ALT-1 Buying a Car
Most people would agree, if they could they would pay cash for there next car and not have to go through the hassle of financing. Really?
Financing $20,000 over 48 months at 5% costs $2,208 in interest. Saving $20,000 for 48 months at 4% will earn you $3,500, plus, you still have the cash. Even if you have the choice, financing in this economy still makes sense.
But most people don't have a choice, and need financing, and the next hour can turn into a nightmare if you're not prepared.
To begin with, if you don't already belong to one, join a Credit Union. Unlike a bank, you're a member at a Credit Union. You're one of them. Sit down and talk to someone who can pull your credit, explain your credit score, point out any credit problems you may have (everyone has them), and describe what these problems can do to your purchasing power.
Find out what interest rate they would charge based on your income and credit rating. What amount of money would they finance and how long will they finance it?
The Credit Union can also help you determine a fair trade-in value for your current vehicle. They have the information, the Kelly Blue Book, NADA trade-in values, even the elusive Black Book. The Credit Union is going to want you in a solid financial position if they are going to finance your new car, so giving you all the information and advice is in their best interest.
Now you are prepared to shop in confidence.
If your credit rating is poor, visit the dealership and ask for a manager. Tell them your situation and above all, be honest. Car dealerships have sources for less than perfect credit, and being honest allows them to explain negative issues on your credit report.
And never, never, never shop for a loan on-line or at different sources simultaneously. When a lending institution pulls your credit reports, they will see all the other inquiries. To them, that raises the potential for a scam and it willl lower your credit scores.
If you're approved, make sure the loan is "Simple Interest". Simple interest allows you to pay off the loan early without a penalty. If you have a 60 month loan and pay it off early, or trade the car in before it's totally paid, you will pay only the amount of interest for the time you had the loan. A "Rule of 78" loan will charge you the interest for the full 60 months.
Now, even though you have selected the car and obtained acceptable financing, you're not quite finished. Consider for a moment why most loans go bad.
There are 3 main reasons:
1. The owner didn't keep up full auto insurance and the car was involved in an accident. The owner does not have the money to repair the car and they cannot drive it.
2. The owner did keep up full insurance but the value of the car depreciated faster than the unpaid balance. After an accident, the insurance company appraises the car for considerably less than you still owe for it.
3. A years or two later, the car breaks. You're still strapped for a high payment after the warranty has run out. You simply can't afford the payment and get the car fixed too.
If you're like most car buyers you're going to finance the greatest amount you can and you may want to consider Gap Insurance. It's very inexpensive and will cover the "gap" between an appraisal amount and the loan balance.
If the car has a 3 year, 36 thousand mile warranty, you're financing is for 60 months, and you drive 20 thousand miles a year, consider extending the warranty to a 5 year, 100,000 warranty. If you sell the car earlier, most states require the warranty companies to reimburse you the unused amount.
The best way to eliminate the hassles of buying and financing a car in the future, is to buy and maintain this car properly now, and eliminate your chances of something bad happening. It may cost you a little more, but why take the risk?
Knowing that you've done your homework, conducted a very smart transaction and covered all your risks of something bad happening, should bolster that pride you'll feel driving your new car home.
