Purchasing a vehicle is a very exciting & proud moment in everyone’s life. However, along with the fun there is also a strong financial commitment involved. Before purchasing a vehicle, you need to ask yourself a few important questions:
Before buying a car, you need to develop a spending plan, considering other purchases you may make which will require financing and thus affect your debt commitments.
A solid financial plan gives you the power to make decisions about important purchases, like a car.
Important reminders for developing a spending plan:
It pays to compare insurance coverage, because insurance premiums can vary by hundreds of dollars among insurers for the same vehicle.
Premiums are determined by the following factors:
What to remember when selecting a dealership:
Before learning about credit scores, it is very important to understand what “credit” is. Credit is a transaction in which a person receives merchandise, an automobile, money, or services for little or no money up front and promises to pay an agreed amount of money (principal) in a specified time period (term). Usually the company giving credit charges a fee for providing the service (interest).
Your credit record means everything when it comes to borrowing money. Credit reporting agencies collect information about a person to build an individual’s credit record. If you have a positive credit history, you have more options than the consumer with little or no credit or a poor credit record.
For a bank or credit union to lend you money, they need to know how reliable you will be in repaying the loan. Lenders base their decision to lend money on several criteria; the most important of these is a credit score. A credit score takes into account the following factors:
You may have a low credit score and thus trouble purchasing a vehicle at a fair price with favorable financing terms if you have:
The good news, however, is sometimes these obstacles can be overcome! Some companies such as MILES, specialize in helping you finance a vehicle despite your credit problems. Be prepared to pay a higher interest rate if you have any of these credit problems. Unfortunately, too many companies take advantage of individuals with past credit blemishes because these buyers feel they have no other alternative but to pay the extremely high interest rates or pay far more than the actual value of the vehicle.
You can positively influence your credit score. This process takes a commitment to do so, and consistently doing the right thing over time; however, the benefits are numerous.
Here are a few ways you can raise your credit score:
Check your credit online, at www.annualcreditreport.com
You must arm yourself with information on what is a fair price for a particular vehicle. Several guides that provide this information are:
In general, a fair selling price for “used” vehicle falls in the range between NADA “trade-in” value and NADA “retail” value. Many factors influence this price, including supply and demand of the model and condition and mileage of the vehicle. This range provides the dealer a fair profit and you a fair price for the vehicle.
In today’s high tech world, finding an automobile lending source is relatively easy. Most on-line sources allow you to apply and get a response to your application within minutes. Banks and credit unions should be your first option when shopping for an automobile loan. However, too frequently buyers just compare the Annual Percentage Rates (APR) and go with the lender with the lowest rate. This can be a costly mistake.
Some dealers are “sub-prime” or “non-bank” financing sources where the lender charges the dealer a fee to finance a vehicle for a buyer who does not qualify for bank and credit union financing. The fee, normally 10-25 percent of the purchase price, is passed on to the buyer in the higher vehicle sales price, and raises the amount of the purchase by thousands of dollars. Thus, the buyer is charged a “low” interest rate but actually pays a much higher purchase price and far more overall than what would result from a higher interest rate.
Regardless of the lender, consider all factors of the loan, including the following:
Don’t be fooled by the hide-the-interest game. Sometimes it may look like you are getting a good deal, but in reality, you are not. Compare the Total of Payments to determine your True Cost of buying the car. Don’t just look at the interest rate.
Mechanical repair costs can be expensive and unexpected emergencies. Whenever you buy a new car, the manufacturer warranty typically covers your car in the event a part does not function properly. During the coverage period, the manufacturer agrees to make any needed repairs that are the rest of defects in material or workmanship. The manufacturer is not required to replace items which wear out as the result of normal use, such as brake pads or windshield wiper blades. Tires are warranted separately by their manufacturer.
In addition to the basic warranty, many automobile manufacturers provide extended warranties for the car’s powertrain. Generally, the powertrain is defined as only the car’s engine, transmission, and drive train. Some of the warranties may last up to ten years or 100,000 miles, but may also require the car owner to pay a deductible for each repair. You should ask for a copy of the auto manufacturer’s warranty before you make your purchase. Be sure to understand exactly what is and is NOT covered as well as costs and responsibilities.
Many auto dealers also offer a variety of service contracts which can protect you from the unexpected costs of a major repair bill beyond the life of the manufacturer’s warranty. These service contracts are usually more comprehensive in nature than a powertrain warranty.
If your vehicle is declared a total loss, your auto insurance company may not cover the amount needed to pay off your finance contract. Auto insurance companies will generally pay the market value of the vehicle at the time of loss, minus your deductible. GAP is designed to protect you from an unexpected financial obligation if your vehicle is declared a total loss from causes such as theft, accident, fire, or flood, and your loan balance exceeds the NADA retail value of the vehicle at the time of loss. GAP will pay the difference between your vehicle’s NADA retail value and the balance of your finance contract, including (in most states) up to $500.00 of your auto insurance deductible.
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