Auto Loans
Auto dealers make a fortune on financing. In fact, they often make more on the financing of the car than they do on the sale. In the negotiation process if you really want a great deal, you have to negotiate the financing. Here's how:
Before you even decide to buy a car, determine how much you can afford to spend. Once you know the amount your budget can support, stick to it. Don't be oversold. If you are, you will suffer down the line. Our suggestion is to only spend about 10% of your take home pay on a car loan. For example, if your take home pay is $3,500 a month, your car payment should not exceed $350 per month. This is the easy part.
Once you determine what you can afford to pay, the next step is to find low cost financing. I recommend you find a source of financing before you start car shopping. When shopping for a car loan, you should always:
1. Find the lowest interest rate.
2. Make the largest down payment possible.
3. Borrow the money for shortest term possible.
4. Beware of leasing arrangements , see buy or lease.
When you are purchasing a car try to get financing through sources other than the dealership. If you must finance through the dealer, always remember, never negotiate for monthly payments -- you will get the shaft. Always negotiate for the price of the vehicle. Never accept outrageous financing terms.
If your credit is not what it should be, I suggest you make an attempt to fix your credit before you decide to purchase a car. Doing so can often save you a substantial amount of money on the financing. In the Financial Wisdom Seminars we address the subject and also hold credit repair seminars.
Before you sign for the loan be sure to read the fine print and understand the terms of the financing arrangements. It is highly recommended that you only sign for a loan that allows you to prepay without penalties or extra costs, and that any extra payments will reduce the principle of the loan. This can be extremely important.
When comparing loans always compare the APR (annual percentage rate) from each source. Also compare any other charges such as loan insurance and loan processing costs. Keep in mind that rates are not set in stone. They are negotiable. If the source you are considering is not negotiable shop else where. Let them know you are shopping and that the competition has offered a better deal. It really helps to have good credit.
Another critical factor is to never assume your credit is poor or apologize in any way for your credit rating. If you approach a lender or a car dealer with a cowering attitude and confess that you have bad credit they will take advantage of the situation and certainly add interest points on the loan. Remember, they make money on the loan and the higher the interest rate or other charges the more they make.
Sources for Car Loans
1. Banks
2. Savings and loans
3. Credit unions
4. National lenders
5. Internet loans
Key Points
• Build good credit - repair your credit
• Line up financing in advance - part of negotiating process
• Use the most money down
• Use the shortest term -- try not to exceed 3 years.
• Negotiate for the best interest rate and other terms
Caution - Danger
Longer term car loans are becoming more popular. It's hard to believe, but in the attempt to get lower monthly payments, buyers are taking out 8 and 9 year loans. Statistics show that 25% of all loans are for 6 years or longer. This can be extremely dangerous.
When consumers sign for a long-term car loan, there is a great chance the car will depreciate and be worth less than the loan balance. That means they will owe more than what the car is worth. When they go to sell the car there will be a shortage and they will be in a negative cash situation. For some buyers that is perilous. It can mean being stuck with the car for a very, very long period of time.
Another problem with long-term car loans is the amount of interest or financing costs involved. The longer the loan the more you are going to pay. It's just not worth it.
Financially you would be way ahead if you purchased a much cheaper car. If you can't afford the higher payments associated with a short-term car loan, if generally means you can't afford the car.
You are jeopardizing you financial future for a short - term pleasure. Be smart, be wise, don't fall into the long-term car loan trap.
* Don't consider long-term risk of loan
* Also, choose a less expensive car to keep payments low
In the Financial Wisdom Seminar we teach you how to save money on all your purchases. Let us help you get wise.
Remember, my job is to help you become financially stable, secure and independent. I will do my best , you do your best.
Your author and friend,
Paul Barrett
