How to Save Money on Your Next Auto Loan

February 28, 2017

My first car was what we call in the south a “hooptie.” I paid about $1,500 dollars for it. The car was a multiple array of rust-created colors and the air conditioning did not work, which was a joy during the hot southern summer. As a new car owner, there were a lot of car rules I ignored, such as regular car maintenance. As a result, I soon found myself on the side of a road with a locked engine due to no oil.

This made me rethink my ideas on car maintenance, but it also put me in a position where I needed a new car. With no experience or common sense, I walked into a nearby dealer, told him the payment that made the most sense to me and trusted him to find the car that matched my payment. To his credit, he stuck to my budget and helped me find a halfway decent car. The payments were in my budget and I was happy so I drove off and did not think anything of it.

Recently, I found the auto loan paperwork from that car and almost choked when I read the document. Had I known what to look for and asked when I was getting the auto loan, I could had saved myself thousands of dollars. If you are shopping for an auto loan consider doing the following.

1. Establish rules around how much of a car you can actually afford. Although I considered the payment, I did not take the actual cost of repairs under consideration.  A great rule of thumb to use when budgeting for a car is the 20/4/10. This rules involves putting at least 20% down towards a car loan, financing a vehicle for no more than 4 years and keeping your total monthly vehicle expenses to less than 10% of your gross monthly income. (Monthly expenses includes insurance and gas.)

2. Pull up your credit report using websites like Annual Credit Report.com or use websites like Credit Karma or CreditSesame.com to gauge your credit score. The last thing you need is a surprise on your credit report as you talk to your potential auto lender.

3. Research your auto loan options through banks, credit unions and non-bank auto finance companies to find the best option for you. Consider getting pre-approval and using the CFPB’s Auto Loan Shopping Worksheet to compare your loans. Going into a dealership with a pre-approved loan gives you bargaining power.

4. Understand what’s in your auto loan contract. Find out if there is a pre-payment penalty if you pay off your loan early. Fees such as processing fees, dealer preparation fees and delivery charges may be negotiable. Even your interest rate may be negotiable. It never hurts to ask.

As you shop for a loan, consider printing the CPFB’s Auto Loan Shopping Worksheet and using it as a guide to shopping for loans. Also, read your contract carefully and constantly ask for discounts. Doing these few things can help you save potentially thousands on your auto loan.

Don’t Pay a Multiple of a Car’s Sticker Price

February 17, 2017

Anyone who has ever been a passenger in my car knows that I am not a big fan of buying new cars very often. My last two cars got to 250,000 and 300,000 miles before I sold them for parts. My current car is a 2002 with over 150,000 miles on it and I’m hoping to get this one to 300,000 miles.

Living on the East Coast, with all the snow and salt, bay/ocean water and sand, the exterior of cars can take quite a beating.  Mine certainly has. That doesn’t even count the kid who rode his bike directly into my driver’s side rear door, leaving a gigantic dent and paint scrape. Needless to say, my car isn’t going to win any beauty contests, but I haven’t had a car payment in a decade or so. I’m not much of a “car guy.”

That’s why when I read this article about negative equity in car loans reaching an all time high, I found it very alarming. Negative equity, for those who are unfamiliar with the term, is not a wonderful thing. If you owe $10,000 on a car that’s worth only $7,500, you have $2,500 in negative equity. Just about 1/3 of all new car purchases in the first three quarters of 2016 had trade-ins with negative equity and that negative equity was, on average, just over $4,800. That’s nearly $5,000 on top of an already fairly expensive purchase.

To me, this is a huge warning sign about how we think (painting with a broad brush here) about the value of a car. To me, a car is just a way to get from Point A to Point B quickly without needing to walk in the rain. To a lot of people, the type of car they drive is a reflection on who they are as people and they are willing to make questionable financial choices in order to have their car reflect the values that are important to them.

If I owned a coffee shop (I’ve been watching Friends episodes with my kids, so Central Perk is stuck in my head) and would sell you a cup of coffee for $3 but would charge you $8 if you drank half and asked for a new cup, how many new cups do you think I’d sell? I’d hope ZERO! But that’s what we do with cars. We (the folks with negative equity) drive them for a while and before we are finished with them (like getting to 300,000 miles), we trade them in for a much more expensive but shinier model and we add to the cost with that troublesome negative equity.

If a person repeats this pattern a few times, they might end up paying almost twice the sticker price for a car. If you add in the cost of interest on a car loan, it could be 3 or 4 times the sticker price. There’s not a car in the world that I’d pay that much for.

I wrote a while ago about how to save money when buying a car, and I still very much believe in that philosophy when buying a car. If you use it, or something similar, you can avoid the ever-growing problem of negative equity in your next car purchase. As pricey as cars are today, don’t let yourself pay a multiple of the sticker price.

 

 

Lessons in Car Shopping

August 30, 2016

If you have read any of my posts, you probably know that my family has a “hit me” sign on us every time we get into a car. We have been in two car accidents within four months of each other, and I am honestly not sure what was worse: the accidents or dealing with the insurance companies. After the dust settled, we found ourselves needing two cars. Luckily, we had adjusted to having one car and decided to get only one newer vehicle immediately. This began our car shopping odyssey.

The first thing we did was to contact the car insurance company we filed a claim with to ask for an extension. Surprisingly, they were willing to extend their coverage a few extra days and then they allowed us to use their much lower daily rental rate for an additional two weeks. If you are in a similar situation, contact the insurance representative assigned to you and plead your case. Having a few extra days or even weeks takes the pressure off of having to buy a car immediately.

Next, we decided on our budget and researched websites like  Kelley Blue Book and Edmunds to gauge what type of vehicle we can get with the features we wanted within our car budget.  Next, we reviewed the reliability rating using websites like Consumer Reports. Once we did the research, we were able to narrow down our selection to two types of vehicles. Before heading to the dealer, come up with a budget and research vehicles that fall into your budget so you have a realistic idea of what you can afford to get.

I am sure that there are wonderful car dealerships, but after dealing with high pressure sales tactics, we realized we do not have the time or patience for traditional dealerships so we decided to buy a car through an online dealer. After researching several online dealers, we found that in our case, the fees were cheaper, many had a money back guarantee, you can shop nationally (confirm any fees to transport the vehicle to you) and there was less haggling. We researched consumer complaints using websites like the Better Business Bureau and Yelp.  No matter how great the online dealer may sound, do your due diligence by researching the company online for complaints.

After choosing our dealer, we were assigned a salesperson who did a great job asking us about our needs and wants and sending us vehicles that were within our budget. Within a few days, we selected the vehicle we wanted and after it was inspected and detailed, it was delivered to our doorstep. We were so excited and relieved that our experience was pretty painless – or so we thought.

About a week after getting our vehicle, the car had trouble starting. We took it to a mechanic to have it inspected, something we should had done as soon as we got the vehicle, and we found that it had transmission problems. We contacted the online buying service about the problem, prepared for a battle.

They asked to see the report of repairs the mechanic put together. Less than an hour later, they called us and apologized. They said they used a new mechanic for the inspection, and he obviously did not do a good job. Much to our shock, they immediately offered us three options. They offered to pay for all repairs, give us our money back or search for another vehicle using our full purchase price as the trade-in value.

After careful consideration, we decided to trade the vehicle in and ended up in a better vehicle for a lower price. No matter how great the vehicle initially is working, get it thoroughly inspected while you are in your money back guarantee period. Also, make sure that any guarantees or warranties you were offered is in writing.

Even though our car buying experience did not go exactly as planned, we would still include online car dealers when car shopping again. Don’t limit yourself. As you start to think about buying a car, explore all of your choices to help you find the best vehicle for your needs.

 

Creative Commons Photo Credit: Source

Don’t Overspend on Assets That Depreciate in Value

April 22, 2016

My middle child, who is merely days away from taking his driver’s license exam, thinks that it is a major hardship that he isn’t going to have a car on day one after he gets his license. That’s not such a bad problem to have considering all the problems in the world. I asked him about the kind of car he’d like to drive and he said he wouldn’t mind a new Mercedes or BMW…a Ferrari would do. In a perfect world, a Lamborghini or Bugatti would be his preference.

That’s when I reminded him that the world is not perfect and that it was time for a quick re-visit of our reality. I had my hiking boots in my car and told him he is going to get a car that resembles those old hiking boots, probably not a car that a high level executive would drive, but it beats walking or riding a bicycle. My rationale: a first car is far more likely to be dented, dinged and wrecked than a car that you buy after 20 years of driving experience.  Inexperienced drivers pay higher insurance rates because they are a higher risk, so we are going to opt for an old ugly car that goes slow and is incredibly safe over a shiny, fast small sporty car. I’d like to see him live a long, healthy life and this car choice will help that along.

I use this theory for buying my cars:

Buy a high quality car that is 3-5 years old with 40,000–60,000 miles and coming off the first lease. I can pay pennies on the dollar based on the original price. I’ll drive it until it has 200-300k miles on it and leaseholders tend to take very good care of their cars. I’m getting a nearly new and high quality car at a low price. My current car is a luxury model that I bought for just under $10,000 2 or 3 years ago and has been a great purchase.

For my son:

If he wants a Mercedes or BMW, that’s great! But it’s not going to happen. Unless we find one that is 10+ years old, has 100k+ miles on it and can be had for a very low price. More likely, we will look for great deals on high quality cars with lots of mileage. He will be commuting a few miles to work or school and taking the occasional road trip.

I want him to have a 4 cylinder engine to be effective on gas mileage and not have much horsepower. And I want the car to have a great safety record from a car maker that has a reputation for safe cars. Looking at cars.com, I found 200+ cars for under $5,000 that my son, his mom and I can all pitch in and purchase together. Now his job is to pass his exam and come up with 1/3 of the cost of the car!

What do I hope you learn about from my son’s car? Don’t overspend on assets that depreciate in value!  Americans spend far too much on cars and other things that don’t increase in value. Set some rules about how much you’re willing to spend on things like this and stick to them.

My kids all laugh when they say they’re going to “invest” in a new computer or video game. They roll their eyes when I ask how much of a profit they’ll make if they sell their new “investment” 5 years later, knowing that they’re about to hear investing means trying to earn a profit. Spending is what we do when a purchase decreases in value. The moral of this long story is to minimize the cost of purchases so that you have room to invest for your future.

 

When Winning The Lottery Isn’t Really Winning

September 04, 2015

I heard about a story from a friend and I didn’t believe it.So I went to a more reliable source than my friend’s text message, and I found this article about Illinois lottery winners receiving IOU’s rather than money. The lottery agency is a state run entity and the state has not passed a budget so winners of $25,000 or more are not getting paid right now.   Continue reading “When Winning The Lottery Isn’t Really Winning”

“Worthless” Hunks of Junk

April 10, 2015

My daughter and I were talking about cars recently.She borrowed mine to “allow me” to drive hers for a few days to see if I could figure out what was the source of a noise coming from her car. After driving it for two days, I couldn’t figure out the noise but I was able to fill up her empty gas tank, check her fluids and inflate her tires.   Continue reading ““Worthless” Hunks of Junk”

Is Bigger Better?

October 21, 2014

JLo and I have something in common regarding our rear ends – our recent car accidents, that is. We both walked away unhurt and with minimal damage to our SUVs after being rear-ended at a stoplight. Not so lucky was the  young driver of the Honda Civic who hit me from behind since his entire front end was crushed like an accordion.  JLo’s accident was due to a drunk driver so he is probably even more unlucky. Continue reading “Is Bigger Better?”

Four Steps to Car Buying

September 03, 2014

This year my daughter is turning 16,and you know what that means. Buying and selling a vehicle can be one of the most intimidating financial transactions you will ever experience, but there is a plethora of information and advice out there to help even the most nervous consumer get through the process. Here are some simple steps you can take to acquire the car of your dreams: Continue reading “Four Steps to Car Buying”

The 2 Big Financial Mistakes Most People Make

June 06, 2014

My daughter’s favorite animal is the koala bear and that was never more apparent than when she and I went to the San Diego Zoo and saw the koalas there.  Her reaction:  “KOOOOAAAAALLLLLAAAAASSSSS!!!!!!”  –  if I recall correctly. We talked about koalas and why they hug trees.  We had no idea, but now with this article we know the answer.   Continue reading “The 2 Big Financial Mistakes Most People Make”

Simple Car Buying Rules That Can Save You Money

November 25, 2013

I recently received a nice reminder about why our family maintains an emergency fund. While sitting in a car line getting waiting to drop my daughter off at school (and trying to play the role of referee during an early morning brother/sister quarrel), I noticed that the SUV was severely overheating. A few days and about $1,300 later, my daddy chauffeur business is now once again back up and running.  (Note: I am still working on getting the cute little monsters to get along though.) Continue reading “Simple Car Buying Rules That Can Save You Money”

We All Make Mistakes

July 05, 2013

My daughter and I took a trip together and I let her be our DJ and choose all of the music while we were in the car together. Well, almost all of the music. There are a few songs I had to ask to skip, I just couldn’t stand them!  Continue reading “We All Make Mistakes”

Is Better Gas Mileage Worth the Price?

March 06, 2013

Have you noticed your wallet getting a little bit lighter recently when you fill up at the gas tank?  It seems the price of gas has gone up once again and depending on where you live, could be over $4 a gallon.  It may cause some of you to consider purchasing a vehicle that gets better gas mileage but before you do, consider how many miles you may have to drive before you recoup the cost of buying that new vehicle. Continue reading “Is Better Gas Mileage Worth the Price?”

5 More Ways to Boost Your Retirement Savings and Retire Early

November 12, 2012

It’s not so much how much you make; it’s what you do with what you make that can help you create wealth. Case in point, a friend of mine just retired at age 53.  In today’s economy, retiring early is tough to do – virtually impossible—yet she did it and her husband has never had a “regular job.”  She worked as an administrative assistant at the University of California in Davis, California.  Without a college degree, she never earned six figures but what she did earn, she and her husband saved.  They were very frugal and what they saved they invested in rental property, which he managed, as well as in her 401(k).  I love reading her recent Facebook posts sharing things like “It’s a rainy day and I don’t have to go into work!”  She and her husband achieved financial freedom and so can you. Continue reading “5 More Ways to Boost Your Retirement Savings and Retire Early”

Pimp Your Bank Account, Not Your Ride

August 18, 2011

There’s a show on MTV called Pimp My Ride, in which people would get extreme makeovers for their cars. But this post will be about a different kind of extreme makeover for what is probably your largest monthly expense, after your home. After all, getting from point A to point B can be expensive. It’s not just the sticker price on your car. It’s also the interest on the car loan, insurance, gas, maintenance, and repairs that go with it. An employee in one of my webcasts said she spends $400 a month on gas alone.  To make it worse, unlike owning a home, a car is usually a depreciating asset.

Here are a few keys (no pun intended) to minimizing this cost: Continue reading “Pimp Your Bank Account, Not Your Ride”

Frugal vs. Cheap: How to Tell the Difference

February 25, 2011

In my prior blog, Car Buying: A Way to Save a Fortune, I talked about how I like to be a bit frugal when it comes to buying my cars.  Many of my friends have read that blog and, of course since they’re my friends, they aren’t afraid to chime in and tell me what points I failed to make.  With friends like that…well, you know the rest of that line.

Here’s the overwhelming commentary I got from people I know.  There is a difference between being frugal and being cheap.   Continue reading “Frugal vs. Cheap: How to Tell the Difference”