Financing Through Credit
What does "APR" mean?
The APR or the Annual Percentage Rate is the percentage you'll be paying to the lending agency, whether that's the financing company through the dealership or through your bank, or through your credit union. That's the cost, if you will, of borrowing that big lump sum of money from them and then paying them back over time. Knowing the APR is very important when you buy a car because that is what is going to be accumulating beyond the actual price of the vehicle itself. So, if you buy a vehicle for $10,000, you're going to be paying that money back plus whatever the APR is on top of that. Most people will go into buying a car thinking what their monthly payment is, and where their threshold is just on monthly payment. But the APR can then start to add up on you, especially if in order to get that payment down to a certain level, you'll add an additional year of interest to it. So maybe you're looking at a three-year loan, it goes out to four years in order to get that payment down. Well you need to know how many years that term is, and what the APR is, to see how much you're really going to be spending for that vehicle over the time you have the loan.
How do I get the lowest APR?
With regards to financing your car, the best way to get the lowest financing on your vehicle and the best APR available is to actually go shopping for it. There are lots of online services now which allow you to plug in your credit score and then basically the finance companies compete for your business. This way you can squeeze an additional half point out here or there by actually playing them off one another and shopping for that APR, the same way you are shopping for your vehicle. The other issue is to look at vehicles and there may be some sort of special financing going on from the manufacturer. As a vehicle hits the end of its life span and they're preparing to bring out the new model, there's quite often going to be incentives going out whether its rebates or special financing and so forth. In these circumstances it's good to research the vehicle to know where it is in its life span, you may see there's a factory program which might get your payment down as well.
How will "zero percent financing" help me buy a car?
As an example, if a vehicle is moving much slower in the market than the manufacturer expected, or they're preparing to come out with a new model and they need to close out and clean out the old ones, they might offer a zero percent financing program for the first two years of that term such that you'll be paying just the actual principle on the vehicle and no money to interest.
Should I calculate my loan payments before going to the dealership?
With regards to financing your car, it's always a good idea to calculate what your approximate monthly loan payment is going to be before you go to the dealerships. This is mostly so that you can make sure that there's nothing funny going on when you actually go down and negotiate the price of the vehicle. If you've done your financial research, and you know that the vehicle you're going to buy at your percentage rate over four years should be x per month, and they're coming to you with a monthly loan payment forty dollars higher, this is something you want to investigate before you sign for the car.
What are "charge offs"?
With regards to financing your car, a "charge off" is a loan which has been identified by the financing company as being uncollectible. Basically, the loan has gone into default, and therefore they're not able to collect that money back. These are things that are very, very damaging to your credit report, so you always want to make sure that you're keeping up your payment history correct. Make sure you're making those financial payments, and avoid any sort of loans which would be considered a "charge off" or uncollectible.
What does "co-sign" mean?
To co-sign on a loan would be basically sharing the burden with somebody else who potentially has a better or a more robust credit rating to cover for the deficiencies in the person who's buying the vehicle. So, maybe it is going to be a son or a daughter or a sibling who hasn't really established themselves with a great credit score yet, so the co-signor is able to come in and basically lend their name and their credit score as a justification or a proof that the person who's buying the vehicle will be responsible and keep up with their payments. Now, ultimately, if that person defaults, the responsibility falls onto the co-signor so you want to make sure that you choose your co-signor very carefully.
What is the role of finance managers at the dealership?
A finance manager is often referred to as the F and I guy; finance and insurance. These are things that they are offering you as part of the signing the paperwork to buy the vehicle with these additional add-ons. A finance manager is basically the last salesperson you have to meet before you actually take ownership of the vehicle. After you've negotiated the price you then visit with the finance manger to do the paperwork. However, I caution that a potential customer often feels like they've done their hardest part of the negotiation when they've identified the price of the vehicle. Finance managers there to try to sell additional add-ons, additional warranties, step-up features, security systems and that is often a very fat center of profit for the dealer. So, while you're filling out the paerwork you will also be attempting to be sold differnt features and it's something to be aware of. You will need to meet with the finance manager to actually do the statement, process the paperwork and some of the real offical documentation. However, be aware that if you're bringing your own financing in you will still be presented opportunites for addtional warranties and add-ons to the vehicle. If you are bringing in your own financing then you are taking away a dealers big opportunity for profit so they'll be looking to get that from you in other ways.
If I have a trade-in, should I take it with me to the car dealership?
Yes, you'll need to bring your trade-in vehicle with you when you go to see the dealer, because he's going to have a person on staff that's going to go out and look the vehicle over, possibly drive it, and assess its trade-in value.
Can I save money buying a hybrid vehicle?
If you are considering a purchase of a hybrid vehicle, you will often see that there's a hybrid premium. The vehicle itself will cost more: anywhere between $2-5,000 more than the non hybrid equivalent. There is a premium price to pay for the hybrid vehicle, but it will pay for itself back in time. You will be using much less fuel over the course of the time of the vehicle. As fuel prices continue to rise, this reflects even stronger savings. Hybrid vehicles hold their value very well, and there is very little cost with regard to maintenance or additional repairs. One of the concerns with hybrid vehicles has been battery life. A person's going to have to replace the battery the way they do occasionally in a non hybrid vehicle. The battery systems themselves are regulated by the onboard computer. They are always kept in their most efficient and healthy state. You can absolutely get your money back from driving a hybrid vehicle over time, not only from the fuel efficiency side, but also the complete cost of ownership picture.
How do I restore my credit?
With regards to financing your car, if there are some black marks on your credit and want to restore your credit, you'll want to get a copy of your credit report. Identify those features that are causing that drag down on your score and then go about correcting them. In some cases there may be things that are incorrect, for example some default payments, or some late payments which you have proof that you made on time. Things do happen; sometimes the computers don't speak to each other correctly, so you can go in and ask the companies to correct those. Other things are just about building yourself a budget and then really sticking to that. Don't use additional credit for buying things that you don't really need, only live within your means for a time. This can add a very positive impact to your credit score in a very short time. To maintain that improved credit score you need to get regular copies of your credit report, this is so that you can monitor and make sure that there aren't new things coming on that you are not aware of, new things that you may need to correct. Over time, you'll see that credit report card slowly get better and better.
Can I borrow my way out of debt to buy a car?
Borrowing your way out of debt in order to buy a new car is a way of handling it, and there are many dealers and their finance companies which are more than happy to help you. But that's only really for the advantage of the finance company. What this would mean would be taking all of your current debt, putting it into a new loan, charging you a potentially a higher interest rate than you would have had on all those loans individually and giving you one payment. But, over time you'll be paying more for that payment than you would if you just did the right thing, and lived within your means in the first place.
