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TIPS ON PURCHASING A CAR
New and Used Vehicle Buying
Five Tips for Buying a Used
Car the Right Way
by Remar Sutton
Buying used can make smart money sense--if you follow
these five easy tips:
- Always have a mechanic check out a used car before
you buy it. Even if you're buying from your mother.
Use an independent service shop or diagnostic center.
Most charge about $125 for a complete check.
- Budget any needed repairs as part of your purchase
price. So, if a seller wants $7,000 but the vehicle
needs $1,000 in repairs, budget $8,000 for your vehicle.
Or, better yet, negotiate the selling price down to
include the cost of repairs.
- Forget about a used vehicle's "asking price."
Smart used-vehicle buyers never negotiate down from
asking price, they negotiate up from "loan value."
Loan value is what most lending institutions will
actually lend on a particular vehicle. Your credit
union can tell you this figure. For instance, if the
seller is asking $7,000, but the loan value is $5,000,
you want to negotiate up slowly from $5,000.
- Talk warranty after you've settled on the price.
And never accept a 50/50 warranty--the dealer pays
half of warranty-covered expenses. On any vehicle,
fight for at least a 30-day, 100% drivetrain warranty.
If you're also thinking about buying an extended service
agreement, remember that the price of a service agreement
usually is negotiable, too.
- Always shop used-car financing rates. Most states
allow dealers to charge much higher rates for financing
used cars than for financing new cars. For instance,
a new car might be financed at 8% while a two-year-old
used car might be financed for 15% or higher. How
do you find the cheapest rate? Ask the seller to give
you a completely filled out copy of the finance contract,
and compare it with your credit union's rate.
Editor's note: Remar Sutton's car-buying tips have
been featured on "Good Morning America," "Today,"
"20/20," "Nightline," and in magazines
such as People, Newsweek, and Credit Union Magazine.
He's president of the national Consumer Task Force for
Automotive Issues. He writes this column exclusively
for credit union members.
Copyright 1998 Credit Union National Association,
Inc. Information subject to change without notice. For
use with members of a single credit union. All other
rights reserved
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Purchasing a New Car
Buying a new vehicle doesn’t need to be an overwhelming
experience. Just do your homework before you visit the
dealership, and you’ll be prepared to find the
car you want—not just the car they want to sell
you.
Before you go to the dealership, you should do the
following:
- Determine if you can afford a new car. The total
of all your debt shouldn't be more than 40 percent
of your monthly take-home pay.
- Shop for financing first. A credit union tends
to lend more money than a bank and generally offers
more favorable rates. Credit unions also have arrangements
with local dealerships, offering member-only sales.
- Decide exactly what you want this car to do for
you. How many people will you be carrying? What options
do you want in order to be comfortable? Know exactly
what you want before you set foot into the dealership
and stick to it.
- Research dealerships. Make sure that you find one
close to you. If your vehicle needs service, it will
be much easier to establish a relationship with the
service manager if the location is convenient.
- Know the car you want to buy before you go shopping.
The Internet is an excellent way to find information.
There are numerous sites specifically for supplying
consumers with information on the make and model of
the car you want to buy. Most sites include information
such as dealer price, equipment listings, specifications,
safety features, and warranty details.
- Find out how much insurance is going to cost for
the new vehicle. If you can afford the car, but you
can’t afford the insurance, then you should
purchase a different vehicle.
- Try to determine the actual value of your trade-in.
Use the market guide books for an estimate, and then
visit various used car lots to get a bid on the car.
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Hold Down Costs When Purchasing
a Vehicle
Whether you’re buying a new or used car, careful
research and planning will help you get the right vehicle
without the one option nobody wants: onerous monthly
payments.
Here are some ways to save money:
- Check on reliability--Nothing can torpedo a budget
like unexpected repair costs. The annual Consumer
Reports survey of mechanical problems with different
models, available in the magazine’s April issue
each year, cites both overall ratings and specific
problems. If you’re a paid subscriber to the
magazine or online service, go to www.consumerreports.org.
- Look at continuing costs--Although insurance and
gasoline costs are continuous, new-car depreciation--the
value it loses each year--is a major factor. Edmunds.com
summarizes these variables in a feature called True
Cost to Own (click the Ownership tab on the home page,
then True Cost to Own). A vehicle that costs less
to buy now than a competitor may in fact cost more
to own over a five-year period.
- Negotiate hard--Reduce your purchase price by looking
for the dealer cost or “invoice price”
on sites like Edmunds.com and Kelley Blue Book (kbb.com).
Then aim for a selling price before any rebate of
no more than 2% over the invoice price. Better yet,
talk to us your credit union about pre-approving your
auto loan before you even start to shop for a car.
Copyright 2004 Credit Union National Association
Inc. Information subject to change without notice. For
use with members of a single credit union. All other
rights reserved.
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Car Buying Resource Links
Publications & Resources
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Rebate vs. Low Financing
Manufacturers often market vehicles by offering a
rebate or exceptionally low financing. Should you take
the rebate or the special financing? The dealer does
not give you both.
For example, you have decided to purchase a vehicle
for $20,000. The dealer is going to give you a rebate
of $3,000 or a finance rate of 0%.Which deal is in your
best interest?
Here is a comparison of the loan payments with the
dealer’s reduced financing and a credit union’s
standard financing.
0% APR financing for 36 months on a $20,000 loan
Result:
Monthly Payment = $555.56
Total of Payments = $20,000.00
5.5% APR Credit Union Financing* for 36 months on a
$17,000 loan
($20,000 minus the $3,000 rebate)
Result:
Monthly Payment = $513.33
Total of Payments = $18,479.88
$1520.12 is saved over the term of the loan with credit
union financing. In addition, if you were to sell the
car during the time you were paying on the loan, more
money would come back to you because you had a lower
loan balance.
A few other things to consider:
- Many consumers will not qualify for the low rate
financing. You generally must have near-perfect credit
to get the best rates.
- In many cases, special financing is available only
on specific models
- Most often, offers of special financing are for
a limited term, generally up to 36 months. This can
make the payment considerably higher than most of
us would like.
- Large down payments may be required.
*The rates quoted are for comparison purposes only,
and are not a guarantee of the rates offered by any
particular credit union. Contact your credit union
for the current rates on new and used car loans.
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Car Shopping With Credit
Problems
by Remar Sutton
Ever been a little late on a payment? Or had a spell
when your payments were really late? It's happened to
most of us, and you've probably worried about how payment
tardiness affects your credit rating.
That's why you may notice a popular advertising campaign
at new- and used-car dealerships: "No Credit? Slow
Credit? Bad Credit? No Problem! Come see us, the Credit
Fixers!" But don't head to the dealership just
yet. If you really care about your pocketbook and your
credit standing, read on.
Why would dealers want to draw customers with bad credit?
Because the dealership usually makes a lot more money
on them. People worried about getting financing generally
don't argue about the price of the car or the price
of financing.
The result: big, fat profits--at times, thousands of
dollars more profit on a person with marginal credit
than a person with A-1 credit. Many dealerships even
have special "hardball" sales tactics for
these customers.
How do you avoid becoming a victim? Follow these steps:
- Know your credit standing before you go to the dealership.
The easiest way is to apply for a loan at your credit
union, and tell the loan officer what you're doing:
"I'm thinking about a car, but want to know if
I'll be approved." If the credit union says "yes,"
you're home free. If the credit union puts a condition
on your approval--a larger down payment, for example--or
turns you down, ask why, exactly. Ask what would get
you an approval. Then do it, even if it means postponing
your car purchase until you have a handle on finances.
- When you shop dealerships, don't discuss credit
at all. Shop for the car as if you’re paying
cash, and never be rushed. Your credit union probably
has good tips on shopping right. Agree on a price
before talking financing.
- If you need to finance at the dealership, never
finance on the spot. Shop financing at two dealerships,
at least.
- Always go back to your credit union for a financing
comparison. Your credit union may give you a dramatically
lower rate than the "bad credit" lenders
if you simply pay down some extra cash.
- Don't be bullied. If a dealer begins to push you
around, get out of there.
Don't let past credit problems make your credit even
worse. Take your time, talk to the people at your credit
union, and make decisions calmly. You’ll get a
better price and a better credit rating, too.
Editor's note: Remar Sutton's car-buying tips have
been featured on "Good Morning America," "Today,"
"20/20," "Nightline," and in magazines
such as People, Newsweek, and Credit Union Magazine.
He's President of the national Consumer Task Force for
Automotive Issues. He writes this column exclusively
for credit union members.
Copyright 2002 Credit Union National Association
Inc. Information subject to change without notice. For
use with members of a single credit union. All other
rights reserved.
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Soaring Car Payments
and 0% Financing: Know the Risks
You’ve seen the ads touting 0% financing offers
at the car dealership. They sound like a good deal,
but are they?
Experts warn that when consumers get good financing--and
many believe 0% is the best deal available--they don’t
negotiate on price. As a result, car payments can be
much higher than the budget can bear. Some 17% of consumers
shell out between $500 and $700 a month for new cars,
not counting insurance, gas, and maintenance costs.
Another 43% pay $300 to $500 a month for their vehicles,
and just 32% pay less than $300 a month.
According to Edmunds.com, the average new automobile
retailed for more than $30,000 in 2004, a record high.
And the average is increasing about $1,000 a year. Combine
soaring car prices with lower down payments and dealership
incentives to get consumers into the showroom, and car
buyers could be walking into a trap.
According to a recent Cambridge Consumer Debt Index,
56% of Americans say their monthly car payments are
putting a squeeze on their budgets, preventing them
from making other big-ticket purchases. Some 17% of
consumers consider their car payment a major burden,
up from 11% in 2003.
Copyright 2005 Credit Union National Association
Inc. Information subject to change without notice. For
use with members of a single credit union. All other
rights reserved.
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