Saving on Auto Finance Costs

If there was just one key piece of advice car buyers need to heed it would be don’t succumb to dealer financing. Car dealers have crunched the numbers in such a way that, whether you are offered zero percent financing, or a cash rebate, they will always come out way ahead. Nothing puts you into a better bargaining position than cash. Before walking onto the car lot, be sure to have your cash already lined up. If you don’t have it saved (which is the very best option), there are two quick ways to get your hands on a lump sum of cash that will put you in your new car with no hassles:

Go to the bank: Banks are still the best source of auto loan, offering competitive loan rates and terms. As with any type of financing, the better your credit standing is, then the better your terms will be. In many cases, you can secure an auto loan the same day you apply.

Tap your equity: Some financial planners will question the wisdom of borrowing from your home’s equity for purchasing a depreciating asset such as a car. But if you simply consider the dollars and cents, a home equity line of credit will usually provide much cheaper access to money for a car purchase. Presently, HELOC rates are generally lower than auto financing rates. Plus, the interest expense of a HELOC may be tax deductible (always seek the guidance of a tax professional on such issues). The downside of a HELOC is that it’s a variable rate and the possibility exists that it could increase. Additionally, because HELOCs usually only require interest payments, there is the temptation to simply pay the minimum interest instead of paying down the portion of debt attributable to the car. A HELOC really only makes sense if you have the discipline to pay down the auto debt within a three-year period. Otherwise it could end up costing you as much or more than any other financing method.

Why You Should Never Charge Your Down Payment to Your Credit Card

When you find that perfect deal on a car, you want it now. And even though you might have the down payment available in your checking account, you decide to whip out your credit card because it just seems easier. Or maybe you have visions of thousands of airline miles dancing in your head. Besides, you plan to just transfer the balance from your checking when you get the chance. Halt! That’s what nearly 80% of car buyers thought when they charged their down payment only to wind up keeping the balance on their credit cards. Something comes up, or you decide the monthly payments on the card aren’t so bad.

Here’s the deal. Unless you absolutely, positively plan on paying it off immediately, putting a car down payment or even a mortgage down payment on a credit card completely goes against the purpose of the down payment, which is to increase your equity your asset. With a car, it’s a depreciating asset, so you are likely to be upside-down in your equity the minute you drive off the lot.

And, if you don’t have the down payment available in cash, it’s just being foolish to charge it. The car will wind up costing you much more than you anticipated, putting you deeper in a hole, which is why you

Watch Out for Car Financing Scams

In the midst of a down economy and contracting credit scores, a new industry flourished in the form of car financing scams. Taking advantage of people in distressed financial situation, unscrupulous lenders and scammers have developed ways to entice and trap them into off-market financing deals that are extremely costly at best, and outright scams at worst. If you are unable to qualify for an auto loan through regular channels, you definitely should avoid any type of financing that smells like the following:

Buy Here, Pay Here Dealers: These dealers know that their buyer prospects can’t otherwise qualify for a car loan, so, they entice them with easy financing. In doing so, they also mark up their prices significantly. In most cases, the dealer requires that the payments be delivered to the lot each month, and, because nearly a third of these buyers can’t maintain the stiff payments, the dealer profits even further by repossessing the car and reselling it.

Yo-Yo Loans: You can be victimized by this scam even with a “legitimate” car dealer. It generally targets people with poor to fair credit who are most likely to accept whatever terms a dealer is willing to give them. When a deal has been made on a car purchase, the finance person sees that your credit is questionable; yet, you are still allowed to drive off the lot with the car. Why? Because he knows that the final terms of the purchase are not final until the loan is approved, and he has your down payment and/or trade-in. A couple of days later you receive a call from the dealer telling you that your loan application was declined and you are asked to either return the car or sign a new loan document with less favorable terms, i.e. higher interest rate. If you choose to return the car, chances are you won’t get back your down payment or your trade-in.

Loan/Lease Payoff Offer: This is very common offer made by dealers of all types. They will pay off your loan or lease “no matter how much you owe.” At first blush it seems like a very generous offer; however, it is nothing more than a manipulation of the numbers that makes it appear that your current loan disappears. In reality they have simply rolled your loan balance into a new loan. Because the new loan is amortized over five or six years, it’s hard to notice; however, in most cases, buyers drive off the lot already upside down in their new car loan.

Don’t Forget the Fixed Fees

Everyone knows they can negotiate the sticker price of a car – but other fees are negotiable, too.

For example, most new car dealers charge a “documents” fee. Some states regulate the document fee; in California, for example, the fee is set at $55, and dealers are not allowed to charge more. Dealers in other states – like Florida – can determine their own document fees. Costs could range from $50 to several hundred dollars.

How do you know what a reasonable document fee is? Simple: Check with other dealers. Ask what they charge. Then you’ll know what to expect – and you can use that information to negotiate. The price of a new car is more than the price you pay for the car itself – make sure the total amount you pay is a dollar figure you’re comfortable with.