Pierre Money Mart Blog

If you’re looking to purchase a new vehicle, here is something you definitely should not do.

Don’t: Fall in love with a car

Don’t get us wrong here, a new car is a big purchase, so it’s important that you really do love your car. If you want to buy a microwave oven just because Consumer Reports recommends it, go ahead. A car, like a home, should make you happy and that’s something only you can judge.

But you wouldn’t marry someone after just reading their Facebook profile. You’d at least want to go out a few times, right? So don’t decide you’ve got to have that cute new SUV you just read about in a magazine. Calm down, catch your breath and wait. Wait until you can drive it. Wait until you can drive some competing models and get a sense of whether it’s really all that terrific.

And you may want to wait until the price comes down. Dealers often tack on premiums, charging more than full sticker price for brand new models they know will be in high demand from day one. So rushing to be the first one on the block with the hottest new model can cost you thousands of dollars.

And that “first with the hot new thing” thing fades quickly. Then there will just be you and that car. And those car loan payments. Hope you still like it.

Need to tune up your credit? Check out our do-it yourself Credit Repair Manual here!

Common financing missteps can cost you thousands on a new or used car. Here’s how to get it right.

Few of us have the means to write a check for the full amount of a new – or even used – vehicle.

Unfortunately, car buyers, treating financing as an afterthought in the car buying transaction, can easily waste thousands of dollars.

Here are some tips on what to do and what to avoid.

Know your incentives

Web sites like Edmunds.com (which provides automotive data for CNN’s Web sites) list available incentives in your area. Often there are low-interest, or even zero-percent, financing deals you might qualify for.

Don’t assume you need perfect credit. Ford Motor Co., for example, has recently opened up its zero-percent financing incentive to buyers with a few potholes in their credit history.

Don’t go in empty-handed

Hybrid vehicles top fuel economy list

It’s true that a car company’s “captive finance arm,” – for example, Ford Motor Credit or Toyota Motor Credit – will probably be able to offer you a better financing deal than an outside bank or credit union. After all, it’s their job to help you buy one of their parent company’s products.

But that’s not automatic. It can’t hurt to make them work a little for your business by researching the cheapest financing you can get before you go to the dealership. A credit union or an organization like AAA or USAA can sometimes offer you access to rates you couldn’t get at a regular bank.

Companies like Capital One Auto Finance will even allow you to bring a check to the dealership without having to agree to take the loan. The loan doesn’t start until you write the check, which can be up to a pre-approved amount. Until then, all you’ve done is arranged competitive financing. You can still take it or leave it.

Just don’t forget that interest rates are negotiable. If you arrange financing at a car dealership, part of that interest goes to the dealership itself. The dealership’s business manager also has an incentive to work with you to earn your business.

Don’t get stretched

Before you go car shopping, you have to know how much car you can afford. That means you need to know how much of a down payment you can make, how much you’re likely to get for your current car and how much your monthly payments will be.

It’s tempting to just let the dealership work it all out for you.

In that scenario, you tell the salesman what kind of monthly payment you’re looking for and show them your trade-in. They’ll tell you whether you should stick with the entry-level model or if you can move up a step or two. And you’ll probably be pleasantly surprised that you can drive a much nicer car than you thought for monthly payments that fit your budget. Yes, the loan stretches out for six years but… look at this car! Feel those seats. Listen to that big, strong V8. Come on, if you can afford it each month, who cares how long the loan is?

Well, obviously, another year or two of payments means thousands of extra dollars out of your pocket. It’s just being removed more gently.

Then there’s another problem you might find out about years later. The longer your car loan is, the longer you’ll be “upside down” in your car payments. In other words, a longer loan extends the period during which you’ll owe more on the car than the car is worth.

So figure out your payment situation and know what you can afford before you start shopping.

Do your own math

Once the deal’s all figured out, there’s one simple step a lot of people forget to take. Get out your pocket calculator and figure out how much that car is really costing you.

Just multiply your monthly payment by the number of payments you’ll be making. Then add on your down payment and the value of your trade-in. If you were fortunate enough to qualify for zero-percent financing, there shouldn’t be any surprises.

If you’re paying interest, especially if you’ve taken out a long-term loan, you might be shocked by how much that car is costing you.

For example, a six year loan at 7.9 percent on a $35,000 car would cost you almost $10,000 more than the same vehicle if you were paying no interest, according to Edmunds.com.

Then you can decide if that car is really worth almost $45,000.

Need to tune up your credit? Check out our do-it yourself Credit Repair Manual here!

A credit union is a cooperative financial institution that is owned and controlled by its members. Credit unions differ from banks and other financial institutions in that the members who have accounts in the credit union are the owners of the credit union.

Credit union policies governing interest rates and other matters are set by a volunteer Board of Directors elected by and from the membership itself. Only a member of a credit union may deposit money with the credit union, or borrow money from it. As such, credit unions have historically marketed themselves as providing superior member service and being committed to helping members improve their financial health.

Credit unions may be viewed as non-profit organizations, or alternatively as for-profit enterprises charged with making a profit for their members (who receive any profits earned by the cooperative in the form of dividends paid on savings, which are taxed as ordinary income, or reduced interest rates on loans).

This debate reflects credit unions’ unusual organizational structure, which attempts to solve the principal-agent problem by ensuring the owners and the users of the institution are the same people. In any case, credit unions generally cannot accept donations and must be able to prosper in a competitive market economy.

In the United States, credit unions typically pay higher dividend (interest) rates on shares (deposits) and charge lower interest on loans than banks. Credit union revenues (from loans and investments) do, however, need to exceed operating expenses and dividends (interest paid on deposits) in order to maintain capital and solvency. Often credit unions have a lower cost of funds due to a higher proportion of non/low interest bearing deposits, than typical commercial banks.

Credit unions offer many of the same financial services as banks, often using a different terminology; including share accounts (savings accounts), share draft (checking) accounts, credit cards, and share term certificates (certificates of deposit) and online banking.

Credit unions exist in a wide range of sizes, ranging from volunteer operations with a handful of members to institutions with several billion dollars in assets and hundreds of thousands of members.

Typical Certifying Procedures

* General Motors (Buick, Chevrolet, GMC, Oldsmobile, Pontiac) – General Motors trade-ins, less than four years old with less than 60,000 miles, go through a 110-point inspection to become GM Certified Used Cars.  All worn or broken parts are repaired or replaced, and all fluids are changed.  These GM Certified used vehicles are backed by an extended GM factory warranty and a 3 day 150 mile money-back guarantee.

* Ford (Ford, Lincoln, Mercury) – Ford’s Certified pre-owned vehicles are trade-ins five years old or newer that have no more than 50,000 miles on their odometer. First the vehicle identification number (VIN) is double-checked to make sure all paperwork matches and that all scheduled maintenance has been performed. Then the Ford dealer put the car through a rigorous 115 Point inspection process designed to uncover even the slightest mechanical or cosmetic flaw. Included are the power train, the chassis, all accessories, and finally a thorough cosmetic review—technicians check everything from the body panels to the weather stripping and the carpeting. All worn or broken parts are repaired or replaced, and all fluids are changed. Only then is the vehicle deemed worthy of carrying the Ford Quality Checked Certified Pre-Owned window sticker.

Recommendations – Similar factory-certified warranties are now available from almost every manufacturer.  Certified vehicles will cost more than seemingly identical non-certified examples. The idea is that you recoup the added expense through lower repair bills.

My personal and professional experience with these certified vehicles has been excellent.  Make sure you’re getting a manufacturer’s warranty that’s comparable to available third party extended warranties .  Providing you can afford them, factory-certified used vehicles are your best bet for years of reliable trouble-free motoring. Certified
Pre-Owned buyers don’t just enjoy the satisfaction of driving a like-new automobile at a bargain price, they also experience an unparalleled limited warranty.

Please don’t make a $10,000 mistake! We highly recommend that you order an Experian AutoCheck Report for any manufacturer-certified used vehicle under consideration. It’s your best protection against buying a used car with costly, hidden problems.

Using the Internet as a “vehicle” to buy your vehicle strikes many people as a foreign process, but just foreign cars became a part of our mainstream life buying a used car online can too. I bought my first used car online in the year 2000, just bought my fourth and have begun looking for a fifth, so far 2 each from cars.com and autotrader.com. When done for the right reasons and taking the proper precautions, using the net to buy an automobile opens up options that can be achieved in no other way. I have not bought a car offline since my first online purchase and while I may go back to the more conventional auto buying methods in the future, I’m sure it would only happen after reviewing my online Internet options first.

Advantages – Selection & Inventory

            Living in a city of only 40,000 people the number of used cars for sale locally falls far below those available to used auto buyers in larger metropolitan areas, the Internet more than evens the playing field. For anyone willing to drive extra miles to pick up a used vehicle and either save some money, find more selection or both, used car shopping online has come of age. Most used car online search engines such as cars.com and autotrader.com offer a basic search and an advanced search. Where to start depends on where you are and the type of used car you want to buy. As a quick example: a basic search for a Ford Taurus anywhere from 3 to 7 years old within 25 miles of New York City yields a list of about 200 vehicles available for sale at cars.com almost 400 used cars for sale at autotrader.com. The same search for the Fort Worth, Texas area produced 112 autos for autotrader.com and 57 cars for cars.com. A search of the classified ads in my local paper showed 1. On the other end of the scale a search throughout the entire United States for an Infiniti G35 with All Wheel Drive provides only about 40 results for all of the major online used car search engines combined. Even worse, upon further inspection many of these results prove to be dealers offering new cars at new car prices. Buying a new car online can be advantageous as well, and may be the topic of a future article, but a reason for finding a used car includes not wanting to pay those new car prices.
Advantages – Available Features and Options

             Now suppose you wanted only red paint, all wheel drive or a convertible? Even in areas with many used cars available exactly what you want may not be there. Using cars.com or autotrader.com provides advantages again. By expanding the area or the search for your used auto as described above you may find what you want by driving a bit farther. In addition, newspaper display ads or used car classified ads would never offer the type or volume of information about the car as one finds in Cars.com or autotrader.com. Use the advanced search features at each site to locate exactly what you want. Advanced search features on autotrader.com allow these filters: Make, model, body style, color, mileage, doors, engine, fuel, drive type, transmission, year, price and distance from your home. Cars.com filters by vehicle type, make, model, year, price, distance from your home and a “free text” field so that you can search for absolutely anything you want. You can set the tool to filter based on any of your terms, all of them or an exact phrase. Keep in mind the tools are only as good as the descriptions people input for each used car, so if you need all wheel drive you may need to search for “all wheel drive” and again for “awd”. If you are looking for something like a six disc CD changer you may find the tool does not locate many vehicles because the sellers did not put that in the description. Try looking for just “CD” perhaps. Some auto options like heated seats may be something a car has, but people don’t think of putting in their descriptions. Particularly with cars.com the ads can originate with auto ads from newspaper classified advertising sections so by definition space for text requires abbreviation and brevity. Cars.com offers a way to search for only certified used cars, but for now that tool only connects to certain auto manufacturers.

Selection –details no trips to many dealers

            As much as the process of test driving new cars offers fun and excitement, I find the process can be so time consuming the part of the joy of a new car purchase includes the relief that the hours allocated to finding a used car become free for another use once more. I can’t imagine how long it might take to drive to every dealer in a 500 mile radius of my home to see what they have for sale. Phoning them would represent a less impossible yet still unimaginable quest. Many times the vehicle you want comes from a private owner. If you want a particular used car in low supply the time saved using cars.com and autotrader.com leaves any other option almost unimaginable as acceptable alternatives.

Selection  – Use geography to your advantage

Some used vehicles command different values depending on the geographic area. If you need a car in high demand in your area, traveling to an area where sellers offer discounts to move vehicles can mean saving thousands. For example, four wheel drive or all wheel drive used cars in northern areas of the United States receiving lots of snow may sell at a premium. In southern locations these same cars may be looked at with great distain by purchasers who view the all wheel drive or four wheel drive and an option that they do not need and reduces fuel efficiency.  Three times I have traveled from Massachusetts south to save $2000 to as much as $5000 on a used car I found using an online search. I expect someone in a snowbound area looking to sell a used convertible in the winter would find the need to sell the vehicle at a discount, potentially making someone from a sunny state willing to travel a happy used car buyer. Sometimes cars for sale in the city where they were manufactured could be cheaper because they never had higher destination charges or there end up being many of them there and the laws of supply and demand kick in. Think of your own auto needs and how this might work for you.

How to find Your used car

Try to find a balance of distance from your home and flexibility with your vehicle selection a few times until you find a number of choices you find reasonable. Too few cars? Expand the distance you can travel. Maybe you need to spend a bit more? Expand the search to allow for cars with fewer option requirements. Even try competitive models or other similar models. One of my original searches involved a Chrysler Town and Country Van, when I couldn’t find one I liked I looked for a Dodge Grand Caravan, essentially the same van, and I bought a Dodge. One step further in this direction would be to search for all vans without regard to make or model. Too many cars? Reduce the mileage from your home or even better, search based on more restrictive parameters. Cut back on the number of years of manufacture you will accept or the number of miles on the car. Major used car search engines can filter results based on body color, interior color, and many other options. If you are really willing to travel and want a popular auto you may discover you can search for something with precise detail as if you were ordering from the factory and find your wish coming true. Of course, everything I have discussed to reduce a used car search works in reverse for expanding a used car search and vice versa.

Cars.com Vs. Autotrader.com

            As someone who has bought used cars from both cars.com and autotrader.com which do I prefer? cars.com for me, that’s an easy one if I have to choose. The organization and the ease of reading the results from cars.com puts them way above auto trader in my book. On top of that cars.com has fewer ads or annoying pop-ups. The interface on cars.com shows me 24 cars on my laptop screen without scrolling in a clear organized way allowing me to sort by either year, vehicle description, price, mileage, photo, seller, body type, color or distance from my home zip. When I select a vehicle a more detailed summary appears at the bottom of my search results making it easy to view many used cars quickly without loading new web pages each time. When I really like a used car selection I can load another page with the complete information. My autotrader.com screen show only 4 cars without scrolling, more information always requires a new page load and back command to return to the original used car search. Without a free text search tool the results often include auto choices that the computer could eliminate for you if you could let it know, sometimes it means most of the results are unwanted. I just did a search for turbo Toyota Supras with a targa to. Because autotrader.com had no way to search for the turbo I  had to wade through mostly unwanted listings. Auto trader’s “convertible” box didn’t really mesh well for finding the targa topped Supra and I only found 1 car in the country that way. An open search taking time to sift through all the results showed many targas in the database, just no way to filter the search.  In fairness I must mention that the number of cars listed on autotrader.com can often outnumber those on cars.com by two to one, sometimes that may outweigh the ease of use. Other systems such as stone age offer competing used car searches, but their databases remain too small to warrant much time.

Price and Negotiation

Negotiating an online purchase shifts the advantage to the buyer. At my local car dealer, for many car models, the next closest dealer would require an hour’s drive or more. The local dealer may treat you as if they have you in their power because you as a buyer have few options. Even with used cars, only a dealer can sell you a certified used car and new dealers often have the best selection of used cars for the brands they sell new. When negotiating with an auto dealer, many miles away, you found through an online used car search, the dealer knows that if you can go that many miles in their direction you can just as easily go that many miles in the other direction to another auto dealer. Price matters most and price drives the deal. Particularly used and new car operators who specialize in internet sales know they must offer the lowest price to make a sale. Distant dealers also feel that your deal from so far away represents a transaction they would never have seen anyway, as such it appears more like a bonus sale and they will take less profit on such a sale. Even more, car dealerships from outside of your local area love to take sales away from your local franchise. This may seem just mean spirited on the part of the distant car dealer, but the savvy used car buyer can use this to their advantage.  Widening the distance you will travel to find a used car often times allows you to include in your search the dealers who offer the best deals in the region. For example, if you could see who has the best prices on used cars within a 100 mile radius and compare that with the best prices in a 1000 mile radius, you might well find the larger search will yield used car dealers who have more aggressive prices compared to the dealers inside the 100 mile radius.  Some auto sellers just have better pricing and offer a better deal, that’s a fact of life. The more people you include in an online used car search, the more likely you will uncover that one car with the best price.

Conclusion

            While there may be some downsides to buying a car online, they do not outweigh the advantages. Try cars.com, see what you find. Expand your search area or criteria if you need to. If that still does not uncover what you were looking for or you just want more choices try autotrader.com. If that doesn’t do it try again on both used car search engines in a week or so. It may take a while to find that perfect car, but you only need one. Buying used cars online provides fun and adventure both finding the used cars and bringing them home; on top of that you can save thousands of dollars and end up with the exact vehicle you were searching for.

Auto Loan Options For Bad Credit Borrowers

        More and more bad credit auto loan ads these days bombard debtors and other bad credit borrowers with the concept that they can buy a car or truck no matter what their credit may look like. Although most of these ads are based on truths, in this article I will carefully review some of the bad credit auto loan pit falls to be aware of, and help debtors to understand how some of these systems work.

        The direct finance business works as a good credit auto loan would from your local bank, except borrowers with bad credit will be expected to bring in a larger down payment and pay a higher interest rate. Most local lenders, of course, will not make these loans at all to borrowers with bad credit. Depending on the severity of one’s bad credit, down payments for these loans can range from 20% to 50% and depending on the credit and legal limits of the state one lives in, interest rates can range from 12% to 26%. I have even seen in a few states extreme cases where borrowers already owning cars use their vehicles as collateral for very short-term loans. The effective interest rate can be as much as 144% per year. These loans, sometimes called title loans, offer a short-term loan at 12% per month, so when the loan can not be paid off another loan at 12% must be taken. Such lending is illegal in most states and even where allowed I can think of almost no situation where taking out such a loan would represent a prudent financial decision. In most cases debtors with bad credit should expect to pay in the 12% to 18% interest range. Amortization (the time needed to pay the loan in full if all regular payments are made) choices offered may only range from 2 to 4 years opposed to good credit borrowers whose auto loans may extend for as long as 5 to 7 years. Certain amortization schedules and higher interest rates combine for payments that can be considerably higher than for those with excellent credit. The good news is that if these loans are paid on time they can also serve as tools for rebuilding credit. Dealers who advertise their willingness to work with bad credit auto purchases often ultimately finance the transaction with one of the direct lenders as described above. Dealer’s who finance these loans internally sometimes combine of these things where they secure an external financing source by guaranteeing apart of the loan or allowing a part of the loan to remain un-funded until certain loan payments are made.

        The greatest abuses in bad credit auto lending come from dealers who artificially inflate the prices of their cars and or the interest rates charged for the financing. A common tactic is for a dealer “specializing in bad credit purchasers” to price a car normally sold for $3,000 at $6,000, take $1,500 down and finance the balance at 24 to 26%. The reality would be that the borrower not only obligates themselves to a contract at a very, very high interest rate but that the under lying debt and price for the car bear no realistic relationship to the value of the vehicle. This leaves the borrower in a position that ultimately they will default on the loan further ruining their credit. Otherwise they will complete the contract by which time they may have paid double or triple what they would have for the same car if they had purchased it from a legitimate dealer at a legitimate price. The watch word here is “caveat emptor,” let the buyer beware, some dealers advertising they work with poor credit purchasers may be honest and forthright dealers. The best consumer protection is knowledge. Research the true value of the cars you are purchasing and try to pay only the wholesale cost plus a $200 to $500 profit for the dealer. In only the rarest of instances should you pay more than the retail price of the car.

        Sometimes purchasing and financing a car through a dealer works to the buyers’ advantage. A company dealing in the finance operation only must make all of their money from the financing where the dealer also makes part of their money from the sale of the vehicle. In some incidences the incentive to sell the vehicle for the dealer and can mean financing concessions or less constringent guidelines. Surprisingly, this emerges frequently as a situation when purchasing a brand new vehicle. With a sizable down payment it may actually be easier for borrowers with bad credit to obtain financing for a new vehicle financed by the car manufacturers own funding arms because of the company’s incentive to sell their new cars. Purchasers of new vehicles can also be aided by the fact that interest rates are lowered in these transactions. Newer cars generally merit lower interest rates than older cars and amortization for new cars are longer too. The result maybe that the payment for purchasing a new car may be the same or lower than payments may be purchasing a used car.

        With the popularity of the Internet and the mass marketing capabilities of television, two new types of marketing have emerged for someone with bad credit to obtain an auto loan. The most prevalent advertising of this type on the Internet is a dealer network system. A potential customer can click on a site advertising that they can purchase a car regardless of their credit. The site requests certain information about the borrower. This information is then passed along to a dealer capable of working with purchasers who have a problem in their credit history. How well these systems works will depend on the dealer used. It can be possible that the same referral network can have good and bad dealers. From the consumer point of view, since no fees are involved, the only caution is to understand the type of site you are working with and what they’re doing with your information.

        Application services, predominately found on the Internet, involve automatic multiple submission of financial information to potential lenders. In this case, the potential borrower fills out some in depth financial information. The coordinator of the network then forwards the information to lending sources that may be willing to make the loan. When all works correctly, the borrower hears from four lenders who then fight for the loan by competing against each other to offer the best rates and amortization. For bad credit auto loan candidates it may be more a case of one or two lenders coming forward without much fighting, but where not many sources exist this can be a great time saver.

        In most of these cases, either the car dealers or lenders may contact the borrowers directly. If you don’t have a car in mind already the dealer networks may be quite helpful in directing you to someone who has an inventory of vehicles and the experience and capability of securing a loan on the vehicle you wish to purchase. If you already have a vehicle in mind and are having trouble finding a financing source the multiple submission networks may be helpful.

        Even with all of these opportunities which will allow “almost” anyone to obtain vehicle financing some borrowers will fall into the category that can not. People with no down payment whatsoever and bad credit may find it very difficult getting car financing. Debtors in the middle of bankruptcy proceedings may find that financing is not available until their bankruptcy case has concluded. Others may be pleasantly surprised to find financing only to realize payments on these loans beyond their means.

         Don’t be discouraged if your first few attempts at financing fail or if you have to settle for your second or third choices of vehicles. With perseverance, and if needed a little polishing up of your tarnished credit, you should be able to obtain safe and reliable transportation despite a previous bout of bad credit or bankruptcy.