Friday, July 6, 2007

Key financing questions you should ask

By Bankrate.com

Here are some questions that you must ask when discussing financing. Write them down or print them out before going to the dealer. Make sure you get answers to these questions that you fully understand. If anything is vague or confusing, walk away and come back after you've had time to think about it. If the sales or finance person makes a claim you think is too good to be true, have them write it on the finance contract and get a manager to sign off.


1. What's the interest rate I'm really paying? The APR (annual percentage rate) is the best way to know what interest you are paying. It is the actual interest rate you pay annually on the unpaid balance of the loan. The rate you are offered will to a large extent depend on your credit score, a number that dealers get from your credit report.


2. Are there any possible penalties in my loan? Does paying the loan off early entail penalties? Are there any other possible extra charges that could occur during the term of my loan? Are there "hidden charges'' that effectively are penalties?


3. What is the precise (down to the penny) price I'm paying for the vehicle?


4. What is the total amount (be exact) being financed?

5. What's the dollar amount I'm paying for the credit (finance charge)?

6. What's the exact amount of each payment?

7. What is the total number of payments?


8. Is this deal contingent on getting subsequent approval of the financing from a third party? Some dealers will send you out the door with a car then call a day or two later to say they couldn't get you financed at the rate they quoted, but they have found a lender who will cover the loan at a higher payment. Don't fall for this. Make sure you know who the lender is and that the deal is sealed before leaving the lot. If there's any question, tell the dealer you'll come back and get the car when everything is settled.


9. What about credit insurance? Your lender may offer, or even demand, credit insurance. First, find out exactly what it will cost you. If you have an existing insurance policy that covers the same thing, make a thorough comparison. It's not required by federal law, and check your state's requirement (through the office of your attorney general or insurance commissioner) if your lender requires it. It's very rare that any do. But if you must pay, make sure it is included in the cost of your credit and see where it is reflected in the APR you are paying

Thursday, July 5, 2007

Buying an Auctioned Vehicle

Many used cars bought from a dealer have been "remarketed"

by James M. Flammang

Making decisions in a matter of seconds isn't easy. Yet, that's what buyers at the nation's wholesale used-car auctions do every day. At the auctions, which normally are open only to dealer representatives, the action is fast and the rewards are risky. Pay too much for a tempting car that's going through the line, and you might not make any money on it. Bid too little and you won't get the car at all, giving your dealership one less vehicle to sell at a profit.

To an uninitiated observer, the ceaseless, rapid-fire cries of the used-car auctioneer sound like gibberish. But to each of the hundreds of buyers attending a typical big auction, those pleas for bids are an endless flow of opportunity.

Buyer Beware?

In the consumer's eyes, auctions still suffer from a serious image problem. The best used car, we've been told repeatedly, is the one that comes directly from a private seller: a one-owner, seldom-driven, nearly spotless vehicle that the owner is willing to part with for a pittance. Cars that went through an auction have been viewed as the dregs of the business—the vehicles that should be avoided at all costs.

Auctions, in effect, were held responsible for the sins committed by unscrupulous used-car dealers, who marketed shoddy products at high prices. That sort of stigma persists today, even though the auction business is booming and its practitioners have been striving for years to change people's perceptions of how auctions work.

Odometer Rollbacks

Although dishonest used-car dealers have not disappeared, their numbers have been diminishing—due in part to policing of the business by the large auction groups. In the mid-1980s, for instance, ADT Automotive—then a top auction chain—played a role in making odometer "rollbacks" a federal crime.

Protecting consumers wasn't their sole reason for wanting to crack down on odometer "spinners." Dealers, too, can be victimized when odometers are set back to display lower figures. If a bidding dealer thinks a car has lower mileage than it actually has, and therefore pays more than the car is worth, potential profit can disappear if the inaccuracy is discovered.

Late in the 1990s, ADT also initiated a program for certifying vehicles that go through the auctions, following the theme of used-car certification programs that had been introduced by many automakers. Vehicles are carefully inspected before sale to dealers, who can then point to that process as a selling point on their retail lots. Certification remained active when ADT Automotive was bought by Manheim Auctions in 2000. Even when full certification is not offered, auctions often offer reconditioning and detailing services.

Manheim and ADESA are the leading auction chains, providing what are called "remarketing" services. In business for 55 years, Manheim alone operates 83 auction facilities in the U.S.

During 2000, new-vehicle sales set a record at 17.4 million units—15.1 million of them sold to private individuals. At the same time, dealers, according to Tom Webb, Mahheim's chief economist, sold 41.7 million used vehicles. Private transactions added another 10.5 million secondhand units to the mix.

Auctions handled nine million of those used vehicles. Nearly half had been consigned by dealers, while two million were consumer-leased vehicles being remarketed after their lease terms ended. The remaining 3 million came directly from manufacturers, offered at sales limited to franchised new-car dealers, or from daily rental companies and fleet organizations.

Of all the vehicles that go off-lease each year, about 62% are remarketed through auctions, according to research by CNW Marketing and Manheim. They wind up in the front lines at both new-car and independent used-car dealerships. During 2000, the National Automobile Dealers Association (NADA) reports that franchised new-car dealers obtained 32% of their used vehicles from an auction, versus 40% that were traded in on a new model and 22% traded on a newer used car. A title search should reveal if the vehicle was ever on the auction block.

Recession-Resistant

Auctions "have increased their acceptance in the marketplace," said Thomas Kontos, vice president of industry relations & analytical services at ADESA Corporation, who considers the business to be "recession-resistant." If the economic downturn continues through 2001, new-car sales are sure to suffer. "During a recession," Kontos explained, "consumers are less likely to sell their vehicles," preferring to hang onto them a while longer. At the same time, though, the demand for secondhand vehicles escalates—and the auctions are happy to comply.

While it always pays to be wary when shopping for a used car, the mere fact that a prospective purchase went through an auction at some point doesn't automatically consign it to the also-ran category. After all, the car could have been returned from lease by your neighbor, then remarketed via an auction. And who knows, you might even be able to buy it for less than your neighbor would have wanted for

Tuesday, July 3, 2007

The repo man is getting busy

More vehicle owners are falling behind as the economy slows. Many slip when they lack the money to repair cars that they're still making payments on.

By Karen Aho

For the repo man, business is always good. But lately, it's been better than good.

As the subprime-mortgage collapse blares in the background, "recovery service agents" have been cleaning up the wreckage of another subprime-lending mess: that of the auto industry, which in its own competitive bid for buyers has been extending longer, costlier loans to people unable to keep up with their payments.

One in three auto-loan borrowers have payments greater than $500 a month, according to consumer credit agency Experian, and 12% have been late at least once.

In a survey for the National Automotive Finance Association, BenchMark Consulting International said monthly repossessions by subprime lenders increased 15% last year.

Manheim Consulting, which analyzes the used-car market, estimated a 5% increase in the total number of repossessed vehicles to 1.4 million in 2006. The Manheim and Adesa auctions resell most of the vehicles repossessed in the United States.

"The shorthand is that for years we've lived beyond our means, reflected in record debt levels, and now comes the paying phase," said Christian Weller, a senior fellow at the Center for American Progress, a progressive think tank in Washington, D.C. "Car loans have expanded as fast as mortgages, and in terms of the categories of what people borrow for, it is the second-largest.

"It fits the overall picture that all the economic-distress measures are trending upward."

Repossession agents in areas hit by foreclosures say they've been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents.

"It is actually stunning the number of cars we're taking from people who are supporting the local real-estate market," said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. "It's almost the type of thing where we see it and you wonder if anyone else sees it. . . . It's like they turned off the spigot."

Cracks are showing everywhere:

· BenchMark found a marked rise in long loan terms, which lead to greater negative equity. For subprime lenders, who service consumers with low FICO credit scores at higher interest rates, more than 80% of new-car loans were for 61 to 72 months, up from 67% in 2005.

· Among prime lenders, 61% of new-auto loans were for at least 60 months, with 17% of those exceeding 72 months, nearly double the 9% in 2005. "With longer negative-equity situations, there's a greater chance the customer's going to walk away," said Walter Cunningham, the president of BenchMark.

· For the first time in several years, prime lenders increased the number of loans extended to risky consumers. Those with FICO scores below 600 moved from 4% to 8% for used vehicles and 2% to 6% for new vehicles, BenchMark reported. "They're moving downscale, and they're also lending money to the higher-risk players," Cunningham said.

· Subprime lenders also reached down the credit scale, with 54% of deals made to buyers considered a high or superhigh risk, those with FICO scores under 549, up from 34% in 2005. "All of these are kind of pointing to higher delinquencies and higher charge-offs," Cunningham said.

· More new cars are being repossessed. According to Manheim, the average mileage of subprime repossessions sold at auction dropped from 80,164 in January 2006 to 75,099 a year later, while the average price rose from $6,359 to $7,066.



Repossession: A unique form of collection

Miss a credit card payment or an electric bill and companies bump down your credit score or cease service. Fail on the mortgage and a judge can issue a foreclosure notice. But skip a car payment or the full insurance and a guy in jeans can hook a chain to your car and tow it away, no court hearing required.

"If you think about it, that's a pretty drastic remedy," said Nancy Barron, a consumer lawyer in California who specializes in auto claims.

Outside California and Florida, repo agents don't need licenses, although lenders typically require costly insurance, and several industry trade groups have strived to improve professionalism in the industry, saying most repossessions go quietly and without incident.

Most repossessed autos are sold at dealer auctions, an average of 41 days after the repossession. The Federal Trade Commission requires that vehicles be resold in a commercially reasonable manner (for more, see this FTC fact sheet).

"After 90 days, we have to classify it as a bad debt," said Mark Pregmon, executive vice president of SunTrust Bank. "Do we want to repo the car? Absolutely not . . . but that money's not free. That money costs something."

BenchMark estimates the average loss to subprime lenders at $6,000 a car.

Owners are required to pay any deficiency -- the difference what was fetched at auction and the outstanding loan -- as well as fees for repossession, cleaning, transport and resale, which can total about $700.

Many borrowers are stuck paying for years on a car they no longer have. To make matters worse, a replacement car costs more to finance. Even one 30-day past-due payment can ding a buyer's credit score nearly 100 points.

If you fear the repo man . . .

Still, state laws do protect consumers (check your state attorney general's office for guidelines), and experts can help. Here are a few tips, in descending order of crisis:

Your car has been repossessed. This is not, in fact, the end. If the lender did not conform to your state's notification laws, a penalty can be issued against the lender's ability to collect. Contact a consumer lawyer or advocate for help. The National Association of Consumer Advocates maintains a listing.

Some states require that owners be given a chance to make good before the car is repossessed.

"In every state the consumer has a right to redeem the car, to pay all that is due and the expenses to get the car back," said Jon Sheldon, a lawyer with the National Consumer Law Center. "That will often be a much better deal than letting the creditor sell it."

Act quickly. Many auctions are closed to individuals, and actions become more difficult after a sale.

Though prices vary widely, the average difference between the auction price and retail resale is about $1,500, said Tom Kontos, the chief economist at Adesa, a vehicle remarketing company.

The repo man is at your door.
If this happens, you can legally object, said Sheldon. Be polite but firm, and avoid anger or violence. "If you're objecting and they take it anyway, then it could lead to a breach of the peace," which is illegal in every state, he said. This can buy you time to work out the problem with the lender.

Avoid any physical confrontation. Instead, document everything. Write down license-plate numbers and names, including those of witnesses.

Remove personal items from the glove compartment and car. "Anybody who's late in their payments should remove all their belongings," said Yvonne Rosmarin, a consumer lawyer in Massachusetts. "I don't know how many people I've heard stories from who have had personal belongings in there that just disappeared."

If you are on active military duty and you bought the car before you went on active duty (you were in the reserves, for example), a creditor cannot repossess the car without a court order, under federal law.

You're late, or almost late, on a payment. Contact your lender immediately and -- experts say this is crucial -- get a written record. Ask for a letter or e-mail confirming the vehicle will not be repossessed as long as payment is made by a certain date.

Adam Taub, a Michigan consumer lawyer, said people often say a clerk told them "OK" on the phone and then, to their surprise, their car was repossessed.

"It's a miscommunication," Taub said. "Or they might outright lie because they don't want you to hide the car. Then they'll send the repo crew out there right away."

Either way, oral agreements don't hold up in court, Taub said.

When you do talk to your lender, ask if you can refinance your debt. If all else fails, you can turn in the car. This is labeled a "voluntary repossession" and still knocks your credit, but it saves the repossession fees.

You're car shopping. The No. 1 reason people lose their cars? With the long loan terms, cars are breaking down before they're paid off.

Shop around for financing before hitting the car lots. If you have a low credit score but can show you are not currently a risk, you might be able to negotiate a better deal.

Take financing contracts home and read them carefully before signing. Understand under what terms the lien holder can repossess the car. Taub advises people not to sign binding arbitration clauses, which restrict a consumer's ability to file a court claim.

Buy a car only if you can afford to fix it.

"The fatal, most detrimental thing that you can do is believe the car dealer when they tell you they'll fix anything that goes wrong with it," Taub said. "If the car dealer checks 'as is,' that is the same thing as the car dealer saying in writing, 'I do not stand behind this car, no matter what I'm telling you now.' "

Published July 3, 2007

Car Ads: Reading Between the Lines

Many new car dealers advertise unusually low interest rates and other special promotions. Ads promising high trade-in allowances and free or low-cost options may help you shop, but finding the best deal requires careful comparisons.

Many factors determine whether a special offer provides genuine savings. The interest rate, for example, is only part of the car dealer’s financing package. Terms like the size of the downpayment also affect the total financing cost.

Questions About Low Interest Loans

  • A call or visit to a dealer should help clarify details about low interest loans. Consider asking these questions:
  • Will you be charged a higher price for the car to qualify for the low-rate financing? Would the price be lower if you paid cash, or supplied your own financing from your bank or credit union?
  • Does the financing require a larger-than-usual downpayment? Perhaps 25 or 30 percent?
  • Are there limits on the length of the loan? Are you required to repay the loan in a condensed period of time, say 24 or 36 months?
  • Is there a significant balloon payment —possibly several thousand dollars — due at the end of the loan?
  • Do you have to buy special or extra merchandise or services such as rustproofing, an extended warranty, or a service contract to qualify for a low-interest loan?
  • Is the financing available for a limited time only? Some merchants limit special deals to a few days or require that you take delivery by a certain date.
  • Does the low rate apply to all cars in stock or only to certain models?
  • Are you required to give the dealer the manufacturer’s rebate to qualify for financing?
Questions About Other Promotions

Other special promotions include high trade-in allowances and free or low-cost options. Some dealers promise to sell the car for a stated amount over the dealer’s invoice. Asking questions like these can help you determine whether special promotions offer genuine value.

  • Does the advertised trade-in allowance apply to all cars, regardless of their condition? Are there any deductions for high mileage, dents, or rust?
  • Does the larger trade-in allowance make the cost of the new car higher than it would be without the trade-in? You might be giving back the big trade-in allowance by paying more for the new car.
  • Is the dealer who offers a high trade-in allowance and free or low-cost options giving you a better price on the car than another dealer who doesn’t offer promotions?
  • Does the "dealer’s invoice" reflect the actual amount that the dealer pays the manufacturer? You can consult consumer or automotive publications for information about what the dealer pays.
  • Does the "dealer’s invoice" include the cost of options, such as rustproofing or waterproofing, that already have been added to the car? Is one dealer charging more for these options than others?
  • Does the dealer have cars in stock that have no expensive options? If not, will the dealer order one for you?
    Are the special offers available if you order a car instead of buying one off the lot?
  • Can you take advantage of all special offers simultaneously?
You’re not limited to the financing options offered by a particular dealer. Before you commit to a deal, check to see what type of loan you can arrange with your bank or credit union.

Once you decide which dealer offers the car and financing you want, read the invoice and the installment contract carefully. Check to see that all the terms of the contract reflect the agreement you made with the dealer. If they don’t, get a written explanation before you sign. Careful shopping will help you decide what car, options, and financing are best for you.

For More Information

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad

Buying A New Car

A new car is second only to a home as the most expensive purchase many consumers make. According to the National Automobile Dealers Association, the average price of a new car sold in the United States is $28,400. That’s why it’s important to know how to make a smart deal.

Buying Your New Car

Think about what car model and options you want and how much you’re willing to spend. Do some research. You’ll be less likely to feel pressured into making a hasty or expensive decision at the showroom and more likely to get a better deal.

Consider these suggestions:

  • Check publications at a library or bookstore, or on the Internet, that discuss new car features and prices. These may provide information on the dealer’s costs for specific models and options.
  • Shop around to get the best possible price by comparing models and prices in ads and at dealer showrooms. You also may want to contact car-buying services and broker-buying services to make comparisons.
  • Plan to negotiate on price. Dealers may be willing to bargain on their profit margin, often between 10 and 20 percent.

Usually, this is the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price.Because the price is a factor in the dealer’s calculations regardless of whether you pay cash or finance your car — and also affects your monthly payments — negotiating the price can save you money.

Consider ordering your new car if you don’t see what you want on the dealer’s lot. This may involve a delay, but cars on the lot may have options you don’t want — and that can raise the price. However, dealers often want to sell their current inventory quickly, so you may be able to negotiate a good deal if an in-stock car meets your needs.

Learning the Terms

Negotiations often have a vocabulary of their own. Here are some terms you may hear when you’re talking price

  • .Invoice Price is the manufacturer’s initial charge to the dealer. This usually is higher than the dealer’s final cost because dealers receive rebates, allowances, discounts, and incentive awards. Generally, the invoice price should include freight (also known as destination and delivery). If you’re buying a car based on the invoice price (for example, “at invoice,” “$100 below invoice,” “two percent above invoice”) and if freight is already included, make sure freight isn’t added again to the sales contract.
  • Base Price is the cost of the car without options, but includes standard equipment and factory warranty. This price is printed on the Monroney sticker.
  • Monroney Sticker Price (MSRP) shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, the manufac-turer’s transportation charge, and the fuel economy (mileage). Affixed to the car window, this label is required by federal law, and may be removed only by the purchaser.
  • Dealer Sticker Price, usually on a supplemental sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP), dealer preparation, and undercoating.

Financing Your New Car

If you decide to finance your car, be aware that the financing obtained by the dealer, even if the dealer contacts lenders on your behalf, may not be the best deal you can get. Contact lenders directly. Compare the financing they offer you with the financing the dealer offers you. Because offers vary, shop around for the best deal, comparing the annual percentage rate (APR) and the length of the loan. When negotiating to finance a car, be wary of focusing only on the monthly payment. The total amount you will pay depends on the price of the car you negotiate, the APR, and the length of the loan.

Sometimes, dealers offer very low financing rates for specific cars or models, but may not be willing to negotiate on the price of these cars. To qualify for the special rates, you may be required to make a large down payment. With these conditions, you may find that it’s sometimes more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.

Before you sign a contract to purchase or finance the car, consider the terms of the financing and evaluate whether it is affordable. Before you drive off the lot, be sure to have a copy of the contract that both you and the dealer have signed and be sure that all blanks are filled in.

Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Before you buy credit insurance, consider the cost, and whether it’s worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is not required by federal law. If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of credit. That is, it must be reflected in the APR. Your state Attorney General also may have requirements about credit insurance. Check with your state Insurance Commissioner or state consumer protection agency.

Trading in Your Old Car

Discuss the possibility of a trade-in only after you’ve negotiated the best possible price for your new car and after you’ve researched the value of your old car. Check the library for reference books or magazines that can tell you how much it is worth. This information may help you get a better price from the dealer. Though it may take longer to sell your car yourself, you generally will get more money than if you trade it in.

Considering a Service Contract

Service contracts that you may buy with a new car provide for the repair of certain parts or problems. These contracts are offered by manufacturers, dealers, or independent companies and may or may not provide coverage beyond the manufac-turer’s warranty. Remember that a warranty is included in the price of the car while a service contract costs extra.

Before deciding to purchase a service contract, read it carefully and consider these questions:

  • What’s the difference between the coverage under the warranty and the coverage under the service contract?
  • What repairs are covered?
  • Is routine maintenance covered?
  • Who pays for the labor? The parts?
  • Who performs the repairs? Can repairs be made elsewhere?
  • How long does the service contract last?
  • What are the cancellation and refund policies?


To File a Complaint


The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.