CREDIT

8 Steps to Buying a Used Car

August 18, 2017 by admin 4 Comments

How to drive a deal on your next used car.

Buying a used car has its advantages as the steepest depreciation costs for new cars come during the first few years of ownership. Used cars come priced to reflect steep depreciation, are generally cheaper to insure then new cars, and often come with the original warranties.

Take the following eight steps to help you find a used car that you want and can afford.

Step No. 1 — Identify Your Style

Nissan Versa Note used car — Nissan Versa Note

Choose a used vehicle based on your needs. Quite easily you can find a “great deal” on a model that you may not want, including a gas-guzzling SUV such as a Ford Expedition. Then again, that low-cost subcompact Nissan Versa Note may be too small of a car to suit your needs. Understand your reason for wanting a certain type of vehicle.

If you have a family, a sedan or a crossover might be the logical place to begin your search. Narrow your list to a certain vehicle size, such as a midsize sedan, and attempt to restrict your search further to a specific make/model vehicle. Visit sites such as Consumer Reports, Motor Trend, and Edmunds to read product reviews and to obtain pricing information.

Step No. 2 — Establish a Budget

Your desire may be for a luxury sedan, but your wallet may tell you that you can afford a mainstream family sedan, such as the Ford Fusion, Kia Optima or Toyota Camry only. Determine what you can afford and make your plans accordingly.

Learn what the prevailing prices are for a particular vehicle by visiting Kelley Blue Book (KBB). Compare KBB’s dealer and private party sale prices with Internet car ads found on Craigslist and eBay. Know that used car pricing will vary depending on several factors, including mileage, trim level, vehicle condition, and location.

Ford Fusion Hybrid used car — Ford Fusion Hybrid

Step No. 3 — Arrange Your Cash or Apply for Credit

Unless you have enough cash on hand to purchase a used car, you will rely on credit to finance your transaction. A used car dealer may offer to finance your loan, but you can typically find better rates by shopping around.

The logical first place to look is where you currently do your banking. Banks and credit unions provide financing, with some financial institutions offering loans on vehicles up to 10 years old. Get quotes from at least three lenders and know that both your credit score and repayment ability will be big factors in determining your creditworthiness.

See: Federal Trade Commission: Understanding Vehicle Financing

Step No. 4 — Know Your Market

Porsche Cayman S used car — Porsche Cayman S

Choose an uncommon model such as a hard to find coupe or gas-sipping compact and you will find the pickings slim and your cost may come in higher than anticipated. Select a popular model such as the Hyundai Sonata and your choices may prove greater and the prices fairer.

Some vehicles do not fare well outside of certain markets. Convertibles such as the Chrysler 200 are popular in Sunbelt states while four-wheel-drive SUVs are most desired in areas where winter weather and tough terrain prevail. Then again if you want a pickup truck and live in New York City you may find a seller eager to unload a vehicle with few takers.

Step No. 5 —Search For a Car

Consider both private party sellers and used car dealers when shopping for a car. Generally, you will pay less when buying privately, but with a used car dealer you may get a warranty on top of the balance of the manufacturer’s warranty.

Buying from a dealer may be the best option for you if you want a certified used car. Such models must meet rigorous guidelines instituted and backed by the manufacturer. Typically, cars no older than two or three years old qualify, but some manufacturers back cars up to five or six years old.

You can also check the fleet inventories of major car rental companies such as Hertz, Budget, and Enterprise. Although such vehicles are often driven hard, they’re also usually very well maintained. You may find a bargain and still get a warranty with it.

See: MSN Autos: Survival Guide to Buying a Used Car

Dodge Charger SE used car — Dodge Charger SE

Step No. 6 — Test and Inspect

Once you find a car that is of interest to you, take it for a test drive. Keep the audio system off and listen for how the engine turns over, the transmission engages and how the brakes react when you come to a hard stop. Have the owner show you how various technological features work, including the audio and navigation systems, climate control, sunroof and other electronic amenities.

Inspect the car carefully, looking for signs of wear and tear or concealed damage. New carpeting may hide rust while hazed over headlamps in a newer model could signal water damage. Ask the owner for repair records and invest in a vehicle history report. (Here is an excellent article that details the limits and sometimes the pitfalls with vehicle history reports — Limitations and Problems with Carfax or any Vehicle History Report).

If possible, take the car to your mechanic to have it evaluated. He will tell you what problems are present, if any.

See: Accuweather: Thousands of Water-Damaged Cars May Hit the Market in Wake of Texas Flooding

Step No. 7 — Make An Offer

Your earlier research can pay off when it comes to making an offer for a vehicle. KBB research may give you a price very close to what any vehicle is worth, enabling you to negotiate from a position of strength.

Know that if the owner has priced the car according to the information she uncovered herself, you may have little room to negotiate. Still, offer a reasonable price and wait for a counteroffer. Find a common ground where you both can declare victory and you’ll have a deal.

See: ABC News: Haggling 101: How to Set the Opening Offer for a Used Car

Step No. 8 — Complete the Deal

The last step for sealing your used car deal is to make your payment. If you have a pre-arranged loan, your dealer will handle the paperwork including the contract. For a private party deal, your lender may issue you a check for the amount due. Cash deals are best handled by signing a contract and obtaining a receipt.

Have the title signed over to you by the owner. Take your car to the department of motor vehicles to have it registered and a new title issued. If there is a lien on your car — that is, you took out a loan — the lienholder’s name will appear on the title retained by the lender. Register your car, pay the required fees and taxes, and obtain new tags. Contact your insurance company to insure your vehicle.

(See Also — How to Resolve a Private Seller Lien)

Accomplish Each Step Carefully

Never rush into a car purchase, whether buying used or new. Likely, you will keep your car for a long time, therefore complete each step carefully to get the model that is right for you.

See Also — How to Resolve a Private Seller Lien

TransUnion: Longer Term Auto Loans Increase Odds of Default

July 15, 2016 by admin Leave a Comment

Consumer credit reporting agency sees increased risk of default on some loans.

Easy credit has hurt consumers before and the current credit underwriting climate is no exception. A study conducted by the credit reporting agency TransUnion found the average auto loan term has expanded from 62 months in 2010 to 67 months in 2015.

TransUnion discovered that seven of 10 new auto loans had terms longer than 60 months, up from about half of all loans in 2015 (as of the third quarter of 2015 (July-September)). The agency also found the length of time a consumer keeps a loan and such loans remain in a lender’s portfolio has, in fact, declined.

What accounts for the discrepancy? It’s quite simple — more consumers are refinancing their car loans. This means original lenders are losing customers to refinancers. At the same time, consumers are extending their overall payment terms in an effort to afford their cars — one long-term loan becomes a refinanced long for a super-extended auto loan.

Longer Term Auto Loans

falling money The TransUnion study determined that car loan terms between 73 and 84 months have more than doubled between 2010 and 2015. Indeed, one-quarter of all loans originated in the third quarter of 2015 were for loan terms between 73 and 84 months, compared to just 10 percent five years earlier.

Another factor the TransUnion researchers noted that even as average new auto loan amounts increased during the five-year period, the average monthly payment declined as consumers chose the extended loan terms.

For example, in the third quarter of 2015, the average new auto loan amount was $21,368, compared to $18,008 five years earlier. At the same time, the average new auto loan payment had fallen to $398 per month from $420 per month five years earlier.

Smaller monthly payments should help consumers afford their loans, but TransUnion found that consumers holding longer loans are more likely to fall behind on their payments by at least 60 days (seriously delinquent) than those with shorter terms. And it wasn’t just sub-prime borrowers who were delinquent at a greater rate — the trend affected prime and super prime borrowers as well.

Mitigating Auto Loan Risk

Jason Laky, senior vice president and automotive business leader for TransUnion, noted, “Longer auto loan terms allow consumers to keep payment levels reasonable as they finance more expensive vehicles. However, consumers who cannot afford the monthly payment on a shorter term for the same loan are riskier, and we see this manifested in the higher delinquency rates for 72- and 84-month loans. We encourage lenders to use readily available risk analysis tools to identify borrowers who are more likely to go delinquent with an extended term, to ensure consumers are receiving loans that they can manage.”

For consumers with sufficient cash flow, the risk of a longer term auto loan defaulting diminishes according to TransUnion. Thus, the credit reporting agency urges lenders to carefully explore all applicant debt when underwriting, including mortgages, credit card payments, student loans, and other debt commitment. In effect, an “aggregate excess payment” or (AEP) algorithm is useful for helping lenders determine lending risk and make their decisions accordingly.

As for consumers, affording a new car may mean much longer auto loan payments, going well beyond the original loan term all in an effort to purchase beyond their capabilities.

Recent News — Ford: All-New 3.5-Liter, V-6 Engine Offers Significant Power Boost

Are Pull-Ahead Lease Offers a Good Deal?

July 6, 2016 by admin 4 Comments

Getting out of a lease early the no-cost way.

2016 Toyota Tacoma

The call came out of the blue: “Mr. Keegan, this is “John” from XYZ car dealer. We were wondering if you are interested in getting out of your current lease in exchange for moving on to a new vehicle now?” That call came seven months before our current lease expires or well before the usual 90 days “pull-ahead” lease offers.

What are pull-ahead lease offers? Quite simply, it is a dealer or manufacturer plan to allow you to end your lease early without an early termination fee and with the sole purpose of getting you into a new vehicle. Before you can make a move to a competing brand or dealer, a representative reaches out to gauge your interest.

Your Pull-Ahead Offer

For people who regularly lease their vehicles, getting out of a current lease can certainly be appealing. Most leases run for about three years and you may be ready to make a move. However, without a pull-ahead offer, you’re stuck unless you pay costly early termination fees.

2016 Chevrolet Camaro SS

Fortunately, you don’t always have to wait for “the call” to get out of your lease. There are two other ways to learn if an early lease termination program is available:

1. Visit the manufacturer’s website. Car manufacturers routinely push pull-ahead programs, although that information isn’t always published front and center. Head to the manufacturer’s website and you’ll usually see current offers prominently displayed. However, to find pull-ahead offers, you may have to access the “shopping tools” or “local specials” tab to learn more.

2. Head to the dealer’s website. While you’re still logged in, head to the website for the dealer who arranged your current lease. If there is a pull-ahead offer, it should be prominently listed on the front page or at least included on its financing and leasing section. But don’t give up if you don’t see an offer — contact the dealer’s business office directly. If you no longer live in the general area, find a local dealer’s website and do the same.

If you are contacted by a dealer representative as I was, you don’t need to make your decision immediately. Instead, ask the representative for his or her name and phone number as well as for the offer expiration date. Yes, there may be a narrow window to take advantage of the offer.

2016 Audi A3 Sportback e-tron

Consider getting out of your lease if any of the following pertain to you:

1. Your vehicle needs have changed. That cute little roadster was sweet while you were dating, but you have since married and now a baby is on the way. Whatever you’re currently driving may not suit your present needs.

2. You want to lower your monthly payments. For some reason you got carried away and leased a vehicle that costs more than what you can afford and is also more than what you need. Put the struggle behind you by shopping for a new vehicle with reasonable lease payments.

3. You have exceeded your allotted miles. If you have exceeded your allotted miles or will do so prior to lease termination, then you may have to pay the 20 cents per mile overage cost. On the other hand, you can negotiate this cost away as part of the pull-ahead lease offer.

4. Your tastes have changed. Life circumstances are not the only reason why you may want out of your current lease. The car you have isn’t what you want to drive at this stage in your life. Terminating the lease early through a pull-ahead program will give you the freedom to make a new choice now.

2016 Chrysler 200C

Understand the Offer

There is no “one size fits all” pull-ahead offer from the manufacturers. You need to understand the details to ensure that none of the remaining payments are charged to you.

Further, whatever lease offers are provided by the manufacturer at the time should be available for you. For example, if a $1,500 bonus on leases is offered, you can then apply that bonus to your next lease.

Again, make sure that the program pays off your current lease and doesn’t add fees to your new lease.

Pull Ahead or Wait

As for our family, we’ve decided to wait until early fall before making a decision about our next vehicle. In the meantime, we’ll enjoy our current lease while carefully weighing our options.

Either way, we’re in the driver’s seat and will do what every consumer should do when buying or leasing a new car — making an informed decision.

See Also — Right Now: Lease a Used Car

Photos copyright Auto Trends Magazine.

How to Get Rid of a Pricey Car Loan Without Ruining Your Credit

June 22, 2016 by admin 1 Comment

What to do with that expensive car note.

When you purchased the car you thought you could afford the monthly payments. Unfortunately, you were wrong. Instead, each month finds you struggling mightily to come up with enough money to make payments. Moreover, the costs for insurance, maintenance, taxes, and fuel are only exacerbating your financial situation.

Clearly, there must be a better way. Indeed, there is: you can get rid of a pricey car loan and do so without ruining your credit. Here are two options:

1. Sell the Car

If you cannot afford your car, then sell it. Ideally, you’ll find someone interested in buying your car, paying enough for it to cover the full debt.

If this person takes over the payments, that may not be enough, especially if you have equity in the car. Yet, if there are no other buyers interested, at least you’ll put the loan behind you and without damaging your credit. A financial loss is better than ruining your credit.

2. Refinance Your Car Loan

Perhaps what is hurting you has everything to do with the type of loan you took out: a short-term note with a high interest rate can push up your monthly payments. Fortunately, there is an option available to consumers: refinancing.

Just as a home can be refinanced, so can a car. But there is a big difference here: homes generally appreciate in value while cars lose value. There aren’t too many lenders willing to refinance, but if you come across some, then see if you can stretch out your payments by at least another 12 months and obtain a lower interest rate. Together, the two moves can lower your monthly payments.

Making it Affordable

Perhaps selling the car or refinancing aren’t viable options. In that case, you need to find alternatives to make your payments palatable. Therefore, consider the following three options.

1. Cut Your Costs

If selling your car isn’t an option and refinancing offers little advantage, then the best way to afford your car is to cut your other costs. Don’t slash your insurance as you’ll need that coverage to protect you in the event of a total loss. Keep up with your maintenance and repairs too.

As for your other costs, consider doing one or all of the following: lose your landline, cancel your cable service, avoid eating out, make your coffee at home, or lose the expensive gym membership. Evaluate your expenditures and find savings here and there.

2. Increase Your Income

Are you due for a raise? If so, use that increase to offset your expenditures. Avoid raising your living standard; devote the extra funds to cover your car costs.

If a raise is not forthcoming and a new job is not in the offing, look for ways to earn money on the side. Use your writing, coding, or other skills to make money. Devote the additional funds earned toward paying off your car loan.

3. Establish a Budget

Perhaps the biggest challenge for you is not fully understanding how your money is spent. Although “budget” seems like a dirty word, it has kept tens of millions of Americans out of trouble.

Making a budget is simple and there is an app for that. You’ll need to know how much you have (assets), what you currently make (income), what you owe (debt), your monthly payments (expenditures), and determine your net worth. Once you know how you spend what you earn, then you’re in a better position to control your costs.

The Bottom Line

If you sell your car, can you do without a personal vehicle for a while? If so, you stand to save a lot of money. Ride a bicycle, take public transportation, hail Uber or Lyft, or simply invest in a pair of comfortable walking shoes.

On the other hand, if you have enough money on hand to buy a used car, shop for one carefully. Make sure it is in very good condition and it doesn’t have the potential to turn into a money pit. Have a mechanic inspect it before you decide to purchase it.

Whatever decision you make, you need to verify that it won’t have any impact on your credit score. Ruin your credit score and you’ll create a whole new set of problems that won’t be easily rectified.

See Also — Consumer Car Loans Reach Record Lengths

Photos copyright Auto Trends Magazine.

Credit Clean Up Before You Buy Your Next Car

February 25, 2014 by admin 2 Comments

You are ready to buy your next car and have set your eyes on something new. Sure, you know that new cars lose a lot of value during the first year of car ownership, but you have a long-term ownership strategy in place and plan to drive your next car until it gives up the ghost.

Paying cash for a new car is the ideal way to go, but with the average price of a new vehicle now topping $32,000, few of us have that much money available. Likely, you’ll join the overwhelming majority of people that will put some money down and finance their purchase with a 48, 60- or 72-month auto loan.

Before you seek new credit, the following points should be considered.

Obtain Your Credit Score

Your credit score is a three-digit number that has a huge impact on not just the loan terms, but on whether you receive loan approval or not. Your score is based on your credit history including your personal credit reports compiled by Experian, Equifax, and TransUnion, the three consumer reporting bureaus.

Your credit score should be above 700 to enjoy favorable loan terms. Some creditors require a score of at least 740 before giving you their best loan rate. You can get a free monthly credit score by signing up with Credit Sesame or you can pay for your credit score by visiting MyFico.com. The higher the score the better for you: you can save hundreds of dollars in interest costs if your rate is low.

Establish a Budget

Here is where a lot of people run into trouble: they set their eyes on a vehicle they want, but cannot afford. Before you begin shopping for a new vehicle you need to determine how much of a loan payment you can swing.

One of the best approaches here is to use an affordability calculator such as one provided by Edmunds.com please go here. Once you determine a payment amount you will have to figure out if you have enough money to make the monthly payment, pay for your car insurance, registration, taxes, fees, and in some states property taxes.

Trade In or Private Sale

Ideally, your car dealer will fall in love with your trade and offer you big bucks for your vehicle. The reality is usually something far different: your trade won’t come close to the value you think that it would fetch if you were to sell the vehicle yourself.

So, why not sell your car instead of trading it in? Well, for many people, the trade-in is their down payment or a significant part of it. They have to trade it in or they wont have enough money for a new car. If you’re able to use cash as your down payment, then you have more flexibility here. Sell your car privately and you’ll end up with more money.

Claim All Incentives

Car manufacturers love to entice consumers with a great deal. Generally, no one pays the sticker price for any car on the dealers lot unless it is a speciality or exotic model. Typically, you can shave thousands of dollars off of the sticker price, walking away with a decent deal.

Beyond the general discounts, you may be eligible for other incentives, but only if you ask for them. Some manufacturers offer loyalty rebates, applying upwards of $1,000 toward the price of a car if you bring repeat business. Other incentives include rebates for military personnel, recent college graduates, retirees, and so on. Find out what incentives apply to you.

Lease or Loan?

You have been thinking about taking out a loan, figuring that the rates will be good. They should be good and at least no where near the rates that are being charged on some dubious websites. You can still find zero percent or very low rate financing, but keep in mind that by taking those loans you may give up a valuable rebate.

Another option for consumers is to opt for a lease. Sure, you will only have the car for a few years (usually three) and then will need to give it back or purchase it at lease end. And, you will need to abide by the lease terms or pay extra for mileage overages or wear and tear.

What leasing does is make it possible for consumers to get behind the wheel of the car that they really want. Monthly lease payments are generally much lower than finance payments, making that unattainable vehicle affordable. Just keep in mind that when the lease term ends you wont have a vehicle to show for it you’ll either have to lease again or buy another vehicle.

New Car Deal

No new car purchase should be done apart from careful and thorough research. It is easy to be swept up in emotion when buying a car, but those feelings will cost you. Once you settle on a car you like and can afford, then get quotes from three or four dealers to find the package that is right for you.

Money Saving Strategies for Auto Loan Shopping

September 18, 2013 by admin 1 Comment

If you are shopping for a new car, more than likely you will take out an auto loan. Such loans are common to 90 percent of new car buyers, individuals that do not have enough cash on hand to afford a purchase. Auto loan rates vary and can cost you hundreds of extra dollars if you jump in without thinking. Employ several money saving strategies when shopping for an auto loan.

Don’t break the bank to buy your next car.

Shop for a Loan

Loan rates vary and one lender may offer a half-percent lower than the next. You won’t know this unless you compare offers from at least three lenders. Better yet, consider five or six lenders including your own bank or credit union.

Know that loan rates change based on the length of the loan. For instance, a 48-month auto loan will typically have a lower rate than a 60-month loan. At 72 months, your rate will be higher. Go with the shortest term loan you can manage.

Put More Money Down

Lenders want borrowers to have skin in the game. Although it is possible to swing a “no money down” loan, you will pay for it with a higher interest rate.

When you have money to put down, including much more than the customary five to 20 percent down, then you can ask for a lower interest rate. If you do not get it from one lender, then go on to the next.

Fix Your Credit

Know that advertised auto loan rates are for customers with excellent credit. That means you need to have a credit score of at least 720 to 750 to get the best rate. Lower credit scores mean a higher interest rate.

If your credit is low, especially if it is in subprime territory, then your interest rate will reflect your bad credit. At this point, you night want to put off applying for a loan until your credit improves. Pay your bills on time, clean up your credit reports and avoid opening up new accounts until after you receive your auto loan.

Rebate Versus Loan Rate

So, should you take the generous rebate or should you go with the low-rate dealer financing? That’s both a question and a dilemma customers face and often do not know how to resolve. You can figure out what option is best for you by inputting your information on the Bankrate.com finance calculator.

The best deal for you may be to go with your own financing company and keep the rebate. That rebate or cash back offer can be used toward your down payment, supplementing the contribution you planned to make. For instance, if you planned to put $3,000 down and the rebate is for $2,000, then you only need to finance $20,000 for your $25,000 new car purchase.

Avoid the Extras

When you are preparing to sign your auto loan contract, pay special attention to the fees charged. Everything should be put in writing and fees should not be added after the fact.

Some of the fees you can expect to pay are destination, property tax and your state sales tax. What you may also discover are special dealer prep, department of motor vehicle license delivery and undercoating charges. Such “junk” fees should be eliminated before you sign your sales purchase agreement.

Related Reading — What Your Dealer Won’t Tell You About Car Financing

What Your Dealer Won’t Tell You About Car Financing

February 25, 2013 by admin 7 Comments

Auto financing is a lucrative business with lenders extending car loans to a variety of consumers from those with excellent credit all the way down to sub-prime borrowers. The Great Recession forced lenders to pull back, but they are now back in the game with car dealers working as middlemen to ensure that you drive away in the car of your choice.

And it is that middleman position that sometimes has consumer advocates frustrated. Auto lending is a $600 billion per year industry in the United States, one where lenders, investors and dealers are eager to share in the bounty. Your car dealer, therefore, is hardly an independent voice when it comes to new car financing.

Read on and we will look at what some dealers won’t tell you when you sit down to discuss finance deals.

Your Credit Score

Your three-digit credit score offers a very telling number to car dealers that arrange your financing. Trouble is, many consumers have no idea what their credit score is when they go car shopping. All three credit reporting bureaus — Equifax, Experian and TransUnion — can give you your FICO score for a small fee.

You trust your dealer representative to quote you your actual credit score, but some could supply a different score effectively putting you in a bad credit car loancategory. Thinking that you won’t get financed and therefore be without a car, you agree to the higher interest rate auto loan. Tip: Always check your credit score before you begin shopping for a vehicle.

Bad Financing Deals

What type of car loan are you getting? You may think that you are getting a good deal based on a competitive monthly rate, but on closer scrutiny you may find that the terms really are not so favorable, at least not to you.

To bring your payments in line with what you can afford, a dealer may stretch out your loan terms from 5 years to 6 or 7 years. Or, you may find that your payments are low and your term short, but discover that a lump sum balloon payment is due at the end of the loan term.

When talking auto loan with your dealer, examine the finance deal very carefully. Understand the amount of money that you must put down. Know the interest rate and the length of the loan. Everything should be clearly spelled out and acceptable to you.

Rebates and Loans

One area where consumers get it wrong has to do with cash incentives. Rarely do you get both a cash incentive and discounted auto financing.

You must choose one or the other.

Know that not every cash rebate is worth it. Then again, if you arrange for low rate financing with your credit union or bank, then apply the rebate to your down payment. Ask your dealer about other rebates including specials for recent college graduates, military service personnel, veterans and other promotions.

Arranging Financing

In the last point, we touched on arranging your financing before heading to the dealer. This is important because it gives you a clearer picture of what you can afford and what your loan terms will be. It can also serve as an instructional lesson for car shoppers as they understand what options are available to them based on their credit scores.

Know that car financing comes easy today with even bad credit or subprime borrowers finding themselves eligible for a loan. In these cases, where your credit score is below 580, your traditional lenders may not be interested in underwriting your loan.

Such subprime lenders include Wachovia, Capital One and Ally Financial, along with the financing arms of Toyota, GM and Ford. Smaller lenders are many and include Nationwide Auto Lending, Drive Time, Prudential Auto Loan and BlueSky Auto Finance.

Even if you qualify for a loan you will always be charged a higher interest rate and pay more for a car then you might imagine.

The Bottom Line

Please know that not all dealers are rip-off artists. However, when taking on the role of car loan financier, your best interests may take second place to the dealer’s bottom line. Know what you are getting into before shopping for a car loan, looking at financing options from other lenders too. That means using a car finance calculator to learn what you can afford before heading out.