Auto buying Tips
Julie Shapiro here Im a creative consultant in the midst of purchasing a new car
Creative consultant proves getting in the drivers seat is easy if you understand the car buying process and how to get an auto loan.
Making a major purchase can be confusing if you dont do your homework. Particularly when the car dealers use unfamiliar phrases like "down payment" and "APR." making you feel like youve walked into some private club. With the Internet as your ally, these terms become road signs to follow to get in the drivers seat. Its that simple.
Heres my process in five easy steps:
Choosing the right car
Dealing with the car dealers
Understanding the credit scores - FICO
Getting a credit report
Obtaining an auto loan
The information compiled in this article will save you time on your car purchase. I used the Internet search engine Google as my research buddy. If I needed to learn something, I simply typed in keywords and found the useful links listed in this report. Some of these links were easier to find than others. For example, many of the links listed under car manufacturers took me hours to locate. But with car loans, it was easy, I simply typed the keywords car loans and found everything I needed right away.
Step #1 Choosing the right car
With car buying theres always going to be a wish list and the practical list. It takes a good combination of these wishes to get on the road in the right car. The wish list is an emotional, feel good kind of thing, its great for dreams and goal setting, but it belongs in the passenger seat. The drivers seat needs the practical wishes steered by common sense and a strong dose of logic. For me its real simple, I want a car thats fun, stylish, drives great, is safe and within my reach, you know, affordable. Looking at the old checkbookcash in, cash out, I set a reasonable price range for my new car and factored in fun, style, and safety.
Here are some basic questions, which kept me focused.
Is the car going to be used for hauling things? (Consider getting a pick-up truck (SUV).
Is the car going to be used for taking trips on the weekends or cycling, kayaking, surfing, camping, etc. (Consider an SUV or a pick-up truck.)
Is the car going to be used for commuting to work? (Consider a car that gets good gas mileage.)
In my case I have a ten year old BMW, a sedan. This style car has been fine, when Im on the road visiting customers, but it does not fit my off hour life style. When Im not working I like to go bike riding, do some gardening and go running on the beach. I want a car that blends my professional and personal life.
Choosing the right SUV, when there are dozens and dozens of makes and styles, just seemed daunting. I wasnt sure where to start, so I visited all the major car manufacturers websites and checked out the cars and the available options. While style and functionality are important, safety really is number one. The U.S. Consumer reports www.consumerreports.org/Categories/CarsTrucks/, unbiased in depth coverage for safety on new and used cars really made it easy for me to narrow down my selection.
· Toyota 4Runners $25-000-$34,000
· Honda CRV $21,000-25,000
Here are some other helpful consumer review sites.
Taking a test drive is another important part of the selection process. I visited my local Toyota and Honda dealers and drove the SUVs. I liked the way the Toyota 4Runner handled quick turns and freeway driving. It was a nice smooth drive. Driving the Honda CRV felt more like driving a sports car and not a larger vehicle, which is also attractive. Im going to take a few more test drives and make my final decision based on the dealers time frame. . While this may sound strange, Ive discovered a little known fact, that the dealers actually mark down prices at certain times of the year to get rid of inventory. The best time of year to purchase a car from a dealer is during the last two weeks of December and from July through October.
Step # 2 Dealing with the car dealers
Fueled by the rumor, that car dealers act like sharks I did my homework. I didnt want to be intimidated or fall for some line. I wanted the facts.
I learned both the average price and the base price (the price of the car without any special options, otherwise known as the manufacturer suggested retail price) by visiting various dealerships and comparing prices. Consumer Reports suggests finding out what the dealer price is and negotiating up from that figure as opposed to working from the sticker-price down.
These sites helped me figure out the Manufacturer Suggested Retail Price (MSRP).
Some dealers will bargain on their profit margin, which is often between 10 and 20 percent. In many cases this is the difference between the manufacturer's suggested retail price and the invoice price. Here are some sites that offer guidance on pricing.
Kelley Blue Book - www.kbb.com
NADA - www.nadaguides.com
Edmunds - www.edmunds.com
Negotiating with the dealers
The shear notion of negotiating with car dealers at first intimidated me. I found out that by going into the dealership prepared with a price, the pressure of negotiating is on the dealer, theyre the ones that sweat.
Buyers beware---One the dealer knows you want the car, thats often where unsavory practices happen. A scam that dealers sometimes try is to get you to pay a variety of extra charges. Dont fall for this trick. Stick to the price you agreed to. Walk out if you feel youre being treated unfairly.
At first, I thought the trade-in value for my car was not that big a deal, considering my car is 10 years old. While looking through the Kelley Blue Book, I discovered having a trade-in is like finding money, because thats essentially what a trade-in is, or in other words it can be used as a down payment for a car loan in lieu of cash. Both Kelly Blue Book and the Consumer Reports Used Car Buying Guide, list the market value of used cars. Their estimates are based on cars in good condition with an average of 12,000 miles per year.
Step # 3 Understanding the credit scores - FICO
Whats FICO got to do with a loan?
Everything! Its the lifeblood of getting an auto loan. FICO stands for Fair Isaac & Company and is a score based on your credit report. When you apply for a car loan the credit bureaus evaluate your credit profile and assign a score. This score is used to estimate your credit standing. Experian, Trans Union, and Equifax all have their own credit scoring systems.
How Is the FICO Score Determined?
1) Past payment history (counts for about 35% of the score). The less late payments the better off youll be. Recent late payments have a greater impact than an old bankruptcy.
2) Credit use (counts for about 30% of the score) Low balances across several credit cards is far better than the same balance concentrated on a few cards, which are close to their maximum limits. Too many credit cards can also bring down the score. Closing accounts can negatively impact a credit rating if the entire profile is not considered.
3) Credit history (counts for 15% of the score) Longevity counts in your favor. The longer the accounts have been open the better your credit score. Opening new accounts and closing seasoned accounts can bring down the score considerably.
4) Types of credit used (counts for 10% of the score) Financing accounts score lower than bank or department store accounts.
5) Inquiries (counts for 10% of the score) multiple inquiries could indicate a negative risk if several cards are applied for or if other accounts are near their maximum. Multiple mortgage or car inquiries within a fourteen-day period are counted as one inquiry.
The car dealer credit score scam
Dont get bitten by the car shark. There is a myth about credit reports. Many people are under the wrong impression that if they get a credit report, their credit score goes down. Sadly, car sales people often perpetuate this myth. They get away with this by feeding on consumer ignorance and charging a higher interest rate. My friend Lisa warned me about this unsavory practice.
With a credit score of 780 (Excellent rating) Lisa should have been eligible for a 0% interest rate. But the dealer she visited wanted to pull a fast one. Lisa filled out the credit application at the dealership and felt like she was in some bad movie when all of sudden a bunch of finance people with "worried looks" on their faces approached her. They showed her a supposed report of her "credit score" with the number 580 circled in red and went on to explain how they could get her financed at 10.9%, but not at the advertised 0% interest rate. When questioned, they lied on the spot. Lisa, showed them her credit reports, promptly left, and bought a car from an honest dealer. She secured a 0% interest loan on her own.
What is a good credit Score for approval of a car loan?
A credit score above 680 is considered a "prime borrower". With this rate you can get a good APR on your loan.
A credit score below 680, is considered "sub prime", and will pay a much higher APR on the loan.
If you have a credit score below 550, the chances of getting a car loan are still good, you just have to pay a higher interest rate.
Can you improve your credit score?
Yes. However, it is not possible to legally remove accurate information from a credit report. You can remove any wrong information thats listed on your file. If you find something on your credit report that is inaccurate or incomplete, simply ask the credit-reporting agency for a dispute form. Then submit your dispute in writing with copies of the disputed charges and any other necessary information. These corrections should be made well in advance of purchasing a car, because you never can tell the exact impact a change will have on your credit score.
Can debt consolidation improve the FICO score?
Yes. By reducing your debt you can improve your credit rating and increase your chances of being approved for the loan amount you need. Heres a helpful resource for debt consolidation: http://www.myaffiliateprogram.com/u/LMatrix/e.asp?e=2&id=1136
Step # 4-Getting a credit report
Heres a good resource for getting a credit report online: http://www.financial-services-online-fx.com/auto-car-loans.html. This site also has great information on obtaining a car loan.
Follow these steps before applying for a car loan:
· Get your Credit Score so dealers can't try to pull a fast one. For example, some dealers will say you have a bad credit score and will give you a high loan, when youre eligible for a 0% interest loan.
· Close old accounts, which may be pulling down your credit score.
· Remove erroneous addresses and other errors from your credit report
· Try to get any "Charge Offs" removed by negotiating with your creditors
· Wait until your FICO score goes up to 680 if you're applying for a prime car loan.
Step #5 Obtaining a car loan
You dont have to be a math whiz to understand and obtain an auto loan. As a creative consultant naturally, Im more of a right brain type person (thats the art side) vs. the left side of the brain, which is more numbers based. So, when I discovered websites that would actually calculate how much money I needed for a loan, including different scenarios for a down payment I breathed a huge sigh of relief. I didnt have to do fancy calculations and wonder if I was reaching the right conclusions. These sites take all the guesswork out of the process and make it easy to get a loan.
For example: Based on a loan amount of $22,000 for a new vehicle
APR varies from 13.95% to 20.95%
Payments vary from $539 to $751
Apply for a loan once you know your credit report FICO score. Got to your favorite search engine and type in car loans and take a look at these sites to see the loans available, as well as the handy loan calculators.
Here are some questions to consider when evaluating a loan.
1. What is the interest rate?
The APR (annual percentage rate) is the interest rate you pay yearly on the unpaid balance of the loan. The rate you are offered depends on your credit score.
2. Are there any penalties on the loan?
Some loans come with hidden charges. Find out if there any extra charges that could occur during the term of my loan or if there is a penalty for paying the loan off early.
3. What is the total amount (be exact) for the loan?
4. What is the amount for the credit (finance charge)?
5. What is the exact amount for each payment?
6. What is the total number of payments?
Buyer Beware---Car Dealer Super Deals
Dealers advertise 0% and 1% financing as their quote super deal. Typically, these loans are for 24- or 36-months. The dealer makes up for the cash by offering a higher monthly payment. If your credit rating is good you can get a much better deal through one of the four online lenders listed at http://www.financial-services-online-fx.com/auto-car-loans.html. These lenders offer low interest, low monthly payment car loans.
Often car dealers offer cash back rebates of $2000. Buyer Beware---The dealer is simply inflating the price of the car in the guise of giving you cash back.
Remember, the real super deal is getting the best price on the car and the best possible financing rate. Do your homework, be safe, get the facts, and have fun in the drivers seat!