Q: I was purchasing a used vehicle from the dealership. Before signing, I reviewed the conditional sales contract and found that they were charging me a $2,800 "acquisition fee"? What is this? What is a reasonable amount?
A: An “acquisition fee” or “bank fee” is the amount the lender requires the dealer or borrower pay to fund an auto loan. Sound odd? These fees are most common in auto loans for subprime borrowers. (Read more about your credit score here.) The problem comes when these fees are not disclosed and capitalized or built into the loan or lease where they go unnoticed.
Theoretically, this non-interest, fee compensation is introduced by the lender to take what they perceive as being abnormal risk on a subprime auto loan. For example, you have a 550 credit score with a recent repossession. You go to a dealer who finds you a car. He shops your loan application but can’t find willing lenders, but he has a relationship with a lender who only lends to people with 600+ FICO scores AND has a maximum interest rate of 15.5%. The dealer convinces the lender to underwrite your loan (buy the loan from the dealer), but the lender requires more upside for his perceived risk. That upside comes in the form of acquisition fee income. (Read more about working with used car dealers here.)
How it works and how to reduce or eliminate it...
How does it work?
Explicit car loan bank fees: The dealer adds the acquisition fee as, hopefully, a discrete fee charge on your conditional finance contract effectively “capitalizing” the acquisition fee. This means that the amount of the acquisition fee is added to the total amount borrowed and, therefore, the amount you must repay. When you sign you agree that the $1,000 addition to your purchase price should go to the lender for this purpose. But, unlike other monies from the loan that are distributed to the dealer for the purchase of the car, these amounts are withheld by the lender. (Read more about used car loans here.)
Implicit car loan bank fees: The lender advances the dealer less than the approved loan amount. The dealer may choose to accept $1,000 less for the car taking the acquisition fee out of his gross margin. If you’ve ever heard a dealer say “It’s going top cost me $1,000 to get this loan bought”, he’s referring to the lenders acquisition fee. Alternatively, the dealer may find a way to “bake” the $1,000 acquisition fee into the price of the car. Dealers particularly experienced in subprime finance may bake an expected acquisition fee into the car’s price before passing it to the lender for approval and funding. (Run the numbers for your auto loan with our auto loan calculator.)
So why do I care? Make no mistake, whether the auto loan acquisition fee is implicit or explicit, you are the one that is paying off this principal addition over the life of the loan. Further, because this bank fee is capitalized (included in the loan principal amount) you actually pay interest on the acquisition fee over the life of the loan.
How can I spot car loan acquisition fees?
Do your homework on the car you want to buy. Negotiate the terms of the auto purchase before stepping into to the F&I office.
Ask the dealer if the lease or loan he is offering has auto loan acquisition fees and if this fee has been capitalized. Always get the dealer to account for every penny of the cash required at signing and the monthly payment.
Study your loan documents and conditional sales contract carefully before signing. If you see an unreasonable loan acquisition fee included, or see that the price of the car has gone up, or see that the loan amount you are borrowing is not equal to the difference of the previously state price less the down payment you are making, don’t sign. Ask the dealer to explain any discrepancy.
If the dealer tells you it is due to an auto loan acquisition fee, ask for the lender’s contact information. Confirm the terms of the deal including acquisition fee with the lender.
If the fee seems unreasonable, take the terms provided you by the dealer’s lender and see if you can’t beat them by
What is a reasonable acquisition fee? Theoretically, any fee to which both buyer and seller agree is reasonable. As a practical matter they can range from several hundred to a thousand dollars depending on the amount and term of the loan, your credit score, etc. In one recent case, however, we heard of a $2,800 acquisition fee on a $25,500 loan for a borrower with a 640 credit score. This is excessive.
So acquisition fees are bad, right? Not necessarily. When it comes to money we are all inclined to think of the dealer or the lender as a adversary because they are making money off us. The fact is that many, many subprime consumers would not get financed were it not for acquisition fee. Our point here is not to disparage dealers or lenders who charge acquisition fees, just to point out that should know about any acquisition fee you are charged so that you are able to shop for alternatives particularly using sites such as
Thursday, October 25, 2007
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?
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
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
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
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.
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
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?
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?
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.
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
Thursday, June 28, 2007
Cars that last a million miles!
Yes, it's still rare to see a million miles on an odometer, but it happens. And while in decades past automobiles were often junkyard-bound at 100,000 miles, today's cars can easily run 200,000 miles or more with minimal maintenance.
Automaker Saab announced recently that it would give a free car to any original U.S. Saab owner who drives the car 1 million miles or more. Spurring the challenge were Wisconsin insurance salesman Peter Gilbert and his 1989 Edwardian Gray Saab 900 SPG, whose odometer not long ago clicked over to six zeros.
His car, now in a museum, still has its original engine and turbocharger.
That's impressive, but he can't touch retired New York schoolteacher Irv Gordon, who's in Guinness World Records for having driven more than 2.5 million miles in his cherry-red 1966 Volvo P1800.
Though stories such as Gilbert's and Gordon's happen once in a blue moon, people who drive their cars for several hundred thousand miles today aren't so unusual. And they're not all devotees of Swedish iron.
Virtually every marque -- Chrysler, Honda, Chevrolet, even Miata -- has a not-so-underground community that's just as proud of the car at 500,000 miles as when it was new, maybe even more. (Mercedes and Volvo hand out grille badges and window stickers.) And their secrets range from the mundane to the downright mystic.
How long should a car last?
"Days past, 100,000 miles was usually the average life of a car," says John Ibbotson, a workshop supervisor who's in charge of vehicles that are tested for Consumer Reports' Auto Test Center in Connecticut, referring to vehicles from the 1950s to 1970s.
"At 100,000 miles, we were into major engine and transmission rebuilding," Ibbotson says. "Cars in the '90s, it was 140,000, 150,000 miles."
The U.S. Department of Transportation reports the average life span of a vehicle is 12 years, or about 128,500 miles. But that could be low simply because people don't maintain them, Ibbotson says. "If you bought a car today, there shouldn't be any problem with that car going 200,000 miles," he says.
Ibbotson's tips:
Read the book. "The biggest key is doing the maintenance that's in the owner's manual," he says. Simply stick to that schedule. But amazingly, he says, "very few people read the owner's manual."
Clean me. Don't let road salt build up on a car if you're in a state where you have to worry about that. It'll rust the car's body. Money isn't the answer. Not every service will prolong your car's life. "Some dealers offer fuel-injection cleaning (for example). It's not necessary," Ibbotson says.
Pray for luck. "There is some level of luck" whether you get a car that lasts forever, Ibbotson says. He recalls his father recently sold a 1995 truck with 200,000 miles, and it was in good shape even though he had done almost "absolutely nothing" to it. Meanwhile, a friend has a newer truck of the same model, same body style, with only 65,000 miles, "and that vehicle has had much more maintenance done."
A fascination with Festivas
Suzanne Mitchell and her tiny 1992 Ford Festiva L have had quite the love affair. "We bought it when we left (New York City) and moved to the suburbs," says Mitchell, who lives in Rockland County, N.Y. She started using the Festiva to commute to her job as a TV producer. The years, and the miles, rolled by.
Today the Festiva has about 250,000 miles -- not bad for a car that cost her $5,600 new.
So much does Mitchell love this car that when the odometer approached 200,000 miles she threw a "Fiesta for the Festiva," complete with margaritas, Mexican food and a piñata filled with toy cars. About 10 people jammed into the Festiva -- including a cameraman -- to watch the odometer turn over.
Why does Mitchell adore it so? It isn't because it's beautiful. In fact, it's runty, stripped-down and tinny. But others love the Festiva, too: "I could be driving in a Bentley Continental GT, and nobody would care where I got it," Mitchell says. Yet several times each year people leave notes on the Festiva asking if she wants to sell it. "Not only notes -- but people will signal me or give me the thumbs up," she says.
"It's just incredibly, highly efficient," Mitchell says, explaining that a fill-up costs only about $15 and that the car still gets in the "high 30s" for gas mileage. "It's perfect for the city" -- shorter than her family's Mini Cooper by 4 inches, she says, yet there's more interior room than the Mini.
What has she done to keep it going? "Nothing. We repair a little rust. And I swear I've only done oil changes. And we recently put a strut in. But anybody would have to do that for a car that old." The car has never been garaged, either. It helps that the car gets mostly highway miles, Mitchell adds.
Her advice:
Change that oil. "My husband completely disagrees with me, but I change the oil religiously every 3,000 miles; hey, it works for me." (Other experts say to stick to the oil-change regimen prescribed by the owner's manual, whatever that is.)
Think simple. An inexpensive car like the Festiva has almost no electronics -- and therefore less that can send it to the mechanic, says Mitchell. Unfortunately, they don't make them much like that anymore.
Sticking with his Saturn
Duane Delegan isn't shy about it: He's frugal. Superfrugal. Growing up, when the family was "really, really poor," the Chicago-area man even recalls lending his parents money from his piggy bank.
So when Delegan buys a car, he makes it last. In 1994, Delegan splurged and bought a new four-cylinder Saturn SC2 for $14,000. About 390,000 miles later, the Saturn is still rolling. What's his secret?
Delegan says he once read about a short-haul railroad company that saved huge amounts on maintenance by not pushing its trains beyond 80% of their limits because the top 20% of speed was where of the 80% of the wear and tear occurred.
He took the lesson to heart. He rarely if ever goes faster than 60 mph, instead settling in behind a slow-moving tractor-trailer on the highway. "If you slow down on the expressways, you get in less accidents, you get less speeding tickets. . . . You get better gas mileage," says Delegan, who now lives in a rural area near Chicago but has put both city and country miles on his car. "I just checked it the other day, and I still get 36 miles to the gallon."
The Saturn has required very little: an alternator, some tires. "I think I had to replace the rear wheel bearing once, but other than that it's been OK." Every other time he fuels up, however, Delegan now has to add a quart of oil. The fact that a car like the Saturn has a plastic exterior has saved it from much rust, he adds.
A vehicle will last a long time if you just avoid the temptation to buy another, says Delegan. Buy something you can live with, that has more classic styling and color, he advises. (Alas, he says his gold Saturn looks "kind of like a beached whale" and has teardrop mag wheels, but could look worse for a 12-year-old car.)
"Anytime you want to buy a new car, wait 60 days, then remember each day, you are not making payments, paying sales tax, higher insurance fees, new licensing fees and not worrying about dents," Delegan says.
"The cost of a new car is $20,000 to $30,000. The cost of a high-mileage car without payments? Priceless."
More do's and don'ts from Delegan:
Stick it. Buy a manual transmission vehicle; it will last longer. Keep it to yourself. Never let anyone else drive your car.
Keep it simple. "Always purchase the most basic version of the car model. You will stay out of the dealership service department and save tons of money and frustrations. Power windows or seats and digital gauges always break," says Delegan. Those extras don't add much if at all to the resale value after a few years, but they can add to the headaches, he says.
The obligatory Volvo
Volvos have a reputation for longevity, but Dennis Hatfield's wife wishes his boxy 1985 740 station wagon would give up the ghost.
Fat chance. The wagon, with 473,000 miles, is Hatfield's pride and joy, and he babies it.
The 58-year-old Sacramento notary and his wife bought the Swedish stalwart new. "I used to drive a lot. I was a mortgage broker at the time, and I would drive 50 miles to my job," Hatfield says.
He didn't get really interested in the car, however, until about the time his son rear-ended someone with the Volvo, doing $4,400 in damage. "The insurance company said the car was only worth $1,000, so I bought it back from them" and made it a "daily driver." Around 390,000 miles, he began to modify it.
And how. "I had a turbo engine transplanted in it -- it's probably got 60 more horsepower in it," Hatfield says. It's got bigger pistons. A special air-fuel management system. When the original computer chip couldn't deal with this, Hatfield put in some new electronics. He's even taken it to the track on special Volvo days.
Hatfield takes a different approach than the others. He's spent a lot of money on his ride. "Oh, my goodness, maybe $20,000 -- probably more like $30,000," says Hatfield. "This is my midlife crisis," he says of his major hobby.
"It's got loud exhaust on it, and it rides real rough because of the (racing) suspension, so my wife hates it, which makes me love it" more, he adds.
When asked if it's a stick shift, Hatfield replies: "It's gonna be, but it's not yet."
Hatfield's tip:
Find a good mechanic. Get a mechanic you really trust and who will come to know your car -- someone other than the dealer, who usually charges an arm and a leg and whose work doesn't always reflect that, Hatfield says.
Automaker Saab announced recently that it would give a free car to any original U.S. Saab owner who drives the car 1 million miles or more. Spurring the challenge were Wisconsin insurance salesman Peter Gilbert and his 1989 Edwardian Gray Saab 900 SPG, whose odometer not long ago clicked over to six zeros.
His car, now in a museum, still has its original engine and turbocharger.
That's impressive, but he can't touch retired New York schoolteacher Irv Gordon, who's in Guinness World Records for having driven more than 2.5 million miles in his cherry-red 1966 Volvo P1800.
Though stories such as Gilbert's and Gordon's happen once in a blue moon, people who drive their cars for several hundred thousand miles today aren't so unusual. And they're not all devotees of Swedish iron.
Virtually every marque -- Chrysler, Honda, Chevrolet, even Miata -- has a not-so-underground community that's just as proud of the car at 500,000 miles as when it was new, maybe even more. (Mercedes and Volvo hand out grille badges and window stickers.) And their secrets range from the mundane to the downright mystic.
How long should a car last?
"Days past, 100,000 miles was usually the average life of a car," says John Ibbotson, a workshop supervisor who's in charge of vehicles that are tested for Consumer Reports' Auto Test Center in Connecticut, referring to vehicles from the 1950s to 1970s.
"At 100,000 miles, we were into major engine and transmission rebuilding," Ibbotson says. "Cars in the '90s, it was 140,000, 150,000 miles."
The U.S. Department of Transportation reports the average life span of a vehicle is 12 years, or about 128,500 miles. But that could be low simply because people don't maintain them, Ibbotson says. "If you bought a car today, there shouldn't be any problem with that car going 200,000 miles," he says.
Ibbotson's tips:
Read the book. "The biggest key is doing the maintenance that's in the owner's manual," he says. Simply stick to that schedule. But amazingly, he says, "very few people read the owner's manual."
Clean me. Don't let road salt build up on a car if you're in a state where you have to worry about that. It'll rust the car's body. Money isn't the answer. Not every service will prolong your car's life. "Some dealers offer fuel-injection cleaning (for example). It's not necessary," Ibbotson says.
Pray for luck. "There is some level of luck" whether you get a car that lasts forever, Ibbotson says. He recalls his father recently sold a 1995 truck with 200,000 miles, and it was in good shape even though he had done almost "absolutely nothing" to it. Meanwhile, a friend has a newer truck of the same model, same body style, with only 65,000 miles, "and that vehicle has had much more maintenance done."
A fascination with Festivas
Suzanne Mitchell and her tiny 1992 Ford Festiva L have had quite the love affair. "We bought it when we left (New York City) and moved to the suburbs," says Mitchell, who lives in Rockland County, N.Y. She started using the Festiva to commute to her job as a TV producer. The years, and the miles, rolled by.
Today the Festiva has about 250,000 miles -- not bad for a car that cost her $5,600 new.
So much does Mitchell love this car that when the odometer approached 200,000 miles she threw a "Fiesta for the Festiva," complete with margaritas, Mexican food and a piñata filled with toy cars. About 10 people jammed into the Festiva -- including a cameraman -- to watch the odometer turn over.
Why does Mitchell adore it so? It isn't because it's beautiful. In fact, it's runty, stripped-down and tinny. But others love the Festiva, too: "I could be driving in a Bentley Continental GT, and nobody would care where I got it," Mitchell says. Yet several times each year people leave notes on the Festiva asking if she wants to sell it. "Not only notes -- but people will signal me or give me the thumbs up," she says.
"It's just incredibly, highly efficient," Mitchell says, explaining that a fill-up costs only about $15 and that the car still gets in the "high 30s" for gas mileage. "It's perfect for the city" -- shorter than her family's Mini Cooper by 4 inches, she says, yet there's more interior room than the Mini.
What has she done to keep it going? "Nothing. We repair a little rust. And I swear I've only done oil changes. And we recently put a strut in. But anybody would have to do that for a car that old." The car has never been garaged, either. It helps that the car gets mostly highway miles, Mitchell adds.
Her advice:
Change that oil. "My husband completely disagrees with me, but I change the oil religiously every 3,000 miles; hey, it works for me." (Other experts say to stick to the oil-change regimen prescribed by the owner's manual, whatever that is.)
Think simple. An inexpensive car like the Festiva has almost no electronics -- and therefore less that can send it to the mechanic, says Mitchell. Unfortunately, they don't make them much like that anymore.
Sticking with his Saturn
Duane Delegan isn't shy about it: He's frugal. Superfrugal. Growing up, when the family was "really, really poor," the Chicago-area man even recalls lending his parents money from his piggy bank.
So when Delegan buys a car, he makes it last. In 1994, Delegan splurged and bought a new four-cylinder Saturn SC2 for $14,000. About 390,000 miles later, the Saturn is still rolling. What's his secret?
Delegan says he once read about a short-haul railroad company that saved huge amounts on maintenance by not pushing its trains beyond 80% of their limits because the top 20% of speed was where of the 80% of the wear and tear occurred.
He took the lesson to heart. He rarely if ever goes faster than 60 mph, instead settling in behind a slow-moving tractor-trailer on the highway. "If you slow down on the expressways, you get in less accidents, you get less speeding tickets. . . . You get better gas mileage," says Delegan, who now lives in a rural area near Chicago but has put both city and country miles on his car. "I just checked it the other day, and I still get 36 miles to the gallon."
The Saturn has required very little: an alternator, some tires. "I think I had to replace the rear wheel bearing once, but other than that it's been OK." Every other time he fuels up, however, Delegan now has to add a quart of oil. The fact that a car like the Saturn has a plastic exterior has saved it from much rust, he adds.
A vehicle will last a long time if you just avoid the temptation to buy another, says Delegan. Buy something you can live with, that has more classic styling and color, he advises. (Alas, he says his gold Saturn looks "kind of like a beached whale" and has teardrop mag wheels, but could look worse for a 12-year-old car.)
"Anytime you want to buy a new car, wait 60 days, then remember each day, you are not making payments, paying sales tax, higher insurance fees, new licensing fees and not worrying about dents," Delegan says.
"The cost of a new car is $20,000 to $30,000. The cost of a high-mileage car without payments? Priceless."
More do's and don'ts from Delegan:
Stick it. Buy a manual transmission vehicle; it will last longer. Keep it to yourself. Never let anyone else drive your car.
Keep it simple. "Always purchase the most basic version of the car model. You will stay out of the dealership service department and save tons of money and frustrations. Power windows or seats and digital gauges always break," says Delegan. Those extras don't add much if at all to the resale value after a few years, but they can add to the headaches, he says.
The obligatory Volvo
Volvos have a reputation for longevity, but Dennis Hatfield's wife wishes his boxy 1985 740 station wagon would give up the ghost.
Fat chance. The wagon, with 473,000 miles, is Hatfield's pride and joy, and he babies it.
The 58-year-old Sacramento notary and his wife bought the Swedish stalwart new. "I used to drive a lot. I was a mortgage broker at the time, and I would drive 50 miles to my job," Hatfield says.
He didn't get really interested in the car, however, until about the time his son rear-ended someone with the Volvo, doing $4,400 in damage. "The insurance company said the car was only worth $1,000, so I bought it back from them" and made it a "daily driver." Around 390,000 miles, he began to modify it.
And how. "I had a turbo engine transplanted in it -- it's probably got 60 more horsepower in it," Hatfield says. It's got bigger pistons. A special air-fuel management system. When the original computer chip couldn't deal with this, Hatfield put in some new electronics. He's even taken it to the track on special Volvo days.
Hatfield takes a different approach than the others. He's spent a lot of money on his ride. "Oh, my goodness, maybe $20,000 -- probably more like $30,000," says Hatfield. "This is my midlife crisis," he says of his major hobby.
"It's got loud exhaust on it, and it rides real rough because of the (racing) suspension, so my wife hates it, which makes me love it" more, he adds.
When asked if it's a stick shift, Hatfield replies: "It's gonna be, but it's not yet."
Hatfield's tip:
Find a good mechanic. Get a mechanic you really trust and who will come to know your car -- someone other than the dealer, who usually charges an arm and a leg and whose work doesn't always reflect that, Hatfield says.
8 costly car features you don't need
Sure, individual climate control sounds neat, but adjusting the vents does the trick just as well -- and you save $800.
It had to happen: Somebody was bound to invent a car that can navigate better than a human. But the Lexus LS 460, which can parallel park on its own, is only for a select few: those willing to tack a few extra thousand onto a $60,000 to $70,000 car to compensate for their deficiencies behind the wheel.
But even among midprice cars these days, there's a dizzying menu of gizmos that can open and close the doors for you, create multiple environmental zones, keep your kids entertained (and silent) and even massage your back. By the time you've compiled your wish list, however, chances are you've added $5,000 or even $10,000 to the price of a car that seemed like a good deal when you were just looking at the list price.
Since I test-drive dozens of new cars each year, people often ask if this or that feature is worth paying for. The answer, of course, depends on your budget. Some options, such as flexible seating configurations or hidden storage nooks, provide lots of functionality for multitasking drivers and their families. But there are just as many features you'll never miss if you go without them, even though manufacturers and salespeople might tell you it's the latest must-have technology.
Not all of these features are offered a la carte. They're often bundled into packages, so you can't customize as specifically as you'd like. But if you eliminate a few unnecessary features, you may be able to bypass an entire $3,000 or $4,000 options package, or step down a whole trim line, and spend the money on better options or aftermarket products -- or just keep the cash in your savings. Some purists will argue with these choices, of course, and there are buyers who simply want the most loaded model they can get. But most car buyers can do without the following features and never know the difference:
1. Automatic stick shift This is also known by proprietary names such as Autostick, Tiptronic, Steptronic or Shiftronic. This allows you to shift gears without having to press a clutch, usually by pushing the gearshift up or down, or tapping paddles or buttons on the steering wheel.
Why you should skip it: Automatic shifting is meant to convey a sporty sensation to drivers who don't know how to drive a manual transmission or don't want to. But it's more of a nuisance than a thrill, unless you're driving a true sports machine, with Formula One-style paddles, like the Mercedes SLK or the BMW M5. On most other cars, people just end up leaving it in drive. Ho-hum.
Cost savings: $1,000 or more.
Instead: Shop for a car with a continuously variable transmission. This new technology increases engine speed without shifting from gear to gear. What drivers notice is a smoother ride and slightly better gas mileage.
2. All-wheel drive This sends power to all four wheels, instead of just the front or the rear axles.
Why you should skip it: If you live where there's sloppy weather and routinely drive in snow or mud, then, yeah, all-wheel drive is handy. But most people don't go out in snow anyway. And there are misperceptions about the safety benefits of all-wheel drive. It can help you get out of a snowbank, but it won't stop you from sliding on ice, or reduce braking distance. It also lowers gas mileage.
Cost savings: $1,500 or more.
Instead: Anti-lock brakes, stability control and side-impact and side-curtain air bags have proven safety value. Particularly on SUVs -- more prone to rollovers -- these safety options should be considered essential.
3. Compact-disc changer Audio systems that can handle multiple CDs are becoming standard -- just as CDs are going the way of vinyl.
Why you should skip it: With iPods and MP3 players becoming ubiquitous, there's no need anymore to junk up your car with stacks of CDs.
Cost savings: $500 or more.
Instead: A single CD player with AM/FM is fine -- as long as it has an auxiliary jack for external devices. Also consider satellite radio. After listening to 150 channels of mostly commercial-free music and talk, you'll realize how dead commercial radio is. And look for an audio system with duplicate controls on the steering wheel, which helps keep your eyes on the road and off the dashboard.
4. Power folding seats This is an upscale option on many vehicles with third-row seats. Push a button, and it's like magic: The seat disappears and you're left with a flat cargo space.
Why you should skip it: On well-designed vehicles like the Honda Odyssey and the GMC Acadia, it's a breeze to fold the seats manually -- pull or push a couple of levers and you're done. It's usually faster than waiting for a motor to do the job, plus there's no complicated machinery that might break.
Cost savings: $700.
Instead: On SUVs and minivans, a power-operated liftgate can be very helpful for people, especially women, who find the rear hatch too high to reach or heavy to close. Plus, if your hands are full with groceries or kids, you can pop open a power liftgate at the touch of a button.
5. Keyless ignition As long as the key fob is in your purse or pocket, all you have to do is push a button to start the car and drive off.
Why you should skip it: Keyless ignition is a cool feature that will probably be standard someday. But on most cars today, it falls one step short, since you still must have the key fob in hand to unlock the car. Then you have to find someplace to stash the key fob -- an invitation to misplace it. Some cars even have a little slot where you can store the "keyless" unlocking device. Isn't that the same thing the ignition slot used to do?
Cost savings: $200 to $400.
Instead: Remote start is a wonderful option, in winter and summer both. It lets you start your car from a distance, without being inside it, so you can cool or warm the car for a few minutes before you get in.
6. Xenon headlamps Also known as high-intensity-discharge headlamps, these give off more light than ordinary halogen lamps and have the cool blue tint that often is their main appeal.
Why you should skip it: The light beam from xenon bulbs shines farther than many people can see or react to, and some experts worry that the stronger beam could interfere with the vision of oncoming drivers.
Cost savings: $300 to $500.
Instead: Get automatic headlamps. You set the cockpit switch to "A," and the lights automatically go on when it's dark and off when it's light. Even better: You no longer have to worry about leaving your lights on and running down your battery.
7. Dual-zone climate control This lets you choose different temperature settings for the driver and passenger side. Tri-zone systems have a third control for the rear seat.
Why you should skip it: People who are really this fussy can achieve the same result by manipulating the air vents and fan settings. Besides, come on: If the driver's temp is 68, and the passenger's is 72, do you really believe it's not 70 inside the whole car?
Cost savings: $800 or more.
Instead: For people who drive in cold weather, heated seats are a delight -- and they often warm up faster than the climate system itself. Cooled seats seem to be less effective. But in both cases, they offer truly personalized comfort that doesn't bleed into somebody else's space.
8. Factory-installed navigation systems Nav systems are marvelous, especially for people who drive routinely in unfamiliar places. Letting the onboard computer guide you to an address or destination is far better than reading a MapQuest printout, calling for directions on a cell phone -- or, God forbid, having to stop and ask a stranger.
Why you should skip it: The problem with installed nav systems is they're very pricey -- upward of $1,500 in most cases. Plus, they're so popular that some manufacturers offer them only on the upper trim lines of a given model, which draws even more money out of your pocket.
Cost savings: $1,500 to $2,000.
Instead: Shop for a portable, off-the-shelf navigation system. Good ones are available for $500 or less and can be moved from car to car.
This article was reported and written by Rick Newman for U.S. News & World Report.
Published June 26, 2007
It had to happen: Somebody was bound to invent a car that can navigate better than a human. But the Lexus LS 460, which can parallel park on its own, is only for a select few: those willing to tack a few extra thousand onto a $60,000 to $70,000 car to compensate for their deficiencies behind the wheel.
But even among midprice cars these days, there's a dizzying menu of gizmos that can open and close the doors for you, create multiple environmental zones, keep your kids entertained (and silent) and even massage your back. By the time you've compiled your wish list, however, chances are you've added $5,000 or even $10,000 to the price of a car that seemed like a good deal when you were just looking at the list price.
Since I test-drive dozens of new cars each year, people often ask if this or that feature is worth paying for. The answer, of course, depends on your budget. Some options, such as flexible seating configurations or hidden storage nooks, provide lots of functionality for multitasking drivers and their families. But there are just as many features you'll never miss if you go without them, even though manufacturers and salespeople might tell you it's the latest must-have technology.
Not all of these features are offered a la carte. They're often bundled into packages, so you can't customize as specifically as you'd like. But if you eliminate a few unnecessary features, you may be able to bypass an entire $3,000 or $4,000 options package, or step down a whole trim line, and spend the money on better options or aftermarket products -- or just keep the cash in your savings. Some purists will argue with these choices, of course, and there are buyers who simply want the most loaded model they can get. But most car buyers can do without the following features and never know the difference:
1. Automatic stick shift This is also known by proprietary names such as Autostick, Tiptronic, Steptronic or Shiftronic. This allows you to shift gears without having to press a clutch, usually by pushing the gearshift up or down, or tapping paddles or buttons on the steering wheel.
Why you should skip it: Automatic shifting is meant to convey a sporty sensation to drivers who don't know how to drive a manual transmission or don't want to. But it's more of a nuisance than a thrill, unless you're driving a true sports machine, with Formula One-style paddles, like the Mercedes SLK or the BMW M5. On most other cars, people just end up leaving it in drive. Ho-hum.
Cost savings: $1,000 or more.
Instead: Shop for a car with a continuously variable transmission. This new technology increases engine speed without shifting from gear to gear. What drivers notice is a smoother ride and slightly better gas mileage.
2. All-wheel drive This sends power to all four wheels, instead of just the front or the rear axles.
Why you should skip it: If you live where there's sloppy weather and routinely drive in snow or mud, then, yeah, all-wheel drive is handy. But most people don't go out in snow anyway. And there are misperceptions about the safety benefits of all-wheel drive. It can help you get out of a snowbank, but it won't stop you from sliding on ice, or reduce braking distance. It also lowers gas mileage.
Cost savings: $1,500 or more.
Instead: Anti-lock brakes, stability control and side-impact and side-curtain air bags have proven safety value. Particularly on SUVs -- more prone to rollovers -- these safety options should be considered essential.
3. Compact-disc changer Audio systems that can handle multiple CDs are becoming standard -- just as CDs are going the way of vinyl.
Why you should skip it: With iPods and MP3 players becoming ubiquitous, there's no need anymore to junk up your car with stacks of CDs.
Cost savings: $500 or more.
Instead: A single CD player with AM/FM is fine -- as long as it has an auxiliary jack for external devices. Also consider satellite radio. After listening to 150 channels of mostly commercial-free music and talk, you'll realize how dead commercial radio is. And look for an audio system with duplicate controls on the steering wheel, which helps keep your eyes on the road and off the dashboard.
4. Power folding seats This is an upscale option on many vehicles with third-row seats. Push a button, and it's like magic: The seat disappears and you're left with a flat cargo space.
Why you should skip it: On well-designed vehicles like the Honda Odyssey and the GMC Acadia, it's a breeze to fold the seats manually -- pull or push a couple of levers and you're done. It's usually faster than waiting for a motor to do the job, plus there's no complicated machinery that might break.
Cost savings: $700.
Instead: On SUVs and minivans, a power-operated liftgate can be very helpful for people, especially women, who find the rear hatch too high to reach or heavy to close. Plus, if your hands are full with groceries or kids, you can pop open a power liftgate at the touch of a button.
5. Keyless ignition As long as the key fob is in your purse or pocket, all you have to do is push a button to start the car and drive off.
Why you should skip it: Keyless ignition is a cool feature that will probably be standard someday. But on most cars today, it falls one step short, since you still must have the key fob in hand to unlock the car. Then you have to find someplace to stash the key fob -- an invitation to misplace it. Some cars even have a little slot where you can store the "keyless" unlocking device. Isn't that the same thing the ignition slot used to do?
Cost savings: $200 to $400.
Instead: Remote start is a wonderful option, in winter and summer both. It lets you start your car from a distance, without being inside it, so you can cool or warm the car for a few minutes before you get in.
6. Xenon headlamps Also known as high-intensity-discharge headlamps, these give off more light than ordinary halogen lamps and have the cool blue tint that often is their main appeal.
Why you should skip it: The light beam from xenon bulbs shines farther than many people can see or react to, and some experts worry that the stronger beam could interfere with the vision of oncoming drivers.
Cost savings: $300 to $500.
Instead: Get automatic headlamps. You set the cockpit switch to "A," and the lights automatically go on when it's dark and off when it's light. Even better: You no longer have to worry about leaving your lights on and running down your battery.
7. Dual-zone climate control This lets you choose different temperature settings for the driver and passenger side. Tri-zone systems have a third control for the rear seat.
Why you should skip it: People who are really this fussy can achieve the same result by manipulating the air vents and fan settings. Besides, come on: If the driver's temp is 68, and the passenger's is 72, do you really believe it's not 70 inside the whole car?
Cost savings: $800 or more.
Instead: For people who drive in cold weather, heated seats are a delight -- and they often warm up faster than the climate system itself. Cooled seats seem to be less effective. But in both cases, they offer truly personalized comfort that doesn't bleed into somebody else's space.
8. Factory-installed navigation systems Nav systems are marvelous, especially for people who drive routinely in unfamiliar places. Letting the onboard computer guide you to an address or destination is far better than reading a MapQuest printout, calling for directions on a cell phone -- or, God forbid, having to stop and ask a stranger.
Why you should skip it: The problem with installed nav systems is they're very pricey -- upward of $1,500 in most cases. Plus, they're so popular that some manufacturers offer them only on the upper trim lines of a given model, which draws even more money out of your pocket.
Cost savings: $1,500 to $2,000.
Instead: Shop for a portable, off-the-shelf navigation system. Good ones are available for $500 or less and can be moved from car to car.
This article was reported and written by Rick Newman for U.S. News & World Report.
Published June 26, 2007
Tuesday, June 12, 2007
Close the gap in your car insurance
What could make a bad car deal worse? A wreck that leaves you owing thousands on a car you don't own anymore.
By Liz Pulliam Weston
If you did everything wrong while acquiring your last vehicle, you may still be able to do at least one thing right. And that's buying so-called "gap insurance."
Gap insurance kicks in when the amount your insurer would pay for your totaled or stolen car falls short of what you still owe on the loan or lease.
Chances are good you need gap insurance if:
You purchased a new car and didn't have a down payment of at least 20%.
You're leasing a car.
You're financing for more than four years.
You rolled debt from your last car into your current auto loan.
I outlined why these car-buying practices are usually bad ideas in "The real reason you're broke." They are, unfortunately, fairly common scenarios that typically leave people "upside down," or owing more on their cars than the vehicles are worth.
Yet gap insurance remains a relatively unknown product, said Patrick Olsen, managing editor of Cars.com.
"As soon as you drive off the lot, depreciation kicks in," Olsen said. "I don't think people are aware of the danger they could be in."
If you don't make a 20% down payment, for example, you'll be upside-down on the car from the minute you drive off the lot, and you'll typically stay that way for two to three years, depending on the length of your loan. If you get in an accident or the car is stolen during that time, you may be in trouble.
"The insurance company will pay you what the vehicle is (currently) worth, and that's not necessary the same as what you owe," said Mike Meredith, financial editor for MSN Autos. "It could be a lot less."
You could be pushed over the edge
Here's an example. You buy or lease a car for around $25,000. Several months down the road, it's totaled, but your insurance check covers only the car's current value, which is about $20,000. Not only do you have to find new wheels, but you're on the hook to the finance or lease company for that $5,000 gap. It's not uncommon for cars to lose two-thirds of their value in just three years.
If you rolled debt from your old loan into your new one, that amount you owe could be even larger. One out of four vehicles that are financed includes debt rolled over from a previous vehicle, according to vehicle research site Edmunds.com, and the average amount of so-called "negative equity" is more than $4,000.
If your finances are already shaky, the gap between what you owe and what you're paid could be enough to push you right over the edge.
"It could be the difference between staying afloat and having to declare bankruptcy," said Phil Reed, consumer advice editor for Edmunds.com and co-author of the book "Strategies for Smart Car Buyers." At a minimum, you could be saddled with expensive and unwelcome debt.
If you're not sure where you stand, you can use the Kelley Blue Book tool on MSN Autos to see how much your car is really worth and compare that to what you owe. Insurers typically pay an amount somewhere between the car's trade-in value and what you'd get in a private sale.
Not to worry
Now, there are two scenarios where underwater drivers don't have to worry about gap insurance:
If it's already included in your lease. In some states, including New York, leases by law must include gap coverage, Olsen said.
If your auto policy is written to cover the gap. This isn't the norm, but some auto policies promise to pay off a loan regardless of what the car's worth. You can try reading your policy to see if you're covered for any gaps, or simply call your insurer and ask.
If you don't have coverage already, the solution fortunately doesn't have to be that expensive. A premium of a few hundred dollars should cover you for the life of the loan or lease. You typically can buy the coverage:
From the dealership or auto finance company. It's probably the most expensive choice, especially if you roll the cost into your monthly note. You'll be paying interest on it, plus paying for coverage even after you're no longer upside-down on your loan.
From your current auto insurer. It's usually the best choice, if your insurer offers the coverage. Farmers Insurance, for example, offers gap coverage at a flat rate of $25 every six months to Washington drivers. You can drop it once you're sure you're in the black.
From another insurance carrier. You can look for gap insurance providers; make sure they have top marks from one of the rating services such as A.M. Best, Standard & Poor's or TheStreet.com Ratings (formerly Weiss Ratings).
The best time to shop for coverage is before you even set foot on the dealer's lot, Reed said. He advises calling your insurer to get a quote for coverage as soon as you decide what car you're going to buy. But all isn't lost if you fail to plan that far ahead.
"It'll be cheaper through your agent than through a dealership," Reed said, "but you can always buy it (at the dealership) and cancel it later" once you've got coverage with your insurer.
If you're a savvy enough negotiator, you may be able to get the dealership to lower its premium, Meredith said, particularly if you already know what coverage would cost through your insurer.
Some dealerships and insurers require you to get the coverage when you buy the car, but others let you add it later. If you don't have gap coverage and need it, it's worth the effort to search for a company that will sell it to you.
Like most insurance, it's something you may never need, Meredith said, but "it's a really good thing to have if you need it."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
By Liz Pulliam Weston
If you did everything wrong while acquiring your last vehicle, you may still be able to do at least one thing right. And that's buying so-called "gap insurance."
Gap insurance kicks in when the amount your insurer would pay for your totaled or stolen car falls short of what you still owe on the loan or lease.
Chances are good you need gap insurance if:
You purchased a new car and didn't have a down payment of at least 20%.
You're leasing a car.
You're financing for more than four years.
You rolled debt from your last car into your current auto loan.
I outlined why these car-buying practices are usually bad ideas in "The real reason you're broke." They are, unfortunately, fairly common scenarios that typically leave people "upside down," or owing more on their cars than the vehicles are worth.
Yet gap insurance remains a relatively unknown product, said Patrick Olsen, managing editor of Cars.com.
"As soon as you drive off the lot, depreciation kicks in," Olsen said. "I don't think people are aware of the danger they could be in."
If you don't make a 20% down payment, for example, you'll be upside-down on the car from the minute you drive off the lot, and you'll typically stay that way for two to three years, depending on the length of your loan. If you get in an accident or the car is stolen during that time, you may be in trouble.
"The insurance company will pay you what the vehicle is (currently) worth, and that's not necessary the same as what you owe," said Mike Meredith, financial editor for MSN Autos. "It could be a lot less."
You could be pushed over the edge
Here's an example. You buy or lease a car for around $25,000. Several months down the road, it's totaled, but your insurance check covers only the car's current value, which is about $20,000. Not only do you have to find new wheels, but you're on the hook to the finance or lease company for that $5,000 gap. It's not uncommon for cars to lose two-thirds of their value in just three years.
If you rolled debt from your old loan into your new one, that amount you owe could be even larger. One out of four vehicles that are financed includes debt rolled over from a previous vehicle, according to vehicle research site Edmunds.com, and the average amount of so-called "negative equity" is more than $4,000.
If your finances are already shaky, the gap between what you owe and what you're paid could be enough to push you right over the edge.
"It could be the difference between staying afloat and having to declare bankruptcy," said Phil Reed, consumer advice editor for Edmunds.com and co-author of the book "Strategies for Smart Car Buyers." At a minimum, you could be saddled with expensive and unwelcome debt.
If you're not sure where you stand, you can use the Kelley Blue Book tool on MSN Autos to see how much your car is really worth and compare that to what you owe. Insurers typically pay an amount somewhere between the car's trade-in value and what you'd get in a private sale.
Not to worry
Now, there are two scenarios where underwater drivers don't have to worry about gap insurance:
If it's already included in your lease. In some states, including New York, leases by law must include gap coverage, Olsen said.
If your auto policy is written to cover the gap. This isn't the norm, but some auto policies promise to pay off a loan regardless of what the car's worth. You can try reading your policy to see if you're covered for any gaps, or simply call your insurer and ask.
If you don't have coverage already, the solution fortunately doesn't have to be that expensive. A premium of a few hundred dollars should cover you for the life of the loan or lease. You typically can buy the coverage:
From the dealership or auto finance company. It's probably the most expensive choice, especially if you roll the cost into your monthly note. You'll be paying interest on it, plus paying for coverage even after you're no longer upside-down on your loan.
From your current auto insurer. It's usually the best choice, if your insurer offers the coverage. Farmers Insurance, for example, offers gap coverage at a flat rate of $25 every six months to Washington drivers. You can drop it once you're sure you're in the black.
From another insurance carrier. You can look for gap insurance providers; make sure they have top marks from one of the rating services such as A.M. Best, Standard & Poor's or TheStreet.com Ratings (formerly Weiss Ratings).
The best time to shop for coverage is before you even set foot on the dealer's lot, Reed said. He advises calling your insurer to get a quote for coverage as soon as you decide what car you're going to buy. But all isn't lost if you fail to plan that far ahead.
"It'll be cheaper through your agent than through a dealership," Reed said, "but you can always buy it (at the dealership) and cancel it later" once you've got coverage with your insurer.
If you're a savvy enough negotiator, you may be able to get the dealership to lower its premium, Meredith said, particularly if you already know what coverage would cost through your insurer.
Some dealerships and insurers require you to get the coverage when you buy the car, but others let you add it later. If you don't have gap coverage and need it, it's worth the effort to search for a company that will sell it to you.
Like most insurance, it's something you may never need, Meredith said, but "it's a really good thing to have if you need it."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
Wednesday, May 30, 2007
Top 10 Auto Loan Mistakes
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.
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.
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.
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