Friday, November 7, 2008

Buying a Car: Do Your Research - Know the Product

A new car is second only to a home as the most expensive purchase many consumers make. The average price for a car in America is approximately $24,500. That’s why it is so important to know how to make a smart deal.

Think about what car model or options you want and how much you are willing to spend. Shop around! You’ll be less likely to feel pressured into making a hasty or expensive decision that you might later regret. Can you afford it? Just as a home can be foreclosed on for default, a car can be repossessed if the payments are not made according to the terms of the contract.

Consider the following suggestions:

Do Your Research - Know the Product

  • Plan to negotiate on the price. Compare models and prices in ads and on-line car buying services.
  • New or used?
  • Check articles from Consumer’s Report to find out what cars are lemons.

Factors to Consider

  • What is the value of the car you want to buy?
  • Will the car have a good resale value?
  • Consider ordering your new car if you don’t see what you want on the dealer’s lot.

The Dollar Factor & Terms to Know
  • The invoice price is the manufactures initial charge to the dealer. This is usually higher than the dealers final cost because dealers receive rebates, allowances, discounts and incentive awards.
  • The base cost is the cost of the car without options, but includes standard equipment and factory warranty.
  • The monroney sticker price (MSRP) shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, the manufacturer’s transportation charge and the mileage.

  • The dealer sticker price is the MSRP plus the suggested retail price of dealer installed options.

  • You must also determine how much you can afford to spend. Your payment should not exceed 20% of your net income.

The Purchase & Financing

  • If you decide to finance your car, be aware that the financing obtained by the dealer may not always be the best you can get. Contact lenders directly and compare financing offers.
  • The purchase involves four separate transaction: Negotiating the cost, the cost of financing, your trade-in (a sale not part of the purchase), and the cost of insurance.
  • You control the sale: never allow a sales person to establish financing based on what you can afford to pay a month; negotiate based on the APR.
  • Several factors influence the APR – credit history, current finance rates, competition, and market conditions.
  • To qualify for special rates you may need to put down a larger down payment.
  • Before you sign the contract consider the terms of the financing and evaluate whether it’s affordable. READ the contract! I cannot emphasis this enough!

  • Liability is required by law; it covers damage to the other person’s vehicle from an accident.
  • Collision and comprehension, covers your car – the lender requires this protection as long as you are paying for your car.

The Law & You

  • Financing Pending: after 3 working days the deal is dead if financing you agreed to is not approved.
  • The 3 Day Cooling Off Rule does not apply to auto sales. The deal is sealed when you sign.

What You Should Know About a Co-Signer

A co-signer assumes equal responsibility for the contract, and the account history will be reflected on the co-signers credit report. Use caution if asked to co-sign for someone even a family member! Many co-signers are stuck paying for the car, so be sure you can afford to do so before agreeing to co-sign on someone’s vehicle.

Vehicle Repossession

In the same way a mortgage lender can foreclose on a home if the payment is in default, so can an auto lender take (repossess) the vehicle. The lender holds important rights over the vehicle until you make the very last payment on your loan obligation.

In many states, your creditor has legal authority to seize your car as soon as you default on your loan. Because state laws differ, read your contract to find out what constitutes a default. In some states, failure to make one payment or meet your other contractual responsibilities are considered defaults. If you make any changes with your lender it’s best to get it in writing.
Once your car has been repossessed, your creditor may decide to keep the car as compensation for your debt. Or sell it at public auction. In most cases you may be entitled to buy back the vehicle by paying the full amount you owe plus expenses connected with the repossession, such as storage. If the car is sold for less than the loan amount you will be responsible for paying the deficiency amount. Depending on your state’s law and other factors, if you are sued for a deficiency judgment, you should be notified of the date of the court hearing. This may be your only opportunity to present any legal defense. An attorney will be able to tell you if you have
any grounds to contest the deficiency judgment. Buying a car doesn’t have to be a hassle. Just remember to plan your purchase! Calculate the cost, the options, and don’t forget insurance! The choices are yours!