can wait to add your teenager to your policy until he or she is licensed. You are not required to add your teenager to your policy just because he or she has reached driving age. In most cases, you can wait until he or she has a license -- or, if you're in a high-risk insurance pool, a permit.
Tip: Don't forget to tell your insurance company that you have a licensed teen. If you have to file a claim on his or her behalf, your insurance company is entitled to charge you back premiums from the date your teen received a license.
You must officially cancel your insurance policy when you switch insurers. Your policy most likely states that you can cancel your coverage at any time by notifying the company in writing of the date of termination. However, most people assume that if they decide to terminate the policy at the end of the coverage period, all they have to do is ignore the bill. The insurance companies don't see it that way. They will send you another bill for the next premium payment, and when you don't pay it, the company will cancel you for nonpayment. That goes on your credit record.
Tip: Call your insurance agent or the company and let him know you are canceling your policy. Give a specific date, or you may end up uninsured for a period of time. The company will send you a cancellation request. Most often, the form is already filled out and all it requires is your signature. Make sure you read it to check for errors.
You may have to prove to your former insurance company that you have new coverage. And if you've financed your car through a dealership, update the dealer on your new insurance information, because purchase contracts often require proof of coverage.
Updated April 18, 2007
Thursday, May 24, 2007
Keep Your Old Clunker or Buy a New Car?
It may clang and bang, but your despised old car may be the best bargain around.
By Des Toups
Let's divide the car-buying universe into two camps: those who keep a car until it drops, and those who think a new car will change their lives.
To the first, a round of applause. There's nothing short of the bus that's cheaper than keeping a car until it crumbles into a pile of rust. Almost any car can be nursed to 200,000 miles without endangering your life, and even a new engine is cheaper than all but the cheapest used cars.
To the second, another round of applause, because the 16 million or so new cars they buy every year instantly become used cars soon available at a considerable discount to those in Camp 1. And a moment of silence, because a new car will change their lives in ways they never foresaw on the dealer's lot.
If you're in a drive-until-the-muffler-is-dragging wannabe, read on. We'll look at ways to keep your car on the road longer and realistically weigh the costs of upgrading.
I'd love to keep my old car, but …
It no longer fits my life. You may have taken up gardening in a big way but still own a Corvette. You may feel nervous about taking your '78 Ford on a trip to Colorado. Your little Accord may be a tight squeeze when family comes to town. The answer to all: Rent. Why buy a gas-sucking pickup because you visit Home Depot twice a year or a $30,000 sport-utility because you take the kids skiing for a week at Easter? Even at $100 a weekend, renting is far cheaper than a car payment. Plus you get to drive the very latest without worrying about insurance, license tags, maintenance or depreciation. Or try swapping cars with a friend, returning it gassed-up and clean (with the oil changed, too, if the loan was more than a day or two. You want to be able to ask again next year.).
Those repair bills are really adding up. Then do the math. Does the cost of repairs exceed the cost of a new car? A typical new car is $21,000, about $350 a month for five years after 20% down. A rebuilt transmission might run $1,500, a huge outlay in one chunk, but far less than the $4,200 a year you'd spend on new-car payments alone. If you can't afford repairs twice a year, it's unlikely you can afford a new car payment every month. In any case, anybody with a car older than three years should be tucking aside $50 a month for repairs and maintenance. If the gods smile, you'll never use most of it and you'll have a tidy sum to blow on your next car.
I'm nervous driving an older car. Maybe little things are beginning to go: a new thermostat one month, a starter the next. You might simply spend $50 on a AAA membership and carry a cell phone, reminding yourself that even new cars aren't immune to mechanical failure. The upside of frequent breakdowns is that you'll get to know mechanics quite well. Find one you like. Flatter him. Pay your bills on time. And the next time he fixes your car, ask him to take a few minutes to see what else will need repair soon.
The repair costs more than the car is worth. A $1,500 engine rebuild that keeps your '83 Toyota on the road still makes good financial sense. It's at this point, however, that all but the flintiest drivers begin to think about upgrading.
Which brings us to our next question:
Am I ready for a newer car?
Your first step is to do nothing except write a check to yourself in the amount you're thinking you can afford every month. Put aside a car payment every month for three months (long enough for at least one of life's little emergencies to crop up).
To pass the time, make three phone calls: one to your bank, to find out what kind of rates they charge on loans to people with your credit history; one to your insurer, to ask the rates for comprehensive insurance on a model you think you'd like to buy; and one to your local DMV, to see what registration and licensing would cost.
At the end of three months, ask yourself these questions:
How much did it hurt? If you skimped at all on other bills or shorted the amount of the payment, you're not ready.
Would I have enough left over to pay for insurance and licensing fees each year?
Would I pay this much every month for the car that's in my driveway already? Sooner or later, every new car becomes an old car, and you'll feel about the next car just the way you do about your old clunker.
Would I rather have the cash? Our typical car payment, $350, adds up to more than $1,000 in just three short months. Perhaps you'd prefer to get a tan in Mexico and limp along with ol' Betsy another year.
Could I continue to save for another year and simply pay cash? Five grand would buy any of hundreds of reliable used models. Save for two years and you're in new-car territory, if your old car will fetch a few thousand.
If the craving for a shinier car hasn't passed in three months, at least you begin the shopping process with a few months' worth of car payments and a more realistic idea of the hit your wallet will take.
Side note: Never skimp on maintenance
Pay special attention to the things that will cost you a fortune if they break. That means regular oil changes, tire rotations and transmission tune-ups, even if the car is running fine. Timing belts, for example, are spendy at as much as $600, and replacing one for no other reason than that the odometer has turned 90,000 miles might seem wasteful. But let one break and you'll find that repairing bent valves could cost you three times that. Replacing torn CV boots, those plastic housings that keep grime and grit out of the car's constant-velocity joints, costs about a third as much as a CV joint repair. (If your owner's manual is long gone, MSN Autos has a free online service, My Car, that tracks your car's service schedule.)
Des Toups is senior editor at MSN Money in Seattle.
By Des Toups
Let's divide the car-buying universe into two camps: those who keep a car until it drops, and those who think a new car will change their lives.
To the first, a round of applause. There's nothing short of the bus that's cheaper than keeping a car until it crumbles into a pile of rust. Almost any car can be nursed to 200,000 miles without endangering your life, and even a new engine is cheaper than all but the cheapest used cars.
To the second, another round of applause, because the 16 million or so new cars they buy every year instantly become used cars soon available at a considerable discount to those in Camp 1. And a moment of silence, because a new car will change their lives in ways they never foresaw on the dealer's lot.
If you're in a drive-until-the-muffler-is-dragging wannabe, read on. We'll look at ways to keep your car on the road longer and realistically weigh the costs of upgrading.
I'd love to keep my old car, but …
It no longer fits my life. You may have taken up gardening in a big way but still own a Corvette. You may feel nervous about taking your '78 Ford on a trip to Colorado. Your little Accord may be a tight squeeze when family comes to town. The answer to all: Rent. Why buy a gas-sucking pickup because you visit Home Depot twice a year or a $30,000 sport-utility because you take the kids skiing for a week at Easter? Even at $100 a weekend, renting is far cheaper than a car payment. Plus you get to drive the very latest without worrying about insurance, license tags, maintenance or depreciation. Or try swapping cars with a friend, returning it gassed-up and clean (with the oil changed, too, if the loan was more than a day or two. You want to be able to ask again next year.).
Those repair bills are really adding up. Then do the math. Does the cost of repairs exceed the cost of a new car? A typical new car is $21,000, about $350 a month for five years after 20% down. A rebuilt transmission might run $1,500, a huge outlay in one chunk, but far less than the $4,200 a year you'd spend on new-car payments alone. If you can't afford repairs twice a year, it's unlikely you can afford a new car payment every month. In any case, anybody with a car older than three years should be tucking aside $50 a month for repairs and maintenance. If the gods smile, you'll never use most of it and you'll have a tidy sum to blow on your next car.
I'm nervous driving an older car. Maybe little things are beginning to go: a new thermostat one month, a starter the next. You might simply spend $50 on a AAA membership and carry a cell phone, reminding yourself that even new cars aren't immune to mechanical failure. The upside of frequent breakdowns is that you'll get to know mechanics quite well. Find one you like. Flatter him. Pay your bills on time. And the next time he fixes your car, ask him to take a few minutes to see what else will need repair soon.
The repair costs more than the car is worth. A $1,500 engine rebuild that keeps your '83 Toyota on the road still makes good financial sense. It's at this point, however, that all but the flintiest drivers begin to think about upgrading.
Which brings us to our next question:
Am I ready for a newer car?
Your first step is to do nothing except write a check to yourself in the amount you're thinking you can afford every month. Put aside a car payment every month for three months (long enough for at least one of life's little emergencies to crop up).
To pass the time, make three phone calls: one to your bank, to find out what kind of rates they charge on loans to people with your credit history; one to your insurer, to ask the rates for comprehensive insurance on a model you think you'd like to buy; and one to your local DMV, to see what registration and licensing would cost.
At the end of three months, ask yourself these questions:
How much did it hurt? If you skimped at all on other bills or shorted the amount of the payment, you're not ready.
Would I have enough left over to pay for insurance and licensing fees each year?
Would I pay this much every month for the car that's in my driveway already? Sooner or later, every new car becomes an old car, and you'll feel about the next car just the way you do about your old clunker.
Would I rather have the cash? Our typical car payment, $350, adds up to more than $1,000 in just three short months. Perhaps you'd prefer to get a tan in Mexico and limp along with ol' Betsy another year.
Could I continue to save for another year and simply pay cash? Five grand would buy any of hundreds of reliable used models. Save for two years and you're in new-car territory, if your old car will fetch a few thousand.
If the craving for a shinier car hasn't passed in three months, at least you begin the shopping process with a few months' worth of car payments and a more realistic idea of the hit your wallet will take.
Side note: Never skimp on maintenance
Pay special attention to the things that will cost you a fortune if they break. That means regular oil changes, tire rotations and transmission tune-ups, even if the car is running fine. Timing belts, for example, are spendy at as much as $600, and replacing one for no other reason than that the odometer has turned 90,000 miles might seem wasteful. But let one break and you'll find that repairing bent valves could cost you three times that. Replacing torn CV boots, those plastic housings that keep grime and grit out of the car's constant-velocity joints, costs about a third as much as a CV joint repair. (If your owner's manual is long gone, MSN Autos has a free online service, My Car, that tracks your car's service schedule.)
Des Toups is senior editor at MSN Money in Seattle.
20 Ways You Waste Money on Your Car!
Don't spend a nickel without a darned good reason. Bone up, wise up and don't let anyone lead you astray.
By Des Toups
Cars make us irrational. We call them our babies and lovingly wax them every Saturday -- or we turn up the radio to drown out the sound of a dragging muffler. Either mindset will cost you money, sometimes a lot of it.
Walking the line between obsession and neglect means you never spend a nickel without a good reason -- and good reasons can include spending money on something that’s not broken.
Here, then, are 20 ways you waste money on your car.
Premium gas instead of regular. Buy the cheapest gasoline that doesn’t make your car engine knock. All octane does is prevent knock; a grade higher than the maker of your car recommends is not a “treat.”
3,000-mile oil changes. Manufacturers typically suggest 5,000 miles, 7,500 miles or even longer intervals between oil changes (many car markers now include oil-life monitors that tell you when the oil is dirty -- sometimes as long as 15,000 miles.) There may be two recommendations for oil-change intervals: one for normal driving and one for hard use. If you live in a cold climate, take mostly very short trips, tow a trailer or have a high-revving, high-performance engine, use the more aggressive schedule. If you seldom drive your car, go by the calendar rather than your odometer. Twice a year changes are the minimum.
Taking false economies. Better to replace a timing belt on the manufacturer’s schedule than to have it break somewhere in western Nebraska. Better to pop for snow tires than to ride that low-profile rubber right into a tree.
Using the dealer’s maintenance schedule instead of the factory’s. Of course he thinks you should have a major tune-up every 30,000 miles. Most of the tasks that we generally think of under the heading of “tune-up” are now handled electronically. Stick to the manufacturer’s schedule unless your car is not running well. If your engine doesn't "miss" -- skip a beat or make other odd noises -- don’t change the spark plugs or wires until the manufacturer says so.
Using a dealer for major services. Independent shops almost always will do the same work much cheaper. Call around, owner’s manual in hand, to find out, mindful that the quality of the work is more of a question mark. Some dealers may tell you using outside garages violates the car’s warranty. This is a lie.
Using a dealer for oil changes. Dealers sometimes run dirt-cheap specials, but otherwise you’ll usually find changes cheaper elsewhere. If you’re using an independent shop for the first time, you might inconspicuously mark your old oil filter to make sure it has indeed been changed. And don’t let them talk you into new wiper blades, new air filters or high-priced synthetic oil, unless your car is one of the few high-performance machines built for it.
Not replacing your air filter and wiper blades yourself. Buy them on sale at a discount auto-parts store rather than having a garage or dealer replace them. Replacement is simple for either part, a 5-minute job. A good schedule for new air filters is every other oil change in a dusty climate; elsewhere at least once every 20,000 miles. Treat yourself to new wipers (it’s easiest to buy the whole blade, not the refill) once a year.
Going to any old repair shop. At the very least, make sure it’s ASE-certified (a good housekeeping seal of approval from the nonprofit National Institute for Automotive Service Excellence). From there, look for a well-kept shop with someone who’s willing to answer all your questions. Estimates must include a provision that no extra work will be done without your approval. Drive your car to make sure the problem is fixed before you pay. Pay with a credit card in case there’s a dispute later. Be courteous and pay attention. A good mechanic is hard to find.
Changing your antifreeze every winter. Change it only when a hydrometer suggests it will no longer withstand temperatures 30 degrees below the coldest your area sees in winter. Your dealer or oil-change shop should be happy to check it for free. Every two years is about right. But you also should keep your cooling system happy by running the air conditioner every few weeks in winter to keep it lubricated, checking for puddles underneath the car and replacing belts and hoses before they dry and crack.
Replacing tires when you should be replacing shocks. If your tires are wearing unevenly or peculiarly, your car may be out of alignment or your shocks or struts worn out.
Letting a brake squeal turn into a brake job. Squeal doesn’t necessarily mean you need new rotors or pads; mostly, it’s just annoying. Your first check -- you can probably see your front brakes through the wheels on your car -- is to look at the thickness of the pads. Pads thicker than a quarter-inch are probably fine. If your brakes emit a constant, high-pitched whine and the pads are thinner than a quarter-inch, replace them. If your car shimmies or you feel grinding through the pedal, then your brake rotors need to be turned or replaced.
Not complaining when your warranty claim is rejected. Check Alldata and the National Highway Transportation Safety Administration (NHTSA) to see if a technical service bulletin (TSB) has been issued about the component in question. Manufacturers often will repair known defects outside the warranty period (sometimes called a secret warranty). It helps if you’ve done your homework and haven’t been a jerk.
Not keeping records. A logbook of every repair done to your car can help you decide if something’s seriously out of whack. Didn’t I just buy new brake pads? With a log and an envelope stuffed with receipts, you’ll know who did the work and when, and whether or not there’s a warranty on the repair. And a service logbook helps at resale time, too.
Buying an extended warranty. Most manufacturers allow you to wait until just before the regular warranty expires to decide. By then you should know whether your car is troublesome enough to require the extended warranty. Most of them aren’t worth the price.
Overinsuring. Never skimp on liability, but why buy collision and comprehensive insurance on a junker you can probably afford to replace? Add your deductible to your yearly bill for collision and comprehensive coverage, then compare that total with the wholesale value of the car. If it’s more than half, reconsider.
Assuming the problem is major. If your car is overheating but you don’t see a busted hose or lots of steam, it might be the $5 thermostat, not your radiator. Or it may be that ominous “check engine” light itself that’s failed, not your alternator.
Not changing the fuel filter. Have it replaced as a part of your maintenance -- every two years or according to the manufacturer’s schedule -- rather than when it becomes clogged with grit, leaving you at the mercy of the nearest garage.
Not knowing how to change a tire. Have you even looked at your spare? Make sure it’s up to snuff and all the parts of your jack are there. Changing a flat yourself is not only cheaper, it’s faster, too.
Not keeping your tires properly inflated. Check them once a month; otherwise, you’re wasting gasoline, risking a blowout and wearing them out more quickly.
Car washes. Ten bucks for long lines and gray water? Nothing shows you care like doing it yourself.
By Des Toups
Cars make us irrational. We call them our babies and lovingly wax them every Saturday -- or we turn up the radio to drown out the sound of a dragging muffler. Either mindset will cost you money, sometimes a lot of it.
Walking the line between obsession and neglect means you never spend a nickel without a good reason -- and good reasons can include spending money on something that’s not broken.
Here, then, are 20 ways you waste money on your car.
Premium gas instead of regular. Buy the cheapest gasoline that doesn’t make your car engine knock. All octane does is prevent knock; a grade higher than the maker of your car recommends is not a “treat.”
3,000-mile oil changes. Manufacturers typically suggest 5,000 miles, 7,500 miles or even longer intervals between oil changes (many car markers now include oil-life monitors that tell you when the oil is dirty -- sometimes as long as 15,000 miles.) There may be two recommendations for oil-change intervals: one for normal driving and one for hard use. If you live in a cold climate, take mostly very short trips, tow a trailer or have a high-revving, high-performance engine, use the more aggressive schedule. If you seldom drive your car, go by the calendar rather than your odometer. Twice a year changes are the minimum.
Taking false economies. Better to replace a timing belt on the manufacturer’s schedule than to have it break somewhere in western Nebraska. Better to pop for snow tires than to ride that low-profile rubber right into a tree.
Using the dealer’s maintenance schedule instead of the factory’s. Of course he thinks you should have a major tune-up every 30,000 miles. Most of the tasks that we generally think of under the heading of “tune-up” are now handled electronically. Stick to the manufacturer’s schedule unless your car is not running well. If your engine doesn't "miss" -- skip a beat or make other odd noises -- don’t change the spark plugs or wires until the manufacturer says so.
Using a dealer for major services. Independent shops almost always will do the same work much cheaper. Call around, owner’s manual in hand, to find out, mindful that the quality of the work is more of a question mark. Some dealers may tell you using outside garages violates the car’s warranty. This is a lie.
Using a dealer for oil changes. Dealers sometimes run dirt-cheap specials, but otherwise you’ll usually find changes cheaper elsewhere. If you’re using an independent shop for the first time, you might inconspicuously mark your old oil filter to make sure it has indeed been changed. And don’t let them talk you into new wiper blades, new air filters or high-priced synthetic oil, unless your car is one of the few high-performance machines built for it.
Not replacing your air filter and wiper blades yourself. Buy them on sale at a discount auto-parts store rather than having a garage or dealer replace them. Replacement is simple for either part, a 5-minute job. A good schedule for new air filters is every other oil change in a dusty climate; elsewhere at least once every 20,000 miles. Treat yourself to new wipers (it’s easiest to buy the whole blade, not the refill) once a year.
Going to any old repair shop. At the very least, make sure it’s ASE-certified (a good housekeeping seal of approval from the nonprofit National Institute for Automotive Service Excellence). From there, look for a well-kept shop with someone who’s willing to answer all your questions. Estimates must include a provision that no extra work will be done without your approval. Drive your car to make sure the problem is fixed before you pay. Pay with a credit card in case there’s a dispute later. Be courteous and pay attention. A good mechanic is hard to find.
Changing your antifreeze every winter. Change it only when a hydrometer suggests it will no longer withstand temperatures 30 degrees below the coldest your area sees in winter. Your dealer or oil-change shop should be happy to check it for free. Every two years is about right. But you also should keep your cooling system happy by running the air conditioner every few weeks in winter to keep it lubricated, checking for puddles underneath the car and replacing belts and hoses before they dry and crack.
Replacing tires when you should be replacing shocks. If your tires are wearing unevenly or peculiarly, your car may be out of alignment or your shocks or struts worn out.
Letting a brake squeal turn into a brake job. Squeal doesn’t necessarily mean you need new rotors or pads; mostly, it’s just annoying. Your first check -- you can probably see your front brakes through the wheels on your car -- is to look at the thickness of the pads. Pads thicker than a quarter-inch are probably fine. If your brakes emit a constant, high-pitched whine and the pads are thinner than a quarter-inch, replace them. If your car shimmies or you feel grinding through the pedal, then your brake rotors need to be turned or replaced.
Not complaining when your warranty claim is rejected. Check Alldata and the National Highway Transportation Safety Administration (NHTSA) to see if a technical service bulletin (TSB) has been issued about the component in question. Manufacturers often will repair known defects outside the warranty period (sometimes called a secret warranty). It helps if you’ve done your homework and haven’t been a jerk.
Not keeping records. A logbook of every repair done to your car can help you decide if something’s seriously out of whack. Didn’t I just buy new brake pads? With a log and an envelope stuffed with receipts, you’ll know who did the work and when, and whether or not there’s a warranty on the repair. And a service logbook helps at resale time, too.
Buying an extended warranty. Most manufacturers allow you to wait until just before the regular warranty expires to decide. By then you should know whether your car is troublesome enough to require the extended warranty. Most of them aren’t worth the price.
Overinsuring. Never skimp on liability, but why buy collision and comprehensive insurance on a junker you can probably afford to replace? Add your deductible to your yearly bill for collision and comprehensive coverage, then compare that total with the wholesale value of the car. If it’s more than half, reconsider.
Assuming the problem is major. If your car is overheating but you don’t see a busted hose or lots of steam, it might be the $5 thermostat, not your radiator. Or it may be that ominous “check engine” light itself that’s failed, not your alternator.
Not changing the fuel filter. Have it replaced as a part of your maintenance -- every two years or according to the manufacturer’s schedule -- rather than when it becomes clogged with grit, leaving you at the mercy of the nearest garage.
Not knowing how to change a tire. Have you even looked at your spare? Make sure it’s up to snuff and all the parts of your jack are there. Changing a flat yourself is not only cheaper, it’s faster, too.
Not keeping your tires properly inflated. Check them once a month; otherwise, you’re wasting gasoline, risking a blowout and wearing them out more quickly.
Car washes. Ten bucks for long lines and gray water? Nothing shows you care like doing it yourself.
Thursday, May 17, 2007
Are Pre-Owned Certified Vehicles Worth It?
By NADAguides.com
When you're looking for a pre-owned car, it can be difficult to know what the difference is between buying a certified or standard used vehicle. Our helpful tips can help ensure that you make the right decision!
Do your homework first
- See what you can afford -Sure that Italian speedster might look nice parked in your driveway, but is it really worth it? Before you waste any time looking at the wrong vehicles, determine what you can afford.
It's also a good idea to check your credit report. This will ensure there aren't any mistakes or other surprises that can negatively affect what type of loan you qualify for.
- Determine your needs - Decide what vehicle best fits your needs, along with your preferred options. These might include color, transmission type (manual or automatic), leather seats and more.
· Check out what others have to say - Sites such as NADAguides.com allow you to compare models, read reviews and much more. It's also a wise idea to check out the vehicle's repair history and see if it has had any recalls. The U.S. Department of Transportation's Auto Safety Hotline (1-800-424-9393) can help you.
Now that you're satisfied on your choice, another question needs to be addressed: Should you buy a new or certified pre-owned automobile? Let's explore this.
What is a certified pre-owned (CPO) automobile? Even though there are many used cars on the road, not every one of them qualifies for certification. Typically, a CPO vehicle is a used car that has gone through a rigorous inspection process and has an extended warranty beyond the car's existing warranty. The best way to describe a CPO car: One that needs very little reconditioning or was reconditioned to original factory specifications.
As a result of stringent guidelines and strict criteria associated with the CPO qualification process, certified pre-owned vehicles are guaranteed, or certified, by the manufacturer. For added peace of mind, virtually every certified pre-owned vehicle sold today comes with a comprehensive vehicle history report as back-up documentation in addition to comprehensive inspections and warranties.
What's involved with a typical certified pre-owned inspection process? Typically, cars that are newer than five years old with fewer than 50,000-60,000 miles and solid title histories are the only vehicles considered for certification. Once a car passes this initial test phase, it's put through a series of evaluations (further defined as the inspection process) to see if it meets the manufacturer's stringent guidelines for certification.
Most manufacturers offer anywhere from 100-point to 300-point inspections. We've organized these detailed inspections into six separate criteria.
· General evaluation: including safety systems, mirrors, lights, braking, steering, shifting and overall engine operation.
· Under hood evaluation: including the electrical system, engine cooling system, brake and ignition systems, belts, air conditioning and power steering.
· Exterior assessment: such as bumpers, front grill, doors, fenders, glass and wheels.
· Interior evaluation: including the instrument panel, seats, carpet, floor mats, headliner and general upholstery.
· Required service and maintenance assessment: such as lube, oil, filters, tire pressure and emissions.
· Exterior detailing analysis: including surface scratch reconditioning, tar and road oil removal, general washing and waxing, and engine compartment cleanliness.
Do certified pre-owned vehicles cost more? Yes, CPO vehicles typically cost more money than non-certified vehicles. They may be as little as $400 more than a non-certified used vehicle or as much as $2,800 more, depending on the brand and model. For some people, paying more money for a manufacturer-guaranteed vehicle is worth the extra cost.
For others, it's better to take the chance and purchase a non-certified used car for less money since there are a wealth of good-quality, mechanically-sound used cars on the road today that don't carry certifications
Is certified pre-owned right for me? Buying a certified pre-owned vehicle is purely a personal decision. As we've outlined in this section, pre-owned vehicles go through a stringent evaluation process and carry comprehensive warranties not typically offered with non-certified used cars.
While certification brings with it guarantees not commonly associated with pre-owned vehicles, it's not a surefire guarantee that something won't go wrong with the used car you're buying. However, consumers appreciate, and in most cases are willing to pay more for, a car that has been rigorously inspected and guaranteed by the manufacturer
When you're looking for a pre-owned car, it can be difficult to know what the difference is between buying a certified or standard used vehicle. Our helpful tips can help ensure that you make the right decision!
Do your homework first
- See what you can afford -Sure that Italian speedster might look nice parked in your driveway, but is it really worth it? Before you waste any time looking at the wrong vehicles, determine what you can afford.
It's also a good idea to check your credit report. This will ensure there aren't any mistakes or other surprises that can negatively affect what type of loan you qualify for.
- Determine your needs - Decide what vehicle best fits your needs, along with your preferred options. These might include color, transmission type (manual or automatic), leather seats and more.
· Check out what others have to say - Sites such as NADAguides.com allow you to compare models, read reviews and much more. It's also a wise idea to check out the vehicle's repair history and see if it has had any recalls. The U.S. Department of Transportation's Auto Safety Hotline (1-800-424-9393) can help you.
Now that you're satisfied on your choice, another question needs to be addressed: Should you buy a new or certified pre-owned automobile? Let's explore this.
What is a certified pre-owned (CPO) automobile? Even though there are many used cars on the road, not every one of them qualifies for certification. Typically, a CPO vehicle is a used car that has gone through a rigorous inspection process and has an extended warranty beyond the car's existing warranty. The best way to describe a CPO car: One that needs very little reconditioning or was reconditioned to original factory specifications.
As a result of stringent guidelines and strict criteria associated with the CPO qualification process, certified pre-owned vehicles are guaranteed, or certified, by the manufacturer. For added peace of mind, virtually every certified pre-owned vehicle sold today comes with a comprehensive vehicle history report as back-up documentation in addition to comprehensive inspections and warranties.
What's involved with a typical certified pre-owned inspection process? Typically, cars that are newer than five years old with fewer than 50,000-60,000 miles and solid title histories are the only vehicles considered for certification. Once a car passes this initial test phase, it's put through a series of evaluations (further defined as the inspection process) to see if it meets the manufacturer's stringent guidelines for certification.
Most manufacturers offer anywhere from 100-point to 300-point inspections. We've organized these detailed inspections into six separate criteria.
· General evaluation: including safety systems, mirrors, lights, braking, steering, shifting and overall engine operation.
· Under hood evaluation: including the electrical system, engine cooling system, brake and ignition systems, belts, air conditioning and power steering.
· Exterior assessment: such as bumpers, front grill, doors, fenders, glass and wheels.
· Interior evaluation: including the instrument panel, seats, carpet, floor mats, headliner and general upholstery.
· Required service and maintenance assessment: such as lube, oil, filters, tire pressure and emissions.
· Exterior detailing analysis: including surface scratch reconditioning, tar and road oil removal, general washing and waxing, and engine compartment cleanliness.
Do certified pre-owned vehicles cost more? Yes, CPO vehicles typically cost more money than non-certified vehicles. They may be as little as $400 more than a non-certified used vehicle or as much as $2,800 more, depending on the brand and model. For some people, paying more money for a manufacturer-guaranteed vehicle is worth the extra cost.
For others, it's better to take the chance and purchase a non-certified used car for less money since there are a wealth of good-quality, mechanically-sound used cars on the road today that don't carry certifications
Is certified pre-owned right for me? Buying a certified pre-owned vehicle is purely a personal decision. As we've outlined in this section, pre-owned vehicles go through a stringent evaluation process and carry comprehensive warranties not typically offered with non-certified used cars.
While certification brings with it guarantees not commonly associated with pre-owned vehicles, it's not a surefire guarantee that something won't go wrong with the used car you're buying. However, consumers appreciate, and in most cases are willing to pay more for, a car that has been rigorously inspected and guaranteed by the manufacturer
Wednesday, May 16, 2007
Ten Lies A Car Dealer Will Tell You
By Tom Van Riper (Forbes Magazine 2/8/07
While car dealers often get a bad rap--the multitude of stories out there on bad customer experiences doesn't mean their all a bunch of hucksters--they can still be prone to white lies (and occasionally bigger ones) when they smell a sale, just like anyone else. Here are 10 to watch out for.
1. Monthly Specials Dealers will try to close a sale by reminding you that buying incentives, like manufacturers' discounts or low financing, change each month. So that $1,500 discount on Jan. 30 could change to $1,000 by Feb. 1. In some cases it actually happens, though most of the time the incentive stays the same. Remember, everything is negotiable. If the salesman has a basic agreement with you, he's probably not going to risk blowing the sale because the calendar flipped
2. Labor Charges For Pre-Delivery Work Buying a minivan but want to upgrade to a larger wheel base? That $300 cost of the replacement wheels is listed right in the printout. An additional labor cost is also legitimate, but some finance managers will subtly up that fee to squeeze another $100 or so out of you. Because that only affects the monthly payment by a couple of dollars, he's betting you'll never notice.
3. Price Packing This is apparently rare, but it's a biggie. You've just agreed to pay $30,000 for a new sedan. You decide to put $10,000 down and finance the remaining $20,000 at 4.9% over 48 months. After crunching the numbers, your salesman tells you the monthly payment comes to $476.33. Sounds about right, doesn't it? Problem is the real monthly payment should be $459.68. The salesman managed to "pack on" an extra $16.65 a month, or nearly $800 to the total price. Unless you're armed with a financial calculator, you'll never notice
4. We Have The Car In Inventory Sometimes a buyer needs to move fast and may even agree to leave a deposit by phone with a credit card if he's told the car he wants is on the lot and will be ready almost immediately. Only after the deposit is secured and the paperwork is in motion is he notified it will be a few days because the expected shipment has been delayed. The buyer is annoyed, but the salesman figures, usually correctly, that he won't bother backing out of the deal to start over again somewhere else.
5. No Bank Fee On All Leases A dealer's local newspaper ad featuring a few specific vehicles will tout "no bank fees on all leases" (typically a $500 to $1,000 component of a lease) near the top of the page. The tactic succeeds in drawing buyers who assume this goodie applies to "all" vehicles in the dealership's lineup. But they're disappointed to learn that the special only applies to "all leases" of the specific vehicles highlighted in the ad, not all the vehicles on the lot.
6. Balloon Note Financing--Limited Supply Ads touting $19,000 cars for $14,000 may include the teaser "five left at this exact price." Only the fine print reveals the low price involves "balloon note" financing--deferring a big part of the cost to the end of a long payment contract. It's an appropriate financing tool for those who expect a higher income in the future. But forget the urgency associated with "five left." If you'll go with a balloon note, you're effectively paying the regular price anyway. They'll sell you any car under those terms for as long as they're in business
7. The Trade-In: 100,000 Miles Is Tough Salesmen will always look for a reason to downplay the value of your trade-in. Some will say that anything with 100,000 miles is tough to sell above blue-book value, even if nothing magical happens when the odometer clicks from 99,999 to 100,000. A car with that much mileage won't fetch a whole lot in a trade anyway, of course, but don't let a salesman tell you that reaching some artificial plateau accelerates the depreciation.
8. The In-Stock Vehicle Special Inventory levels affect profit margins. So dealers try to steer you toward a car in stock, even if it's not what you want. Example: You're looking for a basic minivan with few bells and whistles. The dealer has none in stock, so to meet your desire; he'd have to swap with another dealership. To get you into something on his lot, he'll tell you about "specials" that are expiring on more expensive versions. Going along might save you a little money on the upgraded model, but it will still leave you spending more than you'd planned.
9. Trade-in: Unpaid Balances. If your trade-in still has a loan balance against it, some dealers will offer to pay it off if you buy a new car. Rarely will it work out as promised. The cost will be blended into the loan or, even worse, will fall apart when the deal reaches the financing manager. The salesman will then claim a misunderstanding, hoping that since the customer is now that much closer to driving home his new car, the deal can still be worked out. But the dealership will never pay a loan balance for free. That's just too good to be true.
10. The Extended Warranty "Covers Everything" Why can dealers often sell cars right at the invoice price? Because aftermarket sales like alarms and extended warranties, make up for it. Before forking over big money for an extended warranty, be sure it covers both wear and tear and mechanical failure. Too many customers have taken cars in for warranty work only to discover they weren't covered for the specific work needed. Go over all these details beforehand.
While car dealers often get a bad rap--the multitude of stories out there on bad customer experiences doesn't mean their all a bunch of hucksters--they can still be prone to white lies (and occasionally bigger ones) when they smell a sale, just like anyone else. Here are 10 to watch out for.
1. Monthly Specials Dealers will try to close a sale by reminding you that buying incentives, like manufacturers' discounts or low financing, change each month. So that $1,500 discount on Jan. 30 could change to $1,000 by Feb. 1. In some cases it actually happens, though most of the time the incentive stays the same. Remember, everything is negotiable. If the salesman has a basic agreement with you, he's probably not going to risk blowing the sale because the calendar flipped
2. Labor Charges For Pre-Delivery Work Buying a minivan but want to upgrade to a larger wheel base? That $300 cost of the replacement wheels is listed right in the printout. An additional labor cost is also legitimate, but some finance managers will subtly up that fee to squeeze another $100 or so out of you. Because that only affects the monthly payment by a couple of dollars, he's betting you'll never notice.
3. Price Packing This is apparently rare, but it's a biggie. You've just agreed to pay $30,000 for a new sedan. You decide to put $10,000 down and finance the remaining $20,000 at 4.9% over 48 months. After crunching the numbers, your salesman tells you the monthly payment comes to $476.33. Sounds about right, doesn't it? Problem is the real monthly payment should be $459.68. The salesman managed to "pack on" an extra $16.65 a month, or nearly $800 to the total price. Unless you're armed with a financial calculator, you'll never notice
4. We Have The Car In Inventory Sometimes a buyer needs to move fast and may even agree to leave a deposit by phone with a credit card if he's told the car he wants is on the lot and will be ready almost immediately. Only after the deposit is secured and the paperwork is in motion is he notified it will be a few days because the expected shipment has been delayed. The buyer is annoyed, but the salesman figures, usually correctly, that he won't bother backing out of the deal to start over again somewhere else.
5. No Bank Fee On All Leases A dealer's local newspaper ad featuring a few specific vehicles will tout "no bank fees on all leases" (typically a $500 to $1,000 component of a lease) near the top of the page. The tactic succeeds in drawing buyers who assume this goodie applies to "all" vehicles in the dealership's lineup. But they're disappointed to learn that the special only applies to "all leases" of the specific vehicles highlighted in the ad, not all the vehicles on the lot.
6. Balloon Note Financing--Limited Supply Ads touting $19,000 cars for $14,000 may include the teaser "five left at this exact price." Only the fine print reveals the low price involves "balloon note" financing--deferring a big part of the cost to the end of a long payment contract. It's an appropriate financing tool for those who expect a higher income in the future. But forget the urgency associated with "five left." If you'll go with a balloon note, you're effectively paying the regular price anyway. They'll sell you any car under those terms for as long as they're in business
7. The Trade-In: 100,000 Miles Is Tough Salesmen will always look for a reason to downplay the value of your trade-in. Some will say that anything with 100,000 miles is tough to sell above blue-book value, even if nothing magical happens when the odometer clicks from 99,999 to 100,000. A car with that much mileage won't fetch a whole lot in a trade anyway, of course, but don't let a salesman tell you that reaching some artificial plateau accelerates the depreciation.
8. The In-Stock Vehicle Special Inventory levels affect profit margins. So dealers try to steer you toward a car in stock, even if it's not what you want. Example: You're looking for a basic minivan with few bells and whistles. The dealer has none in stock, so to meet your desire; he'd have to swap with another dealership. To get you into something on his lot, he'll tell you about "specials" that are expiring on more expensive versions. Going along might save you a little money on the upgraded model, but it will still leave you spending more than you'd planned.
9. Trade-in: Unpaid Balances. If your trade-in still has a loan balance against it, some dealers will offer to pay it off if you buy a new car. Rarely will it work out as promised. The cost will be blended into the loan or, even worse, will fall apart when the deal reaches the financing manager. The salesman will then claim a misunderstanding, hoping that since the customer is now that much closer to driving home his new car, the deal can still be worked out. But the dealership will never pay a loan balance for free. That's just too good to be true.
10. The Extended Warranty "Covers Everything" Why can dealers often sell cars right at the invoice price? Because aftermarket sales like alarms and extended warranties, make up for it. Before forking over big money for an extended warranty, be sure it covers both wear and tear and mechanical failure. Too many customers have taken cars in for warranty work only to discover they weren't covered for the specific work needed. Go over all these details beforehand.
Another Financial Score That Can Hurt You -Debt to Income Ratio
We all know about credit scores, but there's another figure lenders watch: the debt-to-income ratio. It's a good indicator of your financial well-being.
by Erin Peterson for Bankrate.com.
By now you know your three-digit credit, or FICO, score is a very important number in your financial life, but did you know there's also a two-digit number that can be just as significant?
It's your debt-to-income ratio, and it can shed a light on, and help you better understand, your true financial picture.
The good news is, getting this number doesn't cost you a penny, and it can be calculated in just a few minutes at your kitchen table.
So, if you think getting insight into your financial life requires sifting through your retirement investments, reading through every fund prospectus and tallying your expenses to the penny, think again.
It's true that nitty-gritty details can make a difference, but you can get a fairly accurate understanding of your financial picture by spending just a minute or two calculating your debt-to-income, or DTI, ratio. By knowing the ratio -- and how to improve it -- you can increase your chances of getting a better mortgage, a better car loan and even better credit card rates.
Start with a list - Your debt-to-income ratio is exactly what it sounds like: the amount of debt you have in the form of mortgages, car loans, student loans and credit card debt, as compared to your overall income.
To calculate your overall DTI ratio, sometimes known as a back-end ratio, add up all of your monthly debt obligations -- often called recurring debt. Include your mortgage (principal, interest, taxes and insurance) and home equity loan payments, car loans, student loans, your minimum monthly payments on any credit card debt, and any other loans that you might have. Do not include expenses such as groceries, utilities and gas. Take this total and divide it by your gross monthly income from all sources. If you're not good at long division or don't have a calculator handy, go to Bankrate's calculator section to use our debt-to-income ratio calculator.
Some lenders will exclude the mortgage payment from this equation, but they lower the acceptable ratio for receiving a loan. The concept is the same: It measures your debt load in comparison to your income.
Let's say you and your spouse together earn $83,000 per year, or $6,916 per month. Your total mortgage payment is $1,350, your car loans total $365, your minimum credit card payments are $250, and your student loans add up to $300. That equals a recurring debt of $2,265 a month. Divide the $2,265 by $6,916 and you'll find your DTI is 32.75%.
In general, you'll want to keep that number below 36% -- a threshold that loan officers and credit card issuers often use as a factor when they determine how much they're willing to lend you. "If you go higher than 36%, you are on a slippery slope," says Diane McCurdy, a certified financial planner and the author of "How Much Is Enough?" Lenders might give you money, she adds, "but they'll give you higher interest rates, and if anything goes awry, they'll sock it to you."
So why is that number so important? It's all about proportion, says Laura Russell, a certified financial counselor with GreenPath Debt Solutions. "You can be making a lot of money every month, but if you've got the debt to match it, that can be a problem," she says. "It's important not to overextend yourself." The higher your number, the riskier it is for lenders to offer you loans -- and the more they'll make you pay for them.
Finding leverage - Though debt-to-income ratios don't have the kind of buzz that FICO scores do, they can play a key role in determining if you qualify for a loan and how much you can get. "Your debt-to-income ratio is one of the tools that banks will use to determine whether they'll lend you money for a mortgage, a car loan or a student loan," says Dave Hinnenkamp, the CEO of KDV Wealth Management.
While other factors, such as your FICO score and length of time in your home or job, will come into play into this equation, a good debt-to-income ratio can give you leverage to negotiate if other factors aren't in your favor. "The stronger you are financially, the more leverage you have when negotiating interest rates or loan amounts," says Hinnenkamp. "So there is an advantage to keeping that ratio low."
The DTI ratio is something lenders look at in addition to your credit score. Remember, your FICO score reflects only your payment history and does not have anything to do with your income. You can have a very high FICO score with very little income. Conversely, you can have very high income and a very low FICO score. That's why lenders use both.
To be sure you're on solid ground, McCurdy recommends trying to bring your overall DTI ratio to 30% or below. After all, you have plenty of other financial obligations, from groceries and utilities to restaurants and entertainment. "You never know when you're going to have an emergency," she says. "You don't want to get in trouble -- and potentially lose your home or car."
Cutting your ratio - Reducing your debt-to-income ratio can be challenging, since these financial obligations are, by definition, ongoing. But there are tactics you can use to start addressing the problem, says McCurdy. "Look at where your cash is going," she says. "Ask yourself where you can cut back."
- Find areas to cut costs. After you've looked at your budget and done some cost-cutting, take the money you've saved and put it into your highest-interest loans and debts -- most likely your credit cards.
- Double up on credit cards. McCurdy recommends at least doubling your minimum payment to start chipping away at your debt-to-income ratio. If credit cards aren't the problem, you can also pay more on any other loan, as long as there are no prepayment penalties.
- Stop charging. Once you've started making progress, make sure you don't rack up more credit card debt.
- Build an emergency fund. Have this money so you can replace your furnace or pay off a vacation without going back into credit card debt.
- Avoid major purchases. If you're teetering on the edge of problems, it might be wise to hold off on major purchases. "Don't overextend yourself with a new car loan or mortgage loan," Russell says.
- Consider getting help. If you still can't rein in your DTI ratio, you may need to get the help of a financial adviser who can help you consolidate loans and put you on the right track.
Another ratio
There's also a second, related ratio that's helpful if you want to judge whether you can afford to buy a certain house or if you want to know you can still afford to live in your existing home. Perhaps your income has dropped or expenses have changed significantly because of a new, higher interest rate, new tax increase or skyrocketing insurance costs. This figure is called the front-end ratio and you can calculate it by adding up the monthly mortgage principal, interest, taxes and insurance, and dividing it by your gross income. That number generally should be no more than 28%, says Russell. "You might see exceptions for a first-time homebuyer or someone with marginal credit, but in general, you don't want to go above that," she says.
Keeping your front-end and back-end ratios in check will help you stay financially stable. If you find yourself edging into dangerous territory, McCurdy recommends cutting back on spending for entertainment and restaurants, paying more than the minimum payment on your credit cards and tackling your highest-rate loans and credit card debts first.
Even if your numbers fit within the prescribed ratios, be sure that they make sense for you. "We're always being lured by advertising to buy these wonderful things," says McCurdy, "but just because you qualify for something doesn't mean you're managing your money well. If you take everything to the limit, you don't leave much room for error."
Tuesday, May 15, 2007
How to Say No When An Auto Salesperson Is Pressuring You
Being able to say no -- and mean it -- isn't just helpful when negotiating a car purchase. It's essential, says Philip Reed, consumer advice editor for auto research site Edmunds.com.
"The most effective way of saying no is saying it with your feet" by leaving the dealership when you don't get what you want, said Reed, author of "Strategies for Smart Car Buyers." "Some people say you should leave at least twice" before agreeing to buy a car.
You don't necessarily have to resort to that level of gamesmanship, Reed said, but you should find a salesperson who can take no for an answer.
Avoid the high pressure approach to car buying. Take your auto shopping on the Web. Click here to play the video.
"Car buying is a very expensive purchase with a lot of moving parts. . . . You need to be comfortable with your salesperson," Reed said. "You don't want someone who, when you say no, says, 'Well, why not?' or 'Didn't I tell you about this or that?' "
Using statements that can't really be argued, like "That's not my taste" or "I just don't want that," can help you fend off an aggressive salesperson, but a better solution is "if you're feeling uncomfortable, find someone else who understands no means no."
Extensively researching the car you want and arranging financing before you walk onto the lot can help you thwart attempts to sell you more car than you can afford. Being clear and consistent about what you're looking for will help, too, Grenny said, as can enlisting the salesperson to help you solve your problem rather than creating new ones.
"You can say something like, 'I want a year-old car with these features and I want to pay close to low Blue Book,' " Grenny said. " 'I'd also like you to make a reasonable profit. So how do we do that?' "
Negotiating the deal with the salesperson is usually only the first step. Many dealerships will also trot you to a "closer" as well as the "F&I" (financing and insurance) person. These folks may view your agreement with the salesperson as just the starting point for selling you more stuff you don't want.
Be upfront, Reed urged. "Tell them, 'I want to wrap this up as soon as possible. I don't want any after-sell,' " he said. That may short-circuit the sales pitch, or they may trot out a "deal" on the extended warranty or paint protection.
Repeating "I don't want to be rude, but I want to wrap this up," Reed said, should deflate any further attempts. If not -- once again -- say no with your feet. You can say something like, "Wow, this deal is going to be a lot more expensive than I thought. I guess we can't go through with it today." Chances are the pitches will stop
"The most effective way of saying no is saying it with your feet" by leaving the dealership when you don't get what you want, said Reed, author of "Strategies for Smart Car Buyers." "Some people say you should leave at least twice" before agreeing to buy a car.
You don't necessarily have to resort to that level of gamesmanship, Reed said, but you should find a salesperson who can take no for an answer.
Avoid the high pressure approach to car buying. Take your auto shopping on the Web. Click here to play the video.
"Car buying is a very expensive purchase with a lot of moving parts. . . . You need to be comfortable with your salesperson," Reed said. "You don't want someone who, when you say no, says, 'Well, why not?' or 'Didn't I tell you about this or that?' "
Using statements that can't really be argued, like "That's not my taste" or "I just don't want that," can help you fend off an aggressive salesperson, but a better solution is "if you're feeling uncomfortable, find someone else who understands no means no."
Extensively researching the car you want and arranging financing before you walk onto the lot can help you thwart attempts to sell you more car than you can afford. Being clear and consistent about what you're looking for will help, too, Grenny said, as can enlisting the salesperson to help you solve your problem rather than creating new ones.
"You can say something like, 'I want a year-old car with these features and I want to pay close to low Blue Book,' " Grenny said. " 'I'd also like you to make a reasonable profit. So how do we do that?' "
Negotiating the deal with the salesperson is usually only the first step. Many dealerships will also trot you to a "closer" as well as the "F&I" (financing and insurance) person. These folks may view your agreement with the salesperson as just the starting point for selling you more stuff you don't want.
Be upfront, Reed urged. "Tell them, 'I want to wrap this up as soon as possible. I don't want any after-sell,' " he said. That may short-circuit the sales pitch, or they may trot out a "deal" on the extended warranty or paint protection.
Repeating "I don't want to be rude, but I want to wrap this up," Reed said, should deflate any further attempts. If not -- once again -- say no with your feet. You can say something like, "Wow, this deal is going to be a lot more expensive than I thought. I guess we can't go through with it today." Chances are the pitches will stop
Top Dealer Tricks To Watch Out For!
At the core, most dealers aren't out to rip you off. But they employ experienced and aggressive salespeople who have a bag of tricks designed to maximize the salesperson's cut and the dealer's profit.
The credit cozen: Some dealers may say something like, "With your credit score, you won't qualify for competitive financing rates.'' This may be true. However, some dealers will imply your credit is worse than it is so that you think you'll have to pay a higher interest rate. That's why it's important to know your credit score before you head to the showroom.
The single transaction strategy: Many people view buying a car as one transaction. It's not, and dealers know this. It's really three transactions rolled into one -- the new-car price, the trade-in value, and the financing. The dealer sees all three as ways to make money. Treat each of these as separate transactions, and negotiate each one. If you get a new car for $200 over invoice, but receive only $1,000 for a trade-in car that's worth $2,500, you haven't done as well as you could.
The payment ploy: A dealer might say, "We can get you into this car for only $389 a month.'' Probably true, but how? In some cases, the dealer may have factored in a large down payment, or may have stretched the term of the loan out to 60 or 72 months. Focus on the price of the car rather than the monthly payment. Never answer the question, "How much can you pay each month?'' Stick to saying, "I can afford to pay X-dollars for the car.''
The sticker shenanigan: The vehicle price listed on the window is what's known as the MSRP, or manufacturer's suggested retail price. Who cares? You want to know the invoice price -- the amount the dealer paid for it. Working from the invoice up is much easier than trying to cut dollars from the MSRP. You should also find out what cars actually are selling for, after taking into account any consumer and dealer incentives. Of course, some really hot cars go for sticker price and even above. Be patient and wait: The prices will fall as demand slacks off. And three years later, you'll be selling or trading a car for the same money as the early buyers who may have paid thousands more initially
The holdback hustle: Manufacturers often give cash incentives -- sometimes called a "holdback'' -- to their dealers to encourage them to move slow-selling models. This typically isn't mentioned in advertisements. You'll want to search for holdbacks or other factory-to-dealer incentives available for the car you're considering. While it's not a given that the dealer will apply any of these funds to the car you like, it doesn't hurt to ask.
The financing four-flush: Some dealers have been known to call customers days or even weeks after they signed a purchase agreement to tell them that the financing fell through. It's a crock. The dealer can know if you qualify for financing almost instantly. The goal? To sign you up for a loan with a higher interest rate because, according to them, they just found out you didn't qualify for the lower rate. Never leave the showroom without signed contracts that spell out every detail and with every blank filled in. If you've got that, they can't roll back on the financing.
The insurance illusion: Some dealers may try hard to get you to purchase an insurance policy when you're buying your car. One type, gap insurance, covers the difference between what the car is worth and the amount you still owe on it. Say the car is worth $10,000 but you still owe $12,000. If your car is a total loss, a gap insurance policy will cover that $2,000 difference. But don't automatically agree to it. Some insurers include the benefits of gap insurance in their regular comprehensive automobile coverage, so check there first. Also, gap insurance is generally quite inexpensive when purchased from your regular insurance company rather than a dealer. Another favorite, credit life insurance, will pay the balance of your loan if you die before you've been able to repay it. These policies may or may not make sense for you -- although in most cases you should decline all such offers. If these policies interest you, you'll want to understand what you're purchasing, and have the opportunity to decline it and shop around for better prices. The mark-up on these policies at the dealership can be enormous, in part because the insurance companies that sell the policies to the dealerships offer them huge incentives -- everything from cash to first-class trips -- to push them.
The rate razzle-dazzle: It certainly sounds tempting -- zero percent interest to finance a new car. However, this deal may not be the best one for your pocketbook. For starters, most financing incentives are for shorter terms and you need a stellar credit record. With very short-term loans, such as 24 or 36 months, payments on even a moderately priced car can be sky high. In addition, you may be better off finding your own financing, and then taking the dealer rebate, if one is offered. Say you're looking at a $20,000 car and will get $4,000 on your trade-in. You can choose between zero-percent financing, or financing at 3.49 percent with a $2,000 rebate. The term of the loan is 36 months. Over the course of the loan, you'll come out ahead by more than $1,200 if you take the rebate and the 3.49 percent financing. Use our calculator to compute the actual dollars over the term of the loan to figure out what deal suits you best.
The rollover ruse: Often, it's tempting to want to trade up to a more expensive car -- even before you've finished paying off the car you're currently driving. One way that some car buyers do this is by "rolling over" the remaining payments on their current car into a new car loan or lease. While this isn't illegal, it's risky. Why? You'll end up owing more on the second car than it's worth. In the parlance of the automobile world, you'll be "upside down" in the vehicle. If it's totaled in an accident, or if you decide down the road to trade it in, you'll end up writing out a big check to cover the remaining amount of the loan. Rule of thumb: Don't roll over an old car loan into a new one.
The long-term trick: There's nothing illegal or even deceptive about dealers offering loan periods extending out six or seven years. After all, many cars last longer than they used to, and longer loan terms mean your monthly payments are lower than they otherwise would be. Still, it's not optimal. You're likely to continually owe more on your car than it's worth, because your car is depreciating faster than you're paying it off. If you're considering a long loan period, you probably should scale back to a less expensive car better suited to your budget.
The balloon bamboozle: Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now, but with a balloon (inflated or much larger) payment at the end of the loan period. In a few cases, this can be a legitimate way to finance a car. For instance, you may just have graduated and can realistically assume that your income will rise by the time the balloon payment comes due. Be wary. That big payment could hit you when you're least able to pay it.
The credit cozen: Some dealers may say something like, "With your credit score, you won't qualify for competitive financing rates.'' This may be true. However, some dealers will imply your credit is worse than it is so that you think you'll have to pay a higher interest rate. That's why it's important to know your credit score before you head to the showroom.
The single transaction strategy: Many people view buying a car as one transaction. It's not, and dealers know this. It's really three transactions rolled into one -- the new-car price, the trade-in value, and the financing. The dealer sees all three as ways to make money. Treat each of these as separate transactions, and negotiate each one. If you get a new car for $200 over invoice, but receive only $1,000 for a trade-in car that's worth $2,500, you haven't done as well as you could.
The payment ploy: A dealer might say, "We can get you into this car for only $389 a month.'' Probably true, but how? In some cases, the dealer may have factored in a large down payment, or may have stretched the term of the loan out to 60 or 72 months. Focus on the price of the car rather than the monthly payment. Never answer the question, "How much can you pay each month?'' Stick to saying, "I can afford to pay X-dollars for the car.''
The sticker shenanigan: The vehicle price listed on the window is what's known as the MSRP, or manufacturer's suggested retail price. Who cares? You want to know the invoice price -- the amount the dealer paid for it. Working from the invoice up is much easier than trying to cut dollars from the MSRP. You should also find out what cars actually are selling for, after taking into account any consumer and dealer incentives. Of course, some really hot cars go for sticker price and even above. Be patient and wait: The prices will fall as demand slacks off. And three years later, you'll be selling or trading a car for the same money as the early buyers who may have paid thousands more initially
The holdback hustle: Manufacturers often give cash incentives -- sometimes called a "holdback'' -- to their dealers to encourage them to move slow-selling models. This typically isn't mentioned in advertisements. You'll want to search for holdbacks or other factory-to-dealer incentives available for the car you're considering. While it's not a given that the dealer will apply any of these funds to the car you like, it doesn't hurt to ask.
The financing four-flush: Some dealers have been known to call customers days or even weeks after they signed a purchase agreement to tell them that the financing fell through. It's a crock. The dealer can know if you qualify for financing almost instantly. The goal? To sign you up for a loan with a higher interest rate because, according to them, they just found out you didn't qualify for the lower rate. Never leave the showroom without signed contracts that spell out every detail and with every blank filled in. If you've got that, they can't roll back on the financing.
The insurance illusion: Some dealers may try hard to get you to purchase an insurance policy when you're buying your car. One type, gap insurance, covers the difference between what the car is worth and the amount you still owe on it. Say the car is worth $10,000 but you still owe $12,000. If your car is a total loss, a gap insurance policy will cover that $2,000 difference. But don't automatically agree to it. Some insurers include the benefits of gap insurance in their regular comprehensive automobile coverage, so check there first. Also, gap insurance is generally quite inexpensive when purchased from your regular insurance company rather than a dealer. Another favorite, credit life insurance, will pay the balance of your loan if you die before you've been able to repay it. These policies may or may not make sense for you -- although in most cases you should decline all such offers. If these policies interest you, you'll want to understand what you're purchasing, and have the opportunity to decline it and shop around for better prices. The mark-up on these policies at the dealership can be enormous, in part because the insurance companies that sell the policies to the dealerships offer them huge incentives -- everything from cash to first-class trips -- to push them.
The rate razzle-dazzle: It certainly sounds tempting -- zero percent interest to finance a new car. However, this deal may not be the best one for your pocketbook. For starters, most financing incentives are for shorter terms and you need a stellar credit record. With very short-term loans, such as 24 or 36 months, payments on even a moderately priced car can be sky high. In addition, you may be better off finding your own financing, and then taking the dealer rebate, if one is offered. Say you're looking at a $20,000 car and will get $4,000 on your trade-in. You can choose between zero-percent financing, or financing at 3.49 percent with a $2,000 rebate. The term of the loan is 36 months. Over the course of the loan, you'll come out ahead by more than $1,200 if you take the rebate and the 3.49 percent financing. Use our calculator to compute the actual dollars over the term of the loan to figure out what deal suits you best.
The rollover ruse: Often, it's tempting to want to trade up to a more expensive car -- even before you've finished paying off the car you're currently driving. One way that some car buyers do this is by "rolling over" the remaining payments on their current car into a new car loan or lease. While this isn't illegal, it's risky. Why? You'll end up owing more on the second car than it's worth. In the parlance of the automobile world, you'll be "upside down" in the vehicle. If it's totaled in an accident, or if you decide down the road to trade it in, you'll end up writing out a big check to cover the remaining amount of the loan. Rule of thumb: Don't roll over an old car loan into a new one.
The long-term trick: There's nothing illegal or even deceptive about dealers offering loan periods extending out six or seven years. After all, many cars last longer than they used to, and longer loan terms mean your monthly payments are lower than they otherwise would be. Still, it's not optimal. You're likely to continually owe more on your car than it's worth, because your car is depreciating faster than you're paying it off. If you're considering a long loan period, you probably should scale back to a less expensive car better suited to your budget.
The balloon bamboozle: Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now, but with a balloon (inflated or much larger) payment at the end of the loan period. In a few cases, this can be a legitimate way to finance a car. For instance, you may just have graduated and can realistically assume that your income will rise by the time the balloon payment comes due. Be wary. That big payment could hit you when you're least able to pay it.
When Haggling Pays Off
Since you can't avoid the car salesperson's negotiating ploys, your only defense is to recognize what he's doing. You then have the chance to use some of those tactics yourself -- becoming the fisherman instead of the fish.
It's called haggling. How well you do it could be the key factor in determining the price you agree to pay for your new car.Here are some tactics you can use when negotiating a deal:
Invoke higher authority. In this tactic, the buyer and seller arrive at a tentative agreement, then one party has to get someone to OK the deal. Anyone who has haggled with a car salesperson is familiar with this tactic: You arrive at a price, then the salesperson has to get the sales manager's approval. Buyers can use this tactic, too. The wife can say she loves the car, but apologetically explains to the salesman that her husband won't budge unless the price is reduced. Or vice versa.
Never say yes to the first proposal. The first price the dealer tosses out in a negotiation will almost never be the best offer. So reject it out of hand. What's the worst that can happen? He won't budge and you go to another dealer.
Make sure to flinch. The most common tactical mistake that consumers make is to remain calm in the face of a proposal. It's better to flinch -- to appear shocked and surprised by an "outrageous" offer, even if it's not really unreasonable. You might think a stoic demeanor looks professional, but in the haggling business, it will cost you.
Squeeze your opponent: You say, 'I'm sorry, but you'll have to do better than that.' Then you shut up. Too many people just can't stay quiet; they blink and fill in the silence with words that drain all the power out of their rejection. Keep quiet. Chances are that you'll get a more reasonable offer.
Never offer to split the difference in price. Always wait for the other side to split the difference; it gives your opponent a feeling of winning and, if you split the difference again, it'll be in your favor.
Save a small concession. Hold back something you're willing to give up at the end so the other side can feel the satisfaction of winning something.
You might not feel comfortable using these tactics, but the experts say they'll be used on you.
It's called haggling. How well you do it could be the key factor in determining the price you agree to pay for your new car.Here are some tactics you can use when negotiating a deal:
Invoke higher authority. In this tactic, the buyer and seller arrive at a tentative agreement, then one party has to get someone to OK the deal. Anyone who has haggled with a car salesperson is familiar with this tactic: You arrive at a price, then the salesperson has to get the sales manager's approval. Buyers can use this tactic, too. The wife can say she loves the car, but apologetically explains to the salesman that her husband won't budge unless the price is reduced. Or vice versa.
Never say yes to the first proposal. The first price the dealer tosses out in a negotiation will almost never be the best offer. So reject it out of hand. What's the worst that can happen? He won't budge and you go to another dealer.
Make sure to flinch. The most common tactical mistake that consumers make is to remain calm in the face of a proposal. It's better to flinch -- to appear shocked and surprised by an "outrageous" offer, even if it's not really unreasonable. You might think a stoic demeanor looks professional, but in the haggling business, it will cost you.
Squeeze your opponent: You say, 'I'm sorry, but you'll have to do better than that.' Then you shut up. Too many people just can't stay quiet; they blink and fill in the silence with words that drain all the power out of their rejection. Keep quiet. Chances are that you'll get a more reasonable offer.
Never offer to split the difference in price. Always wait for the other side to split the difference; it gives your opponent a feeling of winning and, if you split the difference again, it'll be in your favor.
Save a small concession. Hold back something you're willing to give up at the end so the other side can feel the satisfaction of winning something.
You might not feel comfortable using these tactics, but the experts say they'll be used on you.
Biggest Mistakes Car Buyers Can Make
Yep, getting a new set of wheels is one of those wonderful sources of high-octane excitement -- but don't get too revved up.
Car-buying is, or should be, a calculated decision. It's a major purchase. So, before you go cuckoo for that coupe or raving for that roadster, consider these mistakes car buyers can make.
1.Buying the wrong vehicle: Sure, those SUVs look big and cool, and dealers are dealing. But do you need one to drive the mile and a half to bingo every Sunday? Is that racy red sports car really the best choice for your family-of-five-kids-and-growing?
2.Showing emotions in the showroom: If you fall in love with a car, be sure not to overreact and get too anxious. Give yourself some time to sit back and make sure it's the car for you. In short, don't let your heart rule your head -- it can lead to aching in both body parts. Also, keep a grasp on reality. If you can afford $20,000 and the object of your affection lists for $30,000, you might be able to negotiate it down to, say, $27,000, but there's no way you're going to be able to buy it for $20,000.
3.Choosing a dealer by location: No, dealers are not all the same, not even for the same exact makes and models. Ask around. Learn from friends' experiences. Also, determine your dealer's CSI (Customer Satisfaction Index), which is a ranking generally maintained by individual automakers for the dealerships that sell their vehicles. Ford, for example, gives out what's called the Blue Oval Award to dealers with a top ranking. The CSI is a reflection of how well an individual dealer satisfies its customers both in terms of sales and service. Ask your salesman about the dealership's awards. If he balks, you should walk. You can also check a dealership's complaint record with the Better Business Bureau.
4. Talking trade-in too early: This is another easy trap to fall into because dealers love to play the trade-in game. Don't let them muddy the waters. Negotiate a satisfactory price for the new car, and then bring up your trade-in. Another thought: If you bring in your old car full of trash and covered in mud, the appraiser will rightly assume you don't put much value on it yourself.
5. Going it alone when you need a helping hand: If hassles give you headaches and negotiations make you nauseated, turn it over to an auto broker or a service such as the AAA Endorsed Auto Buying Program, which nets members special pricing through authorized dealers.
6. Forgetting that it ain't over 'til it's over: Or, in the case of car buying, it ain't over 'til the business manager sings. You may think you bought your car once the sales manager shakes your hand and tells you what a great deal you got. But beware the business office, often called the finance and insurance office. Dealers often make as much money in this room as they do on the showroom floor. Insurance, dealer add-ons, extra fees and interest rate changes are among the common ploys you could get clobbered with on your way out the door.
Car-buying is, or should be, a calculated decision. It's a major purchase. So, before you go cuckoo for that coupe or raving for that roadster, consider these mistakes car buyers can make.
1.Buying the wrong vehicle: Sure, those SUVs look big and cool, and dealers are dealing. But do you need one to drive the mile and a half to bingo every Sunday? Is that racy red sports car really the best choice for your family-of-five-kids-and-growing?
2.Showing emotions in the showroom: If you fall in love with a car, be sure not to overreact and get too anxious. Give yourself some time to sit back and make sure it's the car for you. In short, don't let your heart rule your head -- it can lead to aching in both body parts. Also, keep a grasp on reality. If you can afford $20,000 and the object of your affection lists for $30,000, you might be able to negotiate it down to, say, $27,000, but there's no way you're going to be able to buy it for $20,000.
3.Choosing a dealer by location: No, dealers are not all the same, not even for the same exact makes and models. Ask around. Learn from friends' experiences. Also, determine your dealer's CSI (Customer Satisfaction Index), which is a ranking generally maintained by individual automakers for the dealerships that sell their vehicles. Ford, for example, gives out what's called the Blue Oval Award to dealers with a top ranking. The CSI is a reflection of how well an individual dealer satisfies its customers both in terms of sales and service. Ask your salesman about the dealership's awards. If he balks, you should walk. You can also check a dealership's complaint record with the Better Business Bureau.
4. Talking trade-in too early: This is another easy trap to fall into because dealers love to play the trade-in game. Don't let them muddy the waters. Negotiate a satisfactory price for the new car, and then bring up your trade-in. Another thought: If you bring in your old car full of trash and covered in mud, the appraiser will rightly assume you don't put much value on it yourself.
5. Going it alone when you need a helping hand: If hassles give you headaches and negotiations make you nauseated, turn it over to an auto broker or a service such as the AAA Endorsed Auto Buying Program, which nets members special pricing through authorized dealers.
6. Forgetting that it ain't over 'til it's over: Or, in the case of car buying, it ain't over 'til the business manager sings. You may think you bought your car once the sales manager shakes your hand and tells you what a great deal you got. But beware the business office, often called the finance and insurance office. Dealers often make as much money in this room as they do on the showroom floor. Insurance, dealer add-ons, extra fees and interest rate changes are among the common ploys you could get clobbered with on your way out the door.
Avoiding Credit Hassles at the Dealership
by Phillip Reed
You fill out a credit application at a car dealership. You're led in to see the finance manager who happily announces, "Great news! I can finance you at 9.9 percent."You're tempted to say, "Sounds good. Let's do it." But then doubt sets in. Isn't the prime rate 6.5 percent now? How do I know this is the best rate I can get?So instead of readily agreeing, you say, "That rate sounds a bit high.""We base our interest rates on your credit score," he tells you.Naturally, you ask, "So what was my credit score?"
Now the tap-dancing begins. The finance manager tells you your credit is good — but not that good. There are a few little things on it ... But at the end of this shuffle he might say, "You know what? I just remembered there is this other bank where I think we can get you 9.1."Well, you've just saved yourself some money. But the rate still might not be as low as you can get. After all, if you don't know what your credit score is, you can't aggressively demand the best terms.
The interest rate you pay on financing your new car is like so many other things at the dealership — open to negotiation. So how do you go about getting the best deal? And is it worth haggling over a few percentage points?
First things first: Yes, it is definitely worth trying to get the best interest rate possible. While one percentage point might not seem like much, applied to a five-year loan it can be significant. For example, on a $20,000 auto loan at 9 percent for five years, according to the Edmunds.com loan calculator you would pay $415.17 a month. But if you financed the $20,000 at 7 percent, you would only pay $396.02 a month — a savings of $1,149 over the five-year period. And because of the way car lease payments are calculated, they have a greater impact when leasing than when buying.Clearly, a low interest rate is important. To accomplish this, make sure your credit report is up-to-date and all black marks have been removed. Those things that can negatively affect your credit include the following:
· Late payments
· Non-payment of bills
· Bankruptcies
· Liens
· Repossessions
Any financial blemishes will lower your score with the most commonly used credit ratings agencies: Experian, Trans Union and Equifax. These companies generate a rating which, for most people, falls somewhere between 330 and 850, and are called "FICO scores" named after Fair, Isaac & Co. Over 800 is considered perfect. Below 800 may put you on a lower credit tier. In the 600s you find yourself in the "sub-prime" area and will pay inflated interest rates. Higher interest rates are justified by lenders who say there is a risk the person will default on the loan. (Visit the FICO Web site for a more complete description of how credit scores are interpreted.)
Auto dealers rely heavily on FICO scores in setting your interest rate when you buy a new or used vehicle. Therefore, it's in your best interest to know your credit score before you visit a dealership. Otherwise, it may come as an unpleasant surprise in the finance and insurance room when you set up your loan.It's a good idea to check your credit scores periodically. In some cases, people who have common names might find someone else's misdeeds on their record. Besides that, if your credit is sub-prime, you will be subject to a number of expensive — and unpleasant — practices.
Two extreme cases are referred to as spot deliveries and bogus insurance sales.A spot delivery occurs when a dealer looks at a customer's credit and sees that they will probably qualify for a car, but they don't have all the information to set up the loan. They allow the customer to take the car while they continue trying to get them qualified. In some cases, the customer is told to return to the dealership and a new contract is generated — at a higher interest rate.In other cases, a customer is told that their credit is weak and they can't buy the car unless they pop for an expensive extended warranty or additional insurance policy. This is a false requirement intended for dealer profit.
Consumers should also know about a practice used in the auto business called "dealer markup." Here's how it works. You go car shopping and agree to buy a vehicle for a certain price. You then tell the salesperson that you are either going to finance the car or lease it through the dealership. Before you go into the finance and insurance room to review the final documents, the finance manager begins shopping for a car loan on your behalf. She may find that you qualify for a 7 percent loan over five years.Now things get sticky. The finance manager calls you in and says, "Great news! I can give you this loan at 11 percent." Obviously, she has marked up the interest rate 4 percentage points. The difference between what the bank charges the dealer and what the dealer charges you is their profit.
Is this illegal? Absolutely not. Is it unfair? Well, it depends how you look at it. They've done you a service by arranging the loan. For their work, they are making a profit.However, you want to save as much money as possible. The easiest way to do this is to arrange your financing before you go to the dealership. Check with your credit union or bank (keep in mind that interest rates are slightly higher for used-car loans than new car loans). Auto loans will usually be one or two points above the prime rate, which fluctuates throughout the year.Once you have been approved for a car loan, it's easy to go to a dealership and negotiate only for the purchase price of your new car. You will be asked several times throughout the process how you plan to pay for the car. Give them a relieved smile and say, "I'm paying cash for the car." This doesn't mean you are going to give them $20,000 in cash. It means that the dealership will receive one lump-sum payment for the car.
There are times, however, when financing through a dealership makes sense. Sometimes, the manufacturer offers to loan money at exceptionally low interest rates such as 2.9 or even 0.9 percent. If you can qualify for these special programs, you should take advantage of them, though they often mean reduced payment periods such as 24 or 36 months.
Bottom line: Don't be held hostage by the dealer. Do yourself and your family a big favor — clean up your credit report before you begin the car shopping process. Next, nail down a low-interest loan from an independent lender such as your credit union or bank. Then, and only then, hit the car lot and start shopping.
You fill out a credit application at a car dealership. You're led in to see the finance manager who happily announces, "Great news! I can finance you at 9.9 percent."You're tempted to say, "Sounds good. Let's do it." But then doubt sets in. Isn't the prime rate 6.5 percent now? How do I know this is the best rate I can get?So instead of readily agreeing, you say, "That rate sounds a bit high.""We base our interest rates on your credit score," he tells you.Naturally, you ask, "So what was my credit score?"
Now the tap-dancing begins. The finance manager tells you your credit is good — but not that good. There are a few little things on it ... But at the end of this shuffle he might say, "You know what? I just remembered there is this other bank where I think we can get you 9.1."Well, you've just saved yourself some money. But the rate still might not be as low as you can get. After all, if you don't know what your credit score is, you can't aggressively demand the best terms.
The interest rate you pay on financing your new car is like so many other things at the dealership — open to negotiation. So how do you go about getting the best deal? And is it worth haggling over a few percentage points?
First things first: Yes, it is definitely worth trying to get the best interest rate possible. While one percentage point might not seem like much, applied to a five-year loan it can be significant. For example, on a $20,000 auto loan at 9 percent for five years, according to the Edmunds.com loan calculator you would pay $415.17 a month. But if you financed the $20,000 at 7 percent, you would only pay $396.02 a month — a savings of $1,149 over the five-year period. And because of the way car lease payments are calculated, they have a greater impact when leasing than when buying.Clearly, a low interest rate is important. To accomplish this, make sure your credit report is up-to-date and all black marks have been removed. Those things that can negatively affect your credit include the following:
· Late payments
· Non-payment of bills
· Bankruptcies
· Liens
· Repossessions
Any financial blemishes will lower your score with the most commonly used credit ratings agencies: Experian, Trans Union and Equifax. These companies generate a rating which, for most people, falls somewhere between 330 and 850, and are called "FICO scores" named after Fair, Isaac & Co. Over 800 is considered perfect. Below 800 may put you on a lower credit tier. In the 600s you find yourself in the "sub-prime" area and will pay inflated interest rates. Higher interest rates are justified by lenders who say there is a risk the person will default on the loan. (Visit the FICO Web site for a more complete description of how credit scores are interpreted.)
Auto dealers rely heavily on FICO scores in setting your interest rate when you buy a new or used vehicle. Therefore, it's in your best interest to know your credit score before you visit a dealership. Otherwise, it may come as an unpleasant surprise in the finance and insurance room when you set up your loan.It's a good idea to check your credit scores periodically. In some cases, people who have common names might find someone else's misdeeds on their record. Besides that, if your credit is sub-prime, you will be subject to a number of expensive — and unpleasant — practices.
Two extreme cases are referred to as spot deliveries and bogus insurance sales.A spot delivery occurs when a dealer looks at a customer's credit and sees that they will probably qualify for a car, but they don't have all the information to set up the loan. They allow the customer to take the car while they continue trying to get them qualified. In some cases, the customer is told to return to the dealership and a new contract is generated — at a higher interest rate.In other cases, a customer is told that their credit is weak and they can't buy the car unless they pop for an expensive extended warranty or additional insurance policy. This is a false requirement intended for dealer profit.
Consumers should also know about a practice used in the auto business called "dealer markup." Here's how it works. You go car shopping and agree to buy a vehicle for a certain price. You then tell the salesperson that you are either going to finance the car or lease it through the dealership. Before you go into the finance and insurance room to review the final documents, the finance manager begins shopping for a car loan on your behalf. She may find that you qualify for a 7 percent loan over five years.Now things get sticky. The finance manager calls you in and says, "Great news! I can give you this loan at 11 percent." Obviously, she has marked up the interest rate 4 percentage points. The difference between what the bank charges the dealer and what the dealer charges you is their profit.
Is this illegal? Absolutely not. Is it unfair? Well, it depends how you look at it. They've done you a service by arranging the loan. For their work, they are making a profit.However, you want to save as much money as possible. The easiest way to do this is to arrange your financing before you go to the dealership. Check with your credit union or bank (keep in mind that interest rates are slightly higher for used-car loans than new car loans). Auto loans will usually be one or two points above the prime rate, which fluctuates throughout the year.Once you have been approved for a car loan, it's easy to go to a dealership and negotiate only for the purchase price of your new car. You will be asked several times throughout the process how you plan to pay for the car. Give them a relieved smile and say, "I'm paying cash for the car." This doesn't mean you are going to give them $20,000 in cash. It means that the dealership will receive one lump-sum payment for the car.
There are times, however, when financing through a dealership makes sense. Sometimes, the manufacturer offers to loan money at exceptionally low interest rates such as 2.9 or even 0.9 percent. If you can qualify for these special programs, you should take advantage of them, though they often mean reduced payment periods such as 24 or 36 months.
Bottom line: Don't be held hostage by the dealer. Do yourself and your family a big favor — clean up your credit report before you begin the car shopping process. Next, nail down a low-interest loan from an independent lender such as your credit union or bank. Then, and only then, hit the car lot and start shopping.
Frequently Asked Questions About Special Finance Auto Loans
1. What is the difference between Prime lending and Special Finance or Sub-prime auto loan? Prime lending is for people who have excellent credit, with no recent dings on their credit history. Special Finance, also know as Sub prime auto loans, are granted to people who have less than perfect credit.
2. Should I pick out my car before I apply for an auto loan? No! You do not want to choose the automobile first! Your first goal is to apply for auto loan financing. Upon receiving an auto loan approval your lender will determine the maximum amount of payment, based on your current debt-to-income ratio and your current credit standing.
3. Does applying to multiple lenders for auto financing have a negative affect on my Credit Bureau score? No. At the present time, the credit scoring agencies say that all credit inquiries within a 14-day period associated with one type of buying are consolidated into one inquiry for scoring purposes.
4. What determines my auto loan interest rate? Interest rates are set according to the condition of your credit. Lenders use a credit rating score and their own internal rating criteria to determine APR to be set for your auto loan. The credit rating score is normally referred to as FICO or Beacon. Prime borrowing is usually a score above "680", and interest rates for a prime customer are generally 9.99% and lower. A score below 620 is usually considered special finance or sub prime. Sub prime lending rates will usually fall between 17% and 29% depending on your score and present personal credit circumstances.
5. Will I be required to have a down payment? Down payments usually are 10% or $1,000 whichever is lower. Your present credit standing will determine the need for a down payment. It is always wise to be prepared to have a down payment, and then be pleasantly surprised when one is not required when finalizing your auto financing.
6. What basic criteria are needed to apply for auto financing? You must be at least 18 years old. Your monthly income from one source of employment and "other income" (court ordered child support, documented rental Income, etc.) should be a minimum of $1100. You need good residence and employment history showing of at least 2 years at the same location.
2. Should I pick out my car before I apply for an auto loan? No! You do not want to choose the automobile first! Your first goal is to apply for auto loan financing. Upon receiving an auto loan approval your lender will determine the maximum amount of payment, based on your current debt-to-income ratio and your current credit standing.
3. Does applying to multiple lenders for auto financing have a negative affect on my Credit Bureau score? No. At the present time, the credit scoring agencies say that all credit inquiries within a 14-day period associated with one type of buying are consolidated into one inquiry for scoring purposes.
4. What determines my auto loan interest rate? Interest rates are set according to the condition of your credit. Lenders use a credit rating score and their own internal rating criteria to determine APR to be set for your auto loan. The credit rating score is normally referred to as FICO or Beacon. Prime borrowing is usually a score above "680", and interest rates for a prime customer are generally 9.99% and lower. A score below 620 is usually considered special finance or sub prime. Sub prime lending rates will usually fall between 17% and 29% depending on your score and present personal credit circumstances.
5. Will I be required to have a down payment? Down payments usually are 10% or $1,000 whichever is lower. Your present credit standing will determine the need for a down payment. It is always wise to be prepared to have a down payment, and then be pleasantly surprised when one is not required when finalizing your auto financing.
6. What basic criteria are needed to apply for auto financing? You must be at least 18 years old. Your monthly income from one source of employment and "other income" (court ordered child support, documented rental Income, etc.) should be a minimum of $1100. You need good residence and employment history showing of at least 2 years at the same location.
7. Can a subprime loan be used to purchase a commercially rated vehicle or a vehicle considered "classic"? No. Loans are provided for a private passenger motor vehicle, light truck, or van for personal, family or household use. The autos being financed must be no older than 6 years and have less than 80,000 miles.
8. I already have an auto being financed; can I still get another auto loan for a second automobile? The basic laws of sub prime or special finance lending are only one automobile per applicant can be financed at a time. If your goal is to purchase a second automobile you will need to complete a "joint" application, otherwise it will be required of you to trade your current vehicle. Likewise, when completing a joint application, if you currently have two loans outstanding, one of those automobiles will have to be traded.
9. There are so many "Bad Credit Auto Loan Dealers" to choose from, how do I know which one is best? Bad credit - Special Finance - Sub prime auto loan dealerships basically use the same direct lenders. By applying on multiple sites you could be creating duplicate applications being sent to the same lenders, thereby causing multiple credit reports being pulled on you by the very same auto loan lender for the purpose of obtaining only one loan. Choosing a dealership that you have confidence in and knowing they have your best interest at heart is probably your safest bet, and will accomplish the same goal.
10. What if I am completing a joint auto loan application and my co-applicant's credit is worse than mine? When completing the online auto loan application always remember the first applicant needs to have the strongest credit. However, the first applicant also needs to meet the minimum qualifications required by the lender. (See Question #6)
10.5 Hints to Help You Get a Auto Loan...Even If You Have Bad Credit!
1. Know your credit score. Get a copy of your credit report. Review it for errors and make any corrections before you try and get a loanIf there are major errors in your credit report, consider delaying your application until the corrections are completed. This will make sure you keep the car dealers honest. If you desperately need transportation, try renting a car short term until your credit report is straightened out. You may actually save money on fuel, insurance and repairs by renting which you can add to your down payment.
2. Have an explanation for your credit issues. Don’t be apologetic. Bad things happen to good people. Be specific about any problems or crisis that caused your problem. Let the bank know about any major upheaval in your life that may have led to your problems such as an illness or a natural disaster, like Katrina, or 9-11.Make sure that you can substantiate your claim.
3. Don’t lie about anything on the credit app. Lenders will turn reject your loan if they find you lied to them.
4. Know your income. Make sure you can prove what you make. Have your proof readily available.
5. Save your down payment. More down means more car. Larger down payments can sometimes get a lender to view your application more favorably.
6. Know what your payoff is. If you are trading in a car with a payoff, get a ten day payoff from the lender. If you have a warranty or additional policies bought with the vehicle, find out if you can cancel them. This will lower your payoff or entitle you to a refund after the vehicle is paid off.
7. Know what your car is worth. Check out NADA or KBB first. Go to CarMax and see what they will buy it for. Use these figures to negotiate the best trade in value. Remember, If you get more than the payoff, that amount becomes down payment.
8. Buy what you need, not what you want. Set realistic expectations. Don’t buy more payment than you can truly afford. Rebuild your credit first, than rebuild your image later.
9. Don’t be argumentative. Nice people get better deals than people who give sales reps a hard time.
10. Try other sources to get a loan. Check online. Lenders such as Capital One, HSBC, Roadloans, and CitiFinancial all have websites which let you apply direct to them for a loan. You may get better rates and terms from lenders online than from a dealer. Check your credit union or insurance co. They may have a loan program or lender relationship. A good payment history with your insurance company may help you get a loan from their bank. Credit unions can sometimes do automatic payroll deductions, which guaranty you pay the loan, so they may be more receptive.
10.5 Don’t go from dealer to dealer. Excessive inquiries can be a reason a lender declines your application
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