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Cooperative Extension Service |
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Agricultural
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Early Childhood
Dale Bumpers College
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Financing Your Next Car or TruckHow to Get the Best Deal • Now You Are Ready • Rebates and 0% Financing It is time to buy another car or truck. You know the drill. Go to the Internet or the classifieds and look up prices of new and used cars you think you want to buy. A search on the Internet at web sites such as Edmund.com or a review of recent issues of magazines such as Consumer Reports and Kiplinger’s Personal Finance can help you here. Dealers are not making much money on cars these days because customers come in knowing the spreads between the invoice and the sticker price. Instead dealers make it up on financing, servicing, trade-ins, consumers’ poor shopping skills and bill paying habits. One way dealers make up the shortfall is to “mark-up” charges when they finance their new cars at dealerships. Based on your credit rating, the dealer can “mark-up” the finance charges, the average is three percentage points, over $1,000. Many customers are not aware of the “mark-up” because they accept the financing terms that are quoted after they negotiate a sale. Keep in mind, getting the best price on the car has nothing to do with getting the best loan. A recent article, Financing Pitfalls and Solutions, by Phillip Reed, posted 10-02-2003; on the Edmund.com website provides insights into automobile financing. Treat each step – negotiating for the price, the loan, the trade-in, and even buying your insurance as a separate deal. Resist any attempts to “bundle” a deal such as “we will give you an extra-low price but we can’t go any lower on the interest rate.” Track your progress step by step. This takes work. It may be more days or weeks until the sale is final. But keep in mind, your car or pick-up is probably the second most expensive item in your budget. Your time investment can save you dollars! Start with learning your credit score and examining a copy of your credit report. Since there are three firms that provide credit scores, you can get a bundled report and score for $19.95 from www.creditreport.com, or individual reports (about $9) plus individual scores (additional $5) or other bundled combinations from firms advertising on the Internet. The three major credit reporting agencies (www.equifax.com; www.experian.com; www.transunion.com ) do not have the same information. For more information, read Extension fact sheet FSFCS91, Credit Help for Arkansans: Names and Numbers to Know. If any of your credit scores are below 720, take a good look at the reports and correct any errors. Also, read the reasons for your scores and take steps to increase the number. You may have to bite the bullet for a few months. It may have to work to pay bills on time and pay off credit balances to raise your score. If your credit score is too low, you may qualify for a loan but at much higher interest rates. Higher scores mean a lower loan rate. See below. Hypothetical Example of Relationship of Credit Scores and Loan Rates
Only Now Are Your Ready To Shop For The New Vehicle. Avoid the temptation to overspend. Take a crib sheet with you (Keep it hidden in your pocket or purse.). Write out your price range. List the features you absolutely must have and be prepared to stick with those. Determine how much payment you can budget can stand and then work backwards to know over 36 months or 48 months how much car that payment would finance. Bankrate.com had calculators to help you. Car payments plus related expenses – gas, insurance, taxes, etc. are best held to no more than 20 percent of your take-home-pay. Make a list of prices of vehicles you think you want to refer to when negotiating the price of a car. Research current interest rates. Read the ads. Check at your bank or credit union. Check Bankrate.com. Do a Google search to check online lenders. Practice The Rule of 3 and get at least three quotes before you buy your financing package. Get pre-approved financing. Now you can bargain for a cash sale at the lowest possible price. If the dealer learns you are a pre-approved customer, you can compare his or her rate offer with the one on your crib sheet. When financing, focus on the APR and not on the monthly payment. And never give the sales rep the upper hand by revealing how much monthly payment you can afford. Instead tell the dealer you are “on a budget.” What About Rebates and 0% Financing? Look at the chart. It pays to do your homework and use a calculator. It is not only the loan rate, the cost of the car, and the payment that is important. The bottom line is the total cost of the car!
Negotiate the trade-in price. Once you know a dealer’s bottom line price and your lowest financing offer, only then should you negotiate a trade-in. Check your insurance options especially if you are looking at vehicles with more features than you now have. Your agent should be able to give you estimates. Your insurance premiums will no doubt be higher after you trade in a vehicle for a newer model. By the time you negotiate the financing, the price, and the trade-in, most customers are tired. When they go to the finance and insurance office, they often fail to read the contract and are unprepared for all of the other items, such as warranty protection, rust proofing and other add-ons, a dealer wants to include with the deal. Read the contract carefully and question any numbers you do not understand. Keep in mind your deal is only final when the papers are signed. Finally, if you feel rushed or confused, walk out and come back the next day. You are the one that should be in control of the deal. There is no “cooling off” law that applies to cars. Practice good bill paying habits. Late payments are costly these days. You will be charged dearly for skipping a payment or bouncing a check. Do not wait until the last minute to make the payment and chance a mix-up with a computer deadline or human error. Late fees to the tune of $30 and $50 add up. |
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University of Arkansas • Division of Agriculture |
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