Kyle's Corner - Lower the
financing cost on your next vehicle purchase
Before making a purchase, especially a large one, most buyers
ponder an equation that goes something like: What is it going to
cost me, and will that equal what I am going to get?
Consider that equation when buying your next vehicle. Naturally,
you want to get the most vehicle for the money you spend. Here
are several tips that will help you to get more for your money.
First, and foremost, consider eliminating some of the steep
depreciation cost incurred during the first three years of vehicle
ownership by purchasing a 2- to 3- year-old used vehicle.
The price can be further reduced by paying cash. However, if you need to finance
your next vehicle purchase, consider doing the following to
keep its cost closer to the "as if you were paying cash" figure.
- Take the time to carefully identify your current and
your future transportation needs, and choose an
appropriate vehicle.Transportation represents different
things to different people. For some drivers, it represents
status in society. Other drivers place greater emphasis
on reliably just getting from point A to points B and C.
The more closely that you match your driving needs
with the vehicle you buy, the more driving pleasure
you will experience and the more likely you will want
to hold on to the vehicle.
If you can't fully identify your transportation needs or
the vehicle that can best satisfy them, consult the
April issue of Consumer Reports at a public library.
The publication groups vehicles into categories,
provides frequency-of-repair information for many
vehicles, and gives vehicle price information. It is a
good idea to identify 2 or 3 vehicles in a particular
category that meet your transportation needs.This
enables some latitude when shopping for the vehicle.
- Identify how much you can afford to spend per month
on transportation. A rule of thumb suggests that the
cost to rent an apartment per month should not be
greater than 25 percent of your monthly net pay.The
cost of an auto loan should not exceed 10 to 12
percent of your monthly net pay. In some instances,
leasing a vehicle could be a better option than taking
out a loan.
- The vehicle down payment should be the largest
possible, and the amount of money barrowed the
lowest possible. In addition, barrowing money for
the shortest period of time (i.e., a 24-month loan
rather than a 48-month loan) will reduce the overall
cost of the loan.
- Identify the various loan sources such as banks,
savings and loans, credit unions, and national
lenders (i.e., go online to ask jeeves.com and
specify "automobile financing sources"). In regard
to national financing vs. local financing, it can be
useful to determine what the cost of a loan would
be from the national sources, but accept a loan
from a local source if the loan cost is comparable
or nearly comparable between the two. Compare
the APR (annual percentage rate) that each of the
sources will charge for the loan. The cost of a loan
is negotiable. Therefore, be certain to inform each
source what the others have to offer. In addition to
the loan's APR, remember to also compare the other
costs associated with a loan, such as loan insurance
and loan processing costs.
- Be certain to read and understand any fine print
contained in the loan contract. Insist that the loan
contract gives you the option of making payments
early and that the payments will be applied on the
loan principle with no penalty or extra cost if you
payoff the loan early.
- Do not settle for a vehicle that does not entirely
meet your transportation needs because of low dealer
or manufacturer incentive financing.Sometimes dealers
or manufactures offer extremely low APR financing on
vehicles that the dealer is having a hard time selling.
That's why it helps to have initially identified the correct
vehicle before encountering the sales pitches and other
influences of buying a vehicle.
Kyle Busch is the author of a new book: Drive the Best for the
Price: How to Buy a Used Automobile, Sport-Utility Vehicle, or
Minivan and Save Money. Information about the book is available
at: 1 800 839-8640 or at: www.drivethebestbook.com.
In 1991 Busch purchased a used vehicle for $2,600 that a private
owner had driven 82,000 miles. He has driven the vehicle for over
nine years and the odometer now reads over 292,000 miles. The
vehicle continues to provide for his daily transportation needs.