Need Help Understanding Car Buying

[Anonymous]

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@Austin wrote:

I'm delighted for you that you got a new job - congratulations!

I just went thru the car buying process myself, after having worked on my credit scores for about a year, making several strategic moves that improved my FICO scores.  I went into the car buying process knowing, from this site, I had a pretty good FICO score- and was delighted when they pulled Experian and my score was ten oints higher!

This posting is a bit long, yet there is a lot of good info in it, so I hope you'll read it and use the info.  One of my passions is sharing knowledge about credit with people.

I share this not to discourage you, yet to encourage you - I was able to gain about 100 FICO points in less than a year - about 8-9 months. 

Strategy one:  get a really great credit repair company to do a credit repair when you're ready to do so - sooner rather than later.

Two:  carefully select your new credit union and/or work w/ your old credit union, and find one that will give you a share secured loan - you will be able to build your score by having an "installment" loan in that portion of the FICO pie.  Even if it is for only $500.00 - make sure your payments are scheduled for at least one year to truly help your score.  I chose my due date to be the 20th and my payment was $50.00 - then I paid on the 15th and I paid $65.00 - all set up to run automatically, so that I was paying EARLY and ON TIME and MORE THAN the minimum payment amount.  2-4 months into this secured loan, my FICO score started improving monthly!

Three: carefully select a secured credit card company, or use an existing credit card, and very carefully and strategically use the card, ALWAYS keeping UNDER ten percent utilization.  Sometimes, that means that I'll charge something, go home and pay it off the same day, and charge again and pay again - several times in a month.  The main point is to always keep the balance below 10% utilization rate!  Use the credit card for things you would pay cash for, then pay it off before it gets to 10% utilizaiton, and this will gain you points right away!  Caution:  Don't run the card with a credit balance or not use it - you MUST use the card to gain FICO points!  My score was increasing every single month, then I started keeping a credit balance and also not using it at all, or very much, and I didn't see continuing increases in my FICO score!  Then, (duh, what was I thinkin?)  .......when I started using the card again, started gaining points immediately! That does not mesh with established thinking of how FICO scores are computed.

The above is to generally BUILD credit - always keep in mind the FICO pie - part mortgage, part installment, part credit card - you can have balance at least in the installment and credit card portions because you can get secured cards, even with no or really bad credit - then BUILD it correctly~!

Car shopping:  Choose 1-3 makes and models you really like that you think will do the job, then really shop hard! 

I strongly suggest buying something that is 1-4 years old, with 25-60 thousand miles on it.  This way, you'll be paying about HALF the price of a new car.  But with No or little manufacturer full wrap warranty left. And it is much more expensive to add a full wrap, third party, non manufacturer warranty to a vehicle. Many people consider the convenience of a full warranty and then extending the manufacturer warranty as an acceptable cost of vehicle peace of mind.

I just got a 2008 Ford Edge - brand new, similiarly equipped is $45,000 - I got mine for $20,900 - 3 years old and 47,200 miles - HALF price! Cars, for 99% of them, do not appreciate in value. There is no Half price, you got your vehicle for what it was worth at that time.

If you are really worried about it holding up, do more research, figure out which cars hold up the longest, then select one of those or buy an extended warranty. Not all extended warranties are equal or cover the same.

Keep in mind, most extended warranties stop at 100,000 miles, which is usually right where you actually need the warranty help!  My credit union ooffered me one that went to a total of 120,000 miles for $1400, instead of only 100K miles and $2100 the dealer offered me. Are you going to keep your specific vehicle past 100,000 miles? Many people unless they are both mechanically inclined and have the capability to enact repairs themselves do NOT view a 100K vehicle as teenage.

The gap insurance from my credit union was $299.00; from the dealer it was $500.00 - Shopping pays off! I need to add here: GAP insurance is usually offered by the individual lender. I know of NO third party Gap vendors. And I looked. I see reference to them, but have not found a place that will do it.

Each component of the process can and should be shopped for separately!!

Shop your financing and have it in place BEFORE you ever set foot at the dealer's location - know what your purchasing power is. Be open to the dealership trying to match you to a subvented rate or better financing. if you have 2.49% the odds are a better rate may not exist out there.

Shop your gap insurance - Be wary as few places will allow you to buy GAP on a loan they did not originate.

Shop your extended warranty Compare apples to apples not price alone.

Then, shop for your vehicle.

Knowing what was available at my credit union gave me tremendous buying power, eliminated having the play all the games w/ the finance guy at the dealership, and gave me the confidence to KNOW that I could buy what I wanted, and drive a hard bargain, because I was a strong buyer.

Knowing that I had 2.59% interest for 60 months available from my credit union, I didn't even let the dealers run my credit.  I NEVER EVER let anyone run my credit for anything, unless I am finished shopping and am signing a contract! Since you buy USED you do not worry about qualifying for a subvented rate. A new car buyer will need their credit ran to see if they qualify for a subvented rate. All buyers will need their credit ran by the dealership for Patriot Act compliance.

Turns out, the dealer where I eventually bought my Ford Edge used a credit union that would offer me 2.34% and 66 months, which I then leveraged with my own credit union, and I got 2.34% from my credit union AND 66 months - they were happy to match what the dealer offered, partly to retain a good customer - the same credit union that I had done the share secured loan with!

Ok, so lets see. Outside of score and the deal itself, the biggest motivator in setting an interest rate on a transaction is TERM of loan. Most loans term in 12 month increments, with the longer the loan the higher the rate. Most people for simplicity like loans in yearly multiples. So a "bucket" for interest rates would be at 12,24,36,48,60,72. (some place will bucket at 6 month intervals but I digress) What that means is get a car and ask for a 59 month loan in all probability you are getting the 48 month rate. Take it to that one extra month and you get the 60 month rate.

One of the cardinal rules of auto buying is to take the loan out for the smallest interval you can afford. yes your payments are higher, but the car is paid off faster. In the example given, lets say that the total tax title fees financed for the deal got us to $25,000.

$25,000 at 60 months and 2.59% generates a monthly payment of $444.69, and total interest paid to the bank of $1681.18.

$25,000 at 60 months and 2.34% generates a monthly payment of $441.92 (-2.77 a month) and total interest paid to the bank of $1515.03 (-166.15)

Now:

$25,000 at 66 months and 2.34% generates a payment of $404.05 ($40.64 a month cheaper then higher rate at 60 months) but a total interest paid to either bank of $1667.26. or exactly $13.92 less then the 60 month at the higher rate.

In short your credit union matched the rate as the term was probably not going to bucket you to a higher rate, and by dropping the interest rate only .25% the credit union would make the same amount of interest overall and the same Profit margin off the extended warranty and GAP coverage you were buying through them.

So what was the better deal?

I just needed to show how only 6 months skews the numbers so much, and that although a drop in .25 is awesome exactly what that translates to in the loan. If to get that .25 drop someone had to go and buy say GAP for $200 more- there would be absolutely no savings. 

Granted early payments and payoff early negates the example, but that would for any payment or loan at any term.

I share this to inspire and motivate, not to brag. 

I have gone thru BK, foreclosure, eviction, medical, financial, and personal havoc, and have recovered from all of the above.  It takes knowledge, and working at it, and making the right strategic moves. 

I'm after that 850 FICO score!

As a dog lover, I get it that your vehicle needs to accomodate both you and your dog.  My suggestion, for the sake of your car, is to put a heavy quilt, like a moving/packing blanket, over the vehicle BEORE you load the dog, train the dog to wait, then, once the blanket is in place to protect your vehicle, allow the dog to jump into the car. 

One of the Edge's I looked at had dog hair all over it (they just got it in and hadn't had time to clean it yet) and had many scratches in the rear bumper, and top area from the dog's toenails scratching the car as the dog was getting in and out of the car.  Protect your car means longer life, and more value when refinancing and/or trading it in.

Best of luck in your new home and job - try meetup.com, and you'll probably find groups that like to hike with their dogs!  There are many interest groups in many areas, so you can find new friends and activities to do with or without your dog along.

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[hapagrrl]

USMC --

I don't know why; I think he thought it would increase my cost, somehow... but, honestly, he's one of those types that I didn't want to "get into it" with, so I didn't say or ask anything further..

[demi]

Just guessing, but I would imagine you have more negotiating power if its on the lot.  They want to move cars.  If you go for something special ordered, they know you really, really want.  My old roomate paid $1000 bucks extra for a specific color on her car, they new she wanted that color, went to the dealer that had it, could have bought it for 1000 less in another color in town.

[hapagrrl]

Demi --

Yes! you're right! *that* was the reason why my friend said not to go all special ordering stuff!  THANK YOU!! See? this is why it's important to have people who are *smarter than myself* around

USMC --

I'm sorry I mouthed off about my friend to you - I did him a gross injustice! I'm just kinda spaced-out, still, from moving.. I was living a whole different life just 2 weeks ago!

So, yes - the incentive for the dealer is to get what they got off the lot.. But us, I could *care less* about extras and colors and all that jazz.. I'm not adverse to getting "the ugly color discount" - I've done it before with plenty of things, including stuff I've worn, LOL!

[Anonymous]

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@demi wrote:

Just guessing, but I would imagine you have more negotiating power if its on the lot.  They want to move cars.  If you go for something special ordered, they know you really, really want.  My old roomate paid $1000 bucks extra for a specific color on her car, they new she wanted that color, went to the dealer that had it, could have bought it for 1000 less in another color in town.

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well, lets talk.

1- Some colors do cost more. I know when I sold Fords, the Tricolor White cost more. Also, the package that would trend to come on a vehicle that also included Tri-Color White would cost more. In addition, you might want the SUPER SLICK WHITE SANDSTONE GREY BLUE PIPING- and that color may only be avaialble on the LIMITED SUPER SPECIAL EDITION, or the TARGET EDITION.

2-When packages are put together to buy a vehicle it is asssumed that likes go together, so if you want a high end color package, it is pretty much a given that other high end packages will come with it.

I like to call this the "moonroof syndrome." No Dealership buyer was going to order a completely stripped down Fusion, but just for Sh@@s and Giggles throw a moon roof on it.  People who want a moon roof trend to want other creature comforts in the vehicle. So a Stripped down car with a moon roof, or a loaded car with no air conditioning just does not trend to happen in the wild.(although they can be configured). So if you want that you have to order it.

In additional example: You may want a car with ambient lighting which costs $225, but the only ones that exist paired the Ambient with the Satellite radio with iphone dock package($300) when they did the order, as the thinking is that people who want one feature will want the other. So yes the package you want only costs $225, but if you want a car with it you can order it or pay $525 additional for it.

3-When it comes to ordering a car from the factory, although you can negotiate price, incentives such as rebates cannot be applied until the deal is done, You cannot write a contract on something that does not exist, so yopu get the rebates that exist at time of delivery, be them better or worse.

4- When it comes to ordering a car that exists from another dealership to be delivered to you,  you do accept the fact that additional costs may be incurred for the effort expended? 

My dealership did not charge extra for a dealer trade, BUT there were many times that additional costs were incurred, all were passed on to the deal and simply subtracted from the gross, turning a profitable sale into a mini deal. Those costs were/could be: gasoline for the car to get the car and to get back home, turnpike tolls, hotel room on a 12 hour each way dealer trade, (we got stuck in Kentucky). 

I mean the money has to come from somewhere. Most local dealer trades were not an issue, but still there were/are additional costs.

I once had a guy at the peak of high gas prices wanted us to bring in from a dealership on the opposite coast a Escape Hybrid. We discussed it at length until I told him that we would charge him $900 for transport fee. he explained that he was a Ford Employee buying under A plan and he did not have to pay that. I explained that it was really not a negotiable issue that it was going to cost us $900 and that we were only passing on costs.

He was insistent I was like sir, for the stripped down hybrid you want there really isn't much profit past $1000 in it. Well my boss isn't really going to do a deal to not make money on it. He said well I'm not paying the $900 and I said well how much will a one way ticket to Palm Springs and then you driving the vehicle back from Cali to here cost you? 

We did not make the sale. 

5- last but not least sometimes a vehicle that is from another dealership had add ons/after market that will not be removed from the other dealership and they expect someone to pay for it. I used to hate having that snag hit a dealertrade when we would find out  that they had pin striped the car or added wheel locks (darn you detroit metro area)

[hapagrrl]

Alas - I have *not* had any luck getting financing (and am now worried, of course, about all the inquiries showing up in my CR).  I'm not sure I get why I can't get financing when I see *plenty* of people driving around in new cars (whose incomes are even lower than mine, in some cases). I was willing to take a hit APR-wise but this is downright depressing: Cap One Auto said no. I applied with my new CU, and they told me my TU is now at a devastating 591 -- for them, that's a straight-up "no."  I did get approved at a dealer, who tied the financing to a specific car -- for me, that's a straight-up "no."  At this point, not sure what to do, other than to go back to the drawing board (bring down my util. and give it a bit for those to report). In the meantime, I'm bringing back the rental car this week; I just can't afford to keep it anymore. I'm at my wit's end.

[Anonymous]

Your score is holding you back a little, but the biggest strike you have against you is time at employer.  591 is a score that a bank will buy under the right circumstances, an equity position. Also,  I don't know what you made before, but does it match up to your new salary?  The biggest thing with scores under 630 is the banks ask for stips, so being vague about time at employer cant be done. 

Give yourself 6-9 months on this job before you reapply for a new loan. Your score will be better and there will be stability on the job, both pluses in the eyes of the lender.

Good luck 

[hapagrrl]

Hi,  Bravery--

My (gross) salary now is lower than what it was in CA (although, funnily enough, my net is the same.. hooray for CA taxes), but still very solidly respectable (if not on the high end), by the standards of my new state/city/neighboorhoo/whatever.

A couple of people here have suggested the waiting, but that's just not possible: although I live close to work, the fact is, I live in a *very* suburban area now, so getting to any kind necessity (food, etc.) takes about a 10/15 mintue drive, at minimum. Not to mention that there is *serious* weather here -- none of which I'm used to (having only recenlty relocated here from a more urban environment where almost anything is walkable/bus-able and in an area that's the most temperate, weather-wise, in the country).

Anyhow, still not sure what to do at this point - and Thursday is the one-month mark for the rental car, so I have to return it ($1200/month is JUST NOT sustainable).

[Anonymous]

Here is something you can do.  I mentioned equity position for the bank, what that means is being in a vehicle that a bank doesnt look at as too much of a risk when approving the loan.  You want a price on a vehicle, that if defaulted on, the lenders not going to lose money by reselling..

So, look preowned. Keep the pricing of the vehicle around 12-14000, nothing to high were the lender is leary about your time on the job.

You also want to know what the vehicles actual cash value is.  If the vehicle you are looking at is priced at 12,500 and has a black book trade  value of 11000, the 2000 dollars you put down will put the bank in an equity position of 500 because the cash value is 11000.  This is with no taxes, of course, so the numbers aren't exact, but I think you get what i'm saying. To get a deal on a vehicle, check the dealerships internet pricing and check the delership to see what unit is pushing 60 days, the sales manager will be happy to get rid of that, your doing him a favor.  Also, try going straight to the tower, or call and talk to the used car manager directly.  Let him know what you are looking to do.  Like I said, he'll deal on a old unit.  Try calling first, then going in.  Depending on the manager, he may not deal if he doesnt have a body in front of him, but call first.   

Are you familiar with the black book?  A source that is close to that is NADA.com, the banks will use one of these to "book out" the deal.  chances are it will be NADA because most folks are not familiar with black book.  Check the sites trade in value and use that as a reference guide, check auto trader.   

A few things you can try..... Lower vehicle price, and look to be at least 1500-2000 in equity on the vehicle.  Talk to the sales manager directly, on older model units you'll get a better deal.  Since you don't want to wait it out, broaden your scope for the type of vehicle you are looking at.  It may not be sporty or impressive, but you can get a vehicle for now, and trade it in.  In six to nine months you'll have time on the job and be in an equity position for the vehicle you really want.

I rambled all over the place, and i'll end the advice here. But, try some of those things  I hope some of this helps. 

[Anonymous]

If some of what I typed is unclear, let me know, ill try to clarify.