Tag: Car Buying
Is Your Car Loan Upside Down?
by admin on Dec.15, 2008, under Car Tips
Is Your Car Loan Upside Down?
A lot of people have heard about homeowners going “upside down” in their mortgages. They don’t realize that it can happen with car loans just as easily. In fact, because houses tend to appreciate in value over time while the value of your car tends to go south, it’s more prevalent with auto financing. In essence, it means that the amount of money you owe is greater than the value of your vehicle. Today, I’ll explain how it happens. I’ll also provide a few tips that will help you avoid going upside down in your next car loan.
How Auto Financing Goes Awry
To illustrate how your auto financing can go upside down, I’ll use a hypothetical example. Let’s say you’re buying an SUV and it costs $40,000. You put a down payment on it of $5,000 and carry the rest ($35,000) on a 5-year term. After 3 years, you’re tired of driving your SUV and want to sell it. Unfortunately, it’s only worth $20,000, despite your owe $24,000 on the financing. You are officially upside down. That means if you want to sell the SUV, you’re going to have to come up with another $4,000.
If it’s any consolation, this happens to a lot of people. It’s due to your vehicle’s depreciation.
The Impact Of Depreciation
You probably already know that most vehicles lose about half of their value through depreciation over the first 3 years. Now, keep in mind that the amortization of your loan happens for the entire life of the term (5 years in our example). The problem is that your SUV depreciates at a quicker pace than the amortization over the first 36 months. After those 3 years pass, the depreciation slows down. That allows the amortization to “catch up,” bringing your financing back into a “positive equity” position.
How To Avoid Taking A Bath
First, realize that carrying an auto loan with negative equity (in other words, owing more than the car is worth) won’t have any effect on your credit. So, that shouldn’t be a concern. Second, understand that the longer you stretch out the period over which you finance your vehicle, the longer it’ll take for the amortization to catch up with the rate of depreciation. That means you’ll be in the negative position longer with a 5-year term than you will with a 4-year term.
To avoid getting caught owing more than your vehicle is worth, put a larger down payment on it. Then, plan to keep driving it through the entire term instead of immediately selling after 3 years. Remember, the depreciation is what turns the loan upside down. If you’re absolutely sure you’re going to sell your car before you’ve paid off the financing, shorten the term to 4 years.
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Sales Tricks Car Dealerships Play
by admin on Dec.04, 2008, under Car Tips
Sales Tricks Car Dealerships Play
When you walk into a car dealer, you should realize that you have a big dollar sign painted on your forehead. That’s exactly how you’re being considered by everyone who works there. Every sale they make either helps them meet their monthly quota or adds a little boost to their bonus. You’re there to help them do that (at least, from their perspective). And they’ll unleash a number of sales tactics to accomplish their goal. Today, I’ll share with you a few tricks that dealerships play on the road to selling you a vehicle.
The Good Guy
The essence of good salesmanship is being likable. The friendly grin, firm handshake, the shoulder grip… all of these are part of a salesperson’s training. Dealerships know that people are more likely to do business with someone they like. To that end, they spend time and effort to ensure the people they hire are properly trained to leverage that tendency.
Watch The Emotions
Even though most of us are loathe to admit it, we make a lot of our decisions – even financial ones – emotionally. When you’re buying a car, that can end up costing you a lot of money. Dealers are very savvy about the power of emotion on a person’s tendency to buy. That’s why some salespeople will even suggest that you take a vehicle home with you for the evening. They’re not being nice. They know that once you spend the night with it parked in front of your house, you’ll form an emotional attachment to it. At that point, giving it back to the salesperson is much more difficult.
Playing To Interests
Everyone looks at buying a new vehicle differently. Guys are different than ladies. Young married couples are different than older married couples. The salespeople at car dealers modify their approach based upon profiling. If they see a young couple with a newborn, they’ll emphasize rebates and safety concerns. A 25-year-old male is told about a car’s ability to attract women. Father-daughter teams receive another pitch: safety issues for the dad and the “fun” element for the daughter.
Knowing What To Expect
As long as sales quotas exist and compensation is tied to sales, the tactics described above will always be used by car dealers. The key is knowing that in advance so you don’t let your guard down. Most experts agree that you’ll pay less for your vehicle if you approach the negotiations analytically rather than allowing your emotions to influence your buying decision. Do your homework ahead of time. Set your budget, determine your driving needs, and be willing to walk away from a “deal.”
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How To Save Money On A New Car
by admin on Oct.15, 2008, under Car Tips
How To Save Money On A New Car
Most people only consider a new car’s sticker price when they’re shopping for a vehicle. They may give a cursory nod to fuel efficiency and dependability. They might even consider the impact of tax, licensing, and registration. But, often, a new car’s brilliant shine and competitive price are the main focus. Unfortunately, shopping by price alone can distract buyers’ attention from factors that can affect the true cost of a car over the long run. This is the primary reason why buying cars can be so expensive. The sticker price may be attractive, but it doesn’t reflect the long-term cost of owning the car. Below, I’ll explain how to quickly research cars in order to find the best value for your money.
Research And Due Diligence
Today, researching new vehicles is much simpler than several years ago. You can access most of the information you need online. That can include reading reviews at ConsumerReports.org, ordering detailed reports for specific models you’re interested in, and finding out what other buyers are saying about those cars. By doing your due diligence before approaching a dealer, you’ll be able to identify cars that meet your unique needs at a price that fits your budget. What’s more, you’ll be better prepared to negotiate with the dealer.
Don’t Forget Car Insurance
A lot of people forget that car insurance premiums can be influenced by the type of cars they purchase and the kinds of features they include. For example, a Ford Taurus may only cost $1,000 per year to insure. Meanwhile, cars that are targeted by thieves such as Honda Accords, Toyota Camrys, and Nissan Sentras may command higher insurance premiums. This is especially true if those vehicles have options like xenon headlights.
Value And Dependability
Your car’s dependability and value retention have a substantial impact on its overall cost. If you’re forced to have mechanical problems repaired often, the low sticker price of a new car won’t matter much. Even if those repairs are covered by the warranty, the time it takes to drop your vehicle off at the dealer and secure a rental car can be significant. Also, some cars retain very little value after 5 years. If you’re planning to sell the car later or trade it in for a new one, its low resale value carries its own cost.
When you’re preparing to buy a new car, take the time to look beyond the sticker price. Do your research to identify a car that will suit your needs while meeting your budget. Consider the insurance premiums you’ll have to pay. If possible, speak with an insurance agent about the model you’re thinking about buying. Finally, keep in mind that your new vehicle’s dependability and resale value play a major role in the long-term cost of owning it. With these things in mind, you’re ready to negotiate a good deal that makes sense over the long term.