FINANCING

6 Year-End Car Buying Tips

December 28, 2019 by admin Leave a Comment

2019 Volvo V60

The best opportunities to purchase a new vehicle is during a manufacturer’s transition times, including model changeover, the end of a generational build, and as the calendar moves from December to January. The following six tips can save you money, enabling you to drive off in a new ride with your budget intact.

1. End of Model Year

Car manufacturers used to make the model year transition in October, by updating its full product line across the board. All-new models were timed to release in the fall, putting big pressure on manufacturers to get cars to dealers in time for seasonal advertising campaigns.

These days, new models come out throughout the year, allowing manufacturers to stagger releases. When a new model debuts, manufacturers typically place incentives on previous model year vehicles to help clear dealer inventories. Consumers should learn when the transition is being made and follow the manufacturer’s website to discover what incentives — including rebates and special financing – are in place.

2. Old Design Versus New Design

Car manufacturers usually keep a model for five or six years before a complete redesign is made. In the interim, minor annual refreshes are made along with a mid-product-cycle update that is typically accomplished by the fourth year.

A complete design change signifies a generation shift. Older vehicles are routinely discounted as manufacturers seek to clear out inventory. Discounts may be deeper than with the traditional model year change-over as automakers begin to promote the new model that will cost consumers close to the sticker price.

The all-new Jeep Gladiator (l) and the Jeep Wrangler (r).

3. Black Friday Shopping

There are times during the year when car dealers see a plunge in showroom traffic. One of those days is the Friday after Thanksgiving, the traditional start of the Christmas shopping season. It is called Black Friday, what used to mark the day when merchants began to make a profit for the year, which is represented by going from red ink to black ink on financial statements.

Black Friday has another meaning for car dealers: a dearth of car-buying customers. With fewer customers in dealer showrooms throughout Thanksgiving weekend and with the month about to close, consumers may find dealers are eager to negotiate to meet their quotas. Meeting those quotas means receiving more money from manufacturers for reaching their sales goals, something that would not happen if consumers stayed busy buying Christmas presents, not new cars.

4. From Christmas to the New Year

Just as Black Friday may present a special opportunity to strike a deal, the period between Christmas and the New Year can also be a good time to negotiate a new vehicle purchase. Such deals may last a few days into the new year as dealers and manufacturers will close their books no later than Jan. 4.

Car manufacturers are obsessed with market share and use these sales numbers for marketing promotion. As the year fades, automakers know which models or brands stand the chance of finishing on top and may promote these accordingly. For example, Mercedes-Benz, BMW, and Lexus have an annual battle for luxury vehicle leadership. Year-end discounting usually begins in Nov. and lasts until early Jan. You’ll also find financing and leasing deals.

5. Arranging Your Own Financing

You are in a much better negotiating position when buying a new car if you offer a 100-percent cash (all-cash) transaction. However, most of us cannot afford a heavy cash outlay, instead, we rely on loan financing or a lease to swing our deals. Car dealers offer financing, usually through the manufacturer’s financing arm as well as from banks.

Often, new cars come with incentives allowing buyers to choose between cashback or a low-rate loan. You can also arrange your own financing before you shop for a car. In this case, when you’re ready to buy, give the dealer your loan information and ask to have the rebate applied to your total. Credit unions typically offer the lowest financing rates, making it worth your while to come in with your own loan and take the rebate.

6. Rebates and Dealer Incentives

We already looked at rebates and financing, but there are other rebates available to consumers. Manufacturers like to woo customers with various enticements, but these special offers are generally not publicized. It pays to do your homework by studying the manufacturer’s website.

For example, the Toyota College Graduate Finance Program provides a $500 rebate on select Toyota models and sweetens that offer by writing loans with no money down and deferring the first payment for 90 days. Its program is open to recent college graduates, people that have secured a college degree within the past two years.

Also, the Ford Motor Company awards $500 bonus cash on most Ford and Lincoln products to active duty and recently retired military personnel and their families through its Military Appreciation program. Here, military retirees have up to 24 months after leaving service (separation) to remain eligible for the rebate.

Other manufacturers usually provide similar rebates and may also offer discounts to first responders, credit union members, suppliers, and their employees. These extra incentives are typically on top of other offers and may be applied to the purchase price of the new vehicle.

2019 Chevrolet Silverado LT

Saving Money

It isn’t that difficult to save money on your new vehicle purchase. Study the manufacturer’s website, visit local dealer sites, and keep in mind the special offers listed here when negotiating your price. It is possible to save thousands of dollars, especially on well-equipped models. Don’t allow cash offers to fall to the wayside by not having the dealer apply what’s available to you.

See Also — Care Tips for Your New Vehicle

Gap Insurance May Save You Thousands of Dollars

June 28, 2018 by admin 1 Comment

Here’s an unpleasant thought: you buy a new car and within months it’s stolen or totaled following an accident. You believe that your insurance coverage is excellent, but are soon rudely awakened when your finance company sends you a bill for thousands of dollars. Had you chosen gap insurance, your finance company wouldn’t be demanding payment. That is if you knew about such coverage in the first place.

car crash gap insurance — Is your auto insurance sufficient for protecting you against total loss?

What is Gap Coverage?

Gap insurance, also known as gap coverage, pays the difference between what you owe on your vehicle and what your car is worth. Gap coverage is especially important if you do not put enough money down on your new car and its value has slipped below what you owe on it.

For instance, you buy a new car and pay $27,500 for it, putting $2,500 down. You take out a loan for $25,000 and five payments later your outstanding balance falls to $23,500.

Unfortunately, you get into an accident that destroys your car, which soon reveals how vulnerable you really are. You file a claim with your insurer and the insurance company sends your finance company a check for $19,500, representing the value of the car minus your $500 deductible. The difference here is $4,000, an amount that your finance company says that you still owe on the loan.

That gap represents the difference between the loan balance and your insurance payment, monies that you must repay.

Going Upside Down

Many car shoppers are “upside down” or “underwater” with their auto loans, a term that also describes some homeowners.

Typically, borrowers are upside down for two reasons:

1), they do not put enough money down, and

2), the car loses a significant amount of its value within the first few months of ownership.

Indeed, it is not uncommon for a new car to depreciate rapidly with Edmunds.com noting that a new vehicle loses on average 11 percent of its value the moment it drives off the dealer’s lot. Several months later the car’s value may fall by 25 to 30 percent, making it entirely possible that you owe more to your finance company than what your insurer says it is worth.

Gap Protection Coverage

You may not need gap protection if you put 20 percent or more down and your loan term is short, such as for 36 months. Some consumers make the mistake of rolling their related fees and taxes into their loan and perhaps adding extended warranty coverage as well.

One way to make sure that you are not buying a car that will immediately put you underwater is by using an auto loan calculator such as the one that’s available online from Bankrate.com. Then, compare that number with what Kelly Blue Book lists as your vehicle’s depreciation rate.

As long as you owe less for your vehicle than what it is worth, then you are okay.

Buying Gap Insurance

Before you run out to buy gap coverage, you should review your loan purchase agreement as you may already have it. Such coverage is more common if you lease a vehicle than if you were to finance one. In any case, your finance company may have added that coverage with your agreement.

Indeed, some lenders require gap coverage because they know you may find it difficult to settle the difference later on.

Your current insurer may offer gap coverage, a small cost that’s added to your auto insurance bill. Contact your insurer to get a quote for the gap or actual cash value insurance.

Keep in mind that you will still have to pay a deductible and may receive less money if your car has high miles or is in poor condition. You can cancel gap coverage once you determine you are no longer upside down.

Avoid a Financial Catastrophe

Gap coverage may save you from financial calamity, enabling you to get back on your feet quickly. Without such coverage, you may find yourself unable to afford a replacement vehicle, worsening an already serious problem.

See Also — 7 Ways to Trim Car Insurance

Photo credit: La Cara Salma via Wikipedia. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported, 2.5 Generic, 2.0 Generic and 1.0 Generic license.

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

Oft-Dismissed Minivans Propel Fiat Chrysler Sales

May 31, 2016 by admin 2 Comments

FCA’s sales streak should continue with minivans providing an unlikely contribution.

Car manufacturers track sales carefully, using monthly statistics to measure progress. Any month-over-month change falling outside of expected parameters can result in a change in strategy, including short-term production output, what incentives are offered to consumers, and a host of behind-the-scenes adjustments.

Yes, automakers often place outsized importance on sales changes, especially in the ultra-competitive and highly profitable US consumer market. Manufacturers aren’t always patient when it comes to short-range developments.

Jeep, Ram Propel FCA

Fiat Chrysler is riding a 73-month streak of year-over-year sales increases, the longest in the industry. After sales bottomed out during the last recession and just as Fiat gained control of Chrysler, the automaker has been nearly unstoppable. Credit the Jeep brand and Ram trucks with much of that continued good fortune, but when sales are tallied this month, a trio of oft-dismissed minivans may hold the key to FCA’s continued expansion.

The Chrysler Corporation launched the modern minivan movement in 1983 with the introduction of the Dodge Caravan and Plymouth Voyager. From the onset, Chrysler has dominated the segment, typically accounting for at least 50 percent of the industry’s sales. But minivans have long since peaked as customers flocked to more versatile crossover utility vehicles.

Since last fall, FCA has been in transition concerning its minivan products. The automaker invested upwards of $2.6 billion to develop a new model, the Chrysler Pacifica, while also continuing production of the Dodge Grand Caravan. The Chrysler Town & Country is officially canceled, but before shutting down production FCA pushed out thousands of models, flooding dealer inventories with the same.

Chrysler Pacifica Production Begins

Chrysler Pacifica production began on Feb. 29 and just 487 copies were sold in April. May will be this model’s first full month and sales should prove robust.

At the same time, Chrysler Town & Country and Dodge Grand Caravan sales continue with year-to-date sales up 64 and 104 percent respectively through April 2016.

Strong Incentive on Three Minivan Models

Propelling sales for both models are strong incentives. As of publication, Town & Country incentives include a $3,500 cash allowance or 1.9 percent financing for up to 84 months plus an additional $500 back. Grand Caravan incentives also come in at $3,500 along with 0 percent financing for 60 months plus a $1,500 cash allowance. Additional incentives should bring in deeper cuts, especially for remaining 2015 inventory.

Lease deals are also available, depending on the trim level selected. Typically, you’ll pay $289 to $299 per month for 36 months, with $2,999 down. However, CarsDirect.com explains that the Dodge lease on Grand Caravan SE isn’t especially attractive, considering its low MSRP.

Despite being a new model, financing and lease deals on the Chrysler Pacifica are in place. Right now, Chrysler is offering a $2,000 cash credit on the Pacifica. Or, buyers can choose 0 percent financing for 36 months and receive $1,500 cash back. If leasing is your preference, a Pacifica LX can be had for $269 per month with $1,999 due at signing.

Well-Stocked Inventory and May 2016 Sales

Last week, Automotive News noted that as of the beginning of May, 22,170 Town & Countrys and 29,247 Grand Caravans were unsold, representing a two-month inventory. Add in thousands of Pacificas and FCA’s dominance in the minivan segment will continue.

The timing of the Pacifica’s release coincides with curtailing Chrysler 200 and Dodge Dart sedan sales. Jeep and Ram sales should continue to bolster the automaker for May; together FCA is looking at a 74th consecutive month of year-over-year sales increases and should do so despite two fewer selling days this year.

A Buyer’s Market for New Cars

May 5, 2016 by admin Leave a Comment

How to buy a vehicle in any market.

New car sales remain strong, but one thing we are seeing more of this year than in recent years are deep discounts and other incentives to lure customers. Although most deals aren’t rivaling anything we have seen since the last recession, automakers aren’t all that willing to cede marketshare in good times.

It is a buyer’s market for new car shoppers. Here’s how to find a deal you can live with:

1. Know what you want. Determine the type of vehicle you want and then narrow it to a specific make and model. The narrower your search, the easier it is to do your research. This means choosing the trim level you want, right down to the amenities — power accessories, infotainment system, safety features, you name it. Allow your parameters to guide you and you’ll be satisfied with your new ride.

2. Shop online. There is no need to visit a dealership to make your deal. Save your visits to only test drive a vehicle or to finalize your already negotiated purchase. Typically, you can find what you want by shopping online, negotiating with the dealer’s web sales department to get your price. Next, repeat the process at one or two other dealers, then have the dealers battle for your business. The more competition for your business, the better the savings for you.

3. Arrange your own financing. Unless the manufacturer is pushing 0 percent financing, you can usually find better financing elsewhere. Credit unions are especially good at offering low-rate financing, particularly if your credit is excellent. When you bring in your own financing, you can claim the other incentives instead, such as cash back, a military or student discount, or some other incentive.

4. Discuss new car price, then talk trade-in. Don’t allow a salesperson to attempt to bundle your trade-in with your new car negotiation. These are separate deals. First, negotiate the best price for your new car. Second, when it comes to down payment talk, introduce the trade-in as the down payment. Understand your car’s worth by using a service such as NADAGuides.com or Kelley Blue Book to value your vehicle.

5. Review all fees. You’ll be hit with an assortment of car closing fees, adding hundreds, perhaps thousands of dollars to your final price. Sales tax, title and registrations, destination charge and documentation fee are not avoidable — you will have to pay these. Expenditures you can avoid include a dealer preparation fee, credit life insurance, disability insurance, VIN etching, rustproofing, and paint sealant. Additional dealer markup may be hard to avoid, especially if you’re buying a strong selling model. As for that advertising charge, see if the dealer will waive it. Examine your sales contract carefully to determine what fees are charged. Ask for an explanation for anything you may not understand.

6. Finalize your deal. With your best deal negotiated, financing in place, and a trade-in or cash down (preferably both), you’re ready to finalize the deal. It is extremely important for you to know what your monthly payments will be and whether you can afford those payments. Don’t sign the deal without having a discussion with your auto insurer first — you may be unpleasantly surprised to discover you can’t afford the insurance. If so, you’ll need to look for a different insurer or a different car.

A Buyer’s Market

Timing your purchase can help your cause too, especially if you strike a deal as the month comes to a close. Sales people and dealers rely on incentives from the manufacturer to sell “X” number of vehicles each month. This tactic can work well and might be utilized instead as both the model year and the calendar year come to a close.

See Also — Right Now: Lease a New Car

It’s a Buyers Market for Small Car Shoppers

April 12, 2016 by admin Leave a Comment

Some of the best deals are for small cars.

You might have your eye on that small SUV, but if you’re trading up from a compact car the incentives for small cars are very strong as we reach the heart of the spring selling season.

Consumers continue to shift their interest from cars to trucks and SUVs, and that means demand for the former has fallen, while interest in the latter is soaring. And if you know anything about the impact of supply and demand on prices, incentives follow the low-demand vehicles.

2016 Jeep Renegade. — 2016 Jeep Renegade priced from $17,995.

Dodge Dart Discounted, Models Realigned

For example, sales of the 2016 Dodge Dart are down by about one-third year-over-year through the first three months of this year. Further, the entire segment is down by just over 5 percent and would be much worse off if Honda hadn’t updated the Civic. Notably, Civic sales are up 30.8 percent and have moved ahead of the previous category leader, the Toyota Corolla (down 7.1 percent).

To help move Dart sales, Dodge is doing a couple of things:

1. Incentives are strong, depending on region. Some models are marked down by up to $3,250. Low-rate financing is also available. Visit the Dodge website, enter your zip code, and check out the discounts in your area.

2. Three trim levels instead of five. Just past the halfway mark of the model year and the 2016 Dart now has two fewer trim levels. The three remaining trims were renamed and given engines to correspond to each level. Likewise, Dodge shuffled content, cut prices, and spread its package options across all three lines. All in all, the result should be a model better positioned to compete in a very tough segment.

2016 Honda HR-V. — 2016 Honda HR-V priced from $19,125

Financing and Cash Back Incentives

Toyota incentives also vary by region. In my area (southeast USA), the current deal is 0 percent financing for up to 60 months or 0.9 percent financing for 72 months. But those incentives are better elsewhere, including in Los Angeles, where Toyota is offering $1,500 cash back or low-rate financing. Furthermore, attractive lease offers are in play as well.

Demand for small SUVs is up 6.3 percent year-to-date, a modest number. But the biggest gainers are found in the entry-level, subcompact SUV segment as those sales are up a whopping 78.7 percent. Of course, there are four new products in the mix and are driving sales. These are: the Fiat 500X, Honda HR-V, Jeep Renegade, and the Mazda CX-3. The segment has expanded to accommodate the new models as customers shift their interest from small cars to SUVs.

Despite the strong sales, there are incentives on some of the smaller SUVs. At present, Jeep is offering 0 percent financing plus $1,000 cash back on 2016 Renegade models. The brand is also jockeying for market share, hence the discount.

Honda isn’t offering any special deals at the moment for the HR-V, but it is providing a lease deal on its hot-selling Civic. As for financing deals, Honda simply says “Please see your local Honda dealer for available offers.”

Incidentally, both segments offer comparable passenger and storage room, hence the comparison.

Sample Dodge Dart Savings

Using the Dodge build and price configurator, I spec’d out a mid-grade Aero model ($21,095). I then added the $1,250 6-speed automatic transmission and immediately that cost was fully offset by an “applied offer.” The net price came in at $22,090.

For a better deal, go to the next-level Dart GT and the discounts climb to $2,750 and the final price actually comes in lower at $20,340. You also get a larger and more powerful engine, while saving nearly $1,700 off the Aero price. With smart negotiating you can get the price down even lower, probably below $19,000.

Chevy v. Chevy Price Comparison

Of course, comparing models takes some theatrics, especially if the brand under consideration doesn’t offer both a subcompact SUV and a compact car such as Chevrolet and Honda do.

Chevrolet may offer the best example of the price differences between compact car (Cruze) and subcompact SUV (Trax). The 2016 Cruze is priced from $16,120 and the Trax starts out at $20,300.

With the Cruze, discounts of $1,000 and 1.9 percent financing apply to the LS Manual ($18,995) on up. Choose the Trax and you’ll get a $500 purchase bonus and you may qualify for 2.9 percent financing. Typically, you’ll pay about $4,000 more for a similarly-equipped Trax versus the Cruze. Add another $1,500 for all-wheel drive, available only with the Trax.

To sum up, similar-sized cars and SUVs offer significant price differences, especially after all incentives have been taken. If you really want an SUV, then by all means shop for one. But if you’re on the fence and money is a factor, bargaining down the price of a compact car can make a significant difference for your budget.

Sales figures courtesy of GoodCarBadCar.net.

Consumer Car Loans Reach Record Lengths

June 8, 2015 by admin 3 Comments

Hyundai Sonata

New car loan terms are longer than ever before.

Earlier this month, Experian Automotive announced that the average length of both used and new car loans had increased by one month to 62 and 67 months, respectively. These loan term averages are at record levels, but consumers are eagerly embracing the extended loan terms.

Indeed, Experian noted that 29.5 percent of all new car loans are for 73 to 84 months, representing an 18.6 percent year-over-year increase against the first quarter of 2014. Moreover, used car loans for the same lengthened term and period were up by 14.2 percent, representing 16 percent of all such loans.

Negative Equity Implications

Despite the increasing shift to longer term car loans, Experian’s senior director of automotive finance, Melinda Zabritski, downplayed worries that such loans might have an adverse affect on consumers. “Most longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank. However, it is critical for consumers to understand that if they take a long-term loan, they need to keep the car longer or could face negative equity should they choose to trade it in after only a few years,” explained Zabritski.

Experian noted that the average amount financed for new car loans has also set a record. In the first quarter of 2014, consumers financed an average of $27,612. But that amount rose by $1,099 to $28,711 one year later. Monthly payments increased too, rising from $474 to $488.

As a point of comparison, used car debt is coming in lower, at least $10,000 below new car indebtedness. However, those obligation levels are on the rise, increasing from $17,929 to $18,213. Furthermore, the median interest rate for used car loans was 9.17 percent compared to 4.71 percent for new car loans.

GMC Sierra Denali

Longer loan terms mean affording trucks such as this GMC Sierra Denali.

Consumers with excellent credit routinely qualify for the best loan terms. To be sure, those low teaser rates offered by the car manufacturer’s financing arms are reserved only for people with the highest credit scores.

And with an average credit score of 713 for the new car loans financed during the first quarter of this year, that number is about 100 points lower than consumers with excellent credit, underscoring the higher average interest rate. Used car loan borrowers came in even lower, with a median 643 credit score. That’s not far above the 620 credit score that some consider subprime.

Underwater and Sinking Fast

Not everyone is convinced that the trend to longer loan terms is a good one.

For instance, Paul Kirkbride, SVP of CU Solutions at CU Direct noted that there are certain financial implications consumers should keep in mind. Specifically, they may find themselves underwater (i.e., owing more on their car than what it is worth) as vehicles depreciate an average of 13 percent annually according to NADA.

Said Kirkbride, “If a borrower didn’t make a down payment and selected a longer term, the risk is the borrower will possibly need to roll negative equity from one car loan into another when they trade in the car, or worse, should the borrower need to sell the car, they’ll have to come up with the difference to pay off the loan.”

He also pointed out that credit unions typically work with people who have the financial means and creditworthiness to afford such loans. Such consumers usually choose the extended loans for convenience purposes.

2013 Buick Encore

Interest rates for late model used cars average above 9 percent.

Looming and Costly Repair Costs

Ed Snyder, President of Oaktree Financial Advisors foresees a problem that consumers may overlook. In particular, he points out that repair costs tend to mount as a car ages.

“If you take a longer loan, like 72 months, you are going to rack up some miles by the time your loan is paid off. If you average 15,000 miles per year you’ll be closing in on 90,000 miles – and that’s on a new car. If you buy a used car you’d have even more miles on it at that point. This is certainly at the mileage and age where your car could need some expensive repairs. It could easily need some work on the air conditioning or new tires or other repairs. You’ll have to foot that bill on top of the car payment that you still have,” said Snyder.

The longer term new and used car loans may eventually have an adverse impact on new car sales down the line as well. Said Snyder, “These longer loan lengths could end up meaning fewer cars sold in the future as people are forced to hang onto their cars longer since they are still paying on them.”

Credit and Car Loans

Astute consumers can and should keep tabs on their credit by obtaining copies of their three credit reports. Those reports, assembled by Trans Union, Experian and Equifax are available for free once annually at AnnualCreditReport.com. Information in these reports can affect credit scores, a three-digit number that is sold separately.

Shopping around for a car loan, putting more money down and choosing a shorter loan length can reduce your monthly payments as well as curtail your overall costs. Explore your options before committing to a car loan that you may have for the next six, seven or eight years.

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

Incentives May Keep Toyota Camry On Top

July 25, 2013 by admin 1 Comment

For most of the past two decades, the Toyota Camry has been the best selling car in America. It seized that title from the Ford Taurus in the 1990s and briefly lost it one year to the Honda Accord before fighting back. In many years the Toyota Camry has easily outdistanced its rivals, but that has begun to change.

Toyota Camry

Toyota Camry Incentives

New models from Nissan, Ford, Honda, Kia and Mazda are beginning to slice away at Camry sales with other makes such as Hyundai, Dodge and Chrysler also enjoying robust sales. In 2012, Toyota sold 404,886 Camrys to 331,872 Accords reported Kicking Tires. That 73,000 unit edge, however, is beginning to evaporate and Toyota is taking the unusual (for them) approach of offering deeper incentives for its Camry.

For one incentive, Toyota is offering regional incentives that make it possible to lease a Camry for 36 months at $189 per month and with $2,588 due at signing. In some markets, a Toyota Camry can be leased for 24 months at $199 per month with $1,999 due at signing.

The Toyota Camry can also be bought and financed through Toyota Financial Services for zero percent APR for 60 months. Toyota is also putting $750 subvention (assistance) cash on each hood. Other discounts and consumer negotiating can lower the Camry’s price further for a model with an MSRP (sticker price) from $22,235.

Honda Accord

Honda Accord and Nissan Altima

Closing in fast on the Camry is the Honda Accord. Through June, Toyota sold 207,626 Camrys to 186,860 Accords. Year-to-date sales of the Camry are down 2.9 percent, but are up 20.4 percent for the Accord. Also on the move is the Nissan Altima with sales of 167,787 units, up 23.3 percent according to Good Car Bad Car.

Working against the Toyota Camry is its age. Although this sedan was updated in 2011, its change was more evolutionary than revolutionary. Meanwhile, the Honda Accord, Nissan Altima and Ford Fusion have each been updated more recently with the latter two models enjoying more significant changes. Indeed, the 2013 Ford Fusion did — much like the 2010 Hyundai Sonata — deliver a much more radical next generation model while Toyota has continued to play it safe with its segment-leading sedan. The Honda Accord may not have the panache of the Fusion or Sonata, but its reliability and reputation are considerable drawing cards.

Multiple Toyota Lawsuits

Toyota may also be suffering from the residual effect of multiple recalls that have cast the company in a negative light. Its once bulletproof reliability has been questioned, with the automaker recently agreeing to settle a class action lawsuit for $1.6 billion, covering sudden acceleration claims made in 2009 and 2010. However, there are many more lawsuits that must be contended by Toyota separately, with those reports part of the company’s narrative.

While Toyota’s quality overall appears to be ahead of the industry average, seeds of doubt may be shifting buyers to competing brands. Expect Toyota to perform damage control by settling many of these lawsuits quietly. What it can’t do is get rid of the pictures of destroyed Toyotas that are spread across the Internet or blot out the name of Noriko Uno, a Japanese-American who died in 2009 when a stuck accelerator sent her 2006 Toyota Camry speeding down city streets at more than 100 mph before crashing. If competing models don’t do the Camry in, negative publicity may.

Should you break the piggybank to buy your next car?

Your New Car Strategy

If you are in the market for a new car, you may not need to wait until the end of the model year or the calendar year to find the best savings. Certainly, Black Friday offers one of the best times to buy a car, but that’s four months away. If you are looking at cars in a competitive segment, such as midsize sedans, then you may find that the best deals are already in place. Certainly, those deals may prove to be strongest for models from manufacturers, such as Toyota, that are in danger of losing their edge.

See Also — Highlights of the 2018 Toyota Camry

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