Vehicle Loans
As a former car sales manager, I write this brief overview of vehicle loans with an eye toward consumer awareness. Let me say at the outset that the purchase of any vehicle is a somewhat adversarial transaction. I could skirt the issue, but that would be neither honest nor direct. When an individual walks onto a car lot, that person should be informed, firm and savvy. There are some simple guidelines to follow in purchasing a vehicle and obtaining the best financing on this purchase.
The first concept that every purchaser should possess when walking onto a lot is that “they” are in charge. Like all services, the sale of cars and trucks either provides value to a customer or it doesn’t.
Here are some important common sense tips for the buyers of new and pre-owned vehicles. One, the later in the month a sale is made the greater the position of the purchaser. Dealers are at a somewhat critical time. They have manufacturers who want vehicles “moved,” and the end of the month is when the books close for everyone. Manufacturers do provide incentives to both dealers and buyers to purchase vehicles, and the end of the month is when the customers’ greatest advantage timing-wise, exists.
Secondly, financing a vehicle has become much more flexible. When the economy shows apparent signs of weakness, car dealers, like the sellers of other large ticket items, must increase their promotions. In vehicle sales, this relates directly to the bottom line, interest rate and purchase price. With one’s homework done as far as the actual sale price of the vehicle as opposed to the dealer’s MSRP (Manufacturers Suggested Retail Price). And also, the buyer should be aware of different financing options. The main two sources being dealer (manufacturer) financing or private financing, such as through one’s own bank or credit union.
Regarding financing, one’s credit score is of paramount importance. The higher one’s personal credit score, often referred to as a Beacon Score (a composite of credit bureaus’
schedules and rules as to how they rate each individual based on credit history, time of job, etc.). These scores are fixed and can’t be adjusted by individual dealers. If one has a high credit rating, one has a much greater negotiating position than does a person who has a lower score. But, it should be noted that in the financing of vehicles, very few rules are carved in stone. With a high credit score, one person may be able to finance a vehicle at 0% for the term of the loan. Another individual with a lower “score” is not necessarily in a poor negotiating position. There are several alternatives for the so-called “credit-impaired” individual. In the use of the term individual, one person or a couple is considered under this description for the sake of simplicity.
For someone not possessing an “excellent” credit rating, there are a number of feasible alternatives. A co-buyer (with a strong credit score) can virtually replace any weakness that a lower credit rating might hamper one with in the financing of a vehicle. The other, and most favored method for overcoming a credit score which one might desire to be higher is the use of one’s own source of financing. A person’s/couple’s local bank or credit union is often a terrific source of low interest rate of financing.
Now, we will cover some specific topics that vehicle buyers face.
California Car Dealers are under a very strict code as far as Lemon Laws and fraud are concerned. They must adhere to a much more rigid standard of conduct than is common in most of the other 50 states. Buyers can be assured that if a case of a dealer selling a buyer a lemon or where a case of fraud might exist that the Attorney General’s Office oversees a very rigorous set of legal protections. This is especially good news for non-English speaking buyers, contracts in one’s native language allow for empowerment of the buyer.
Cars classically are divided into new and pre-owned categories. Each group has its own advantages and disadvantages. Some people like the idea of owning a “new” car, not someone else’s possible “old headache.” This idea is of merit “if” the vehicle can be purchased at a favorable cost and with attractive interest rates. Pre-owned vehicles possess their own advantages as well. For one, when a buyer purchases a “used” vehicle, they are letting the first purchaser of the vehicle absorb the 25% estimated increased cost of driving the vehicle off the lot “new.” Secondly with lease turn-ins and buyers upgrading to brand new vehicles, this is a very solid advantage to purchasing “pre-owned.” With the more rigid methods of construction of vehicles since the 80s and 90s, a vehicle today has a much longer service life.
When looking for a new car, one must be a diligent shopper. Personally, I would advise anyone, after they have done their basic homework, to visit dealerships on a day when the store is closed. The job of a new car salesperson is to sell a new car. Simple transaction? Yes and no, for the buyer. A buyer typically purchases a new car every 3 to 5 years. A car salesperson sells cars “everyday.” Well, logic dictates that sellers have experience and practice on their side. So, “window shopping” for the vehicle that one specifically desires beforehand puts the buyer and seller on more even footing. And I would suggest that female buyers bring along a male or a male and others when shopping for a new car. I wish that I could say that chauvinism doesn’t exist any longer, but as I stated at the outset, this article is for the purchaser to get the maximum value for least amount of money.
Under the subject of car quotes, my advice would be for a buyer to conduct as much research before the purchase as is practical. The Internet is a marvelous tool for this purpose. I would specifically recommend Kelly Blue Book and The Edmunds Buying Guides. Both of these publications have very user-friendly, interactive websites. And I would use them not only for shopping for a quote on a vehicle, but also for the value of a potential trade-in. The Latin term “caveat emptor,” buyer beware could not be more appropriate than on the issue of trade-in values. Dealers, almost universally, make their biggest profit on what is called the “back end” of the deal, which includes the highest interest rate the dealer can obtain. But, the single largest profit center is usually the trade-in. Simple economics tells one that if someone can purchase a car for $1,000 and clean it up and sell it for $2,000 that a profit on the “back end” is almost guaranteed.
Car dealers in Wilmington are under very strict rules. Not only as far as Lemon Laws, insurance coverage and fraud are related, but, they have a local ordinance which states that all cars under 10 years old have a signed certification from the seller that the odometer reading is accurate with stiff penalties for violating the law.
A new automobile has always been most people’s dream. Cars fresh off the assembly line, today, have the most comprehensive coverage in the history of automotive sales. In response to the poorer quality of the construction of cars prior to the 1990s, buyers demanded and received the best overall vehicle warranties since the inception of the coverage not only of the vehicle as a whole, but down to specifics, like the engine and power train.
Equipment leasing today has never been more popular and consumer-friendly. With the surging cost of purchasing equipment, both individuals and companies have opted to lease both minor and major pieces of equipment. Leasing allows the lessee the use of equipment whose cost may have been prohibitive. The win/win ideal is that the user gets the use of the equipment, which may have been financially out-of-reach; for the lessor, the ability to have equipment “in use,” profitability-wise and possess the equipment after its market life is over, couldn’t be better. The lessor can then resell, often to the manufacturer of the equipment, to be refurbished and resold or out-sourced to foreign markets.
The growth of car charity, giving a used vehicle to a charitable organization, has been tremendous. With favorable tax laws combined with a very real need for transportation by those who could not otherwise afford a reliable vehicle, this field will continue to expand. The basic premise that the donor, who no longer has use for the vehicle and can also receive a tax incentive of the vehicle and for the recipient who, might otherwise be without any access to transportation (especially in areas where mass transit is spotty). At a time when access to a car is often more important than a high school diploma (in the finding and keeping of employment), this concept will be with us far into the future.
Leasing a car used to be something that was available only to the well to do, but average people are becoming aware that it has many advantages for them as well. The greatest benefit to leasing a car is that one only pays for what one uses. The basic lease payment, generally an up-front down payment and any miles over the contracted number makes leasing more simple and attractive than ever. The person that leases the car knows that from the beginning to the end of the lease that the car is under full warranty every mile. And they also have the satisfaction of always being behind the wheel of the latest model automobile. Generally, a very good credit rating or large down payments are required.
The greatest advancement in the ownership of luxury automobiles for the greatest number of people came by way of the extended term loans. The standard used to be that one must possess “wealth” to be able to afford a luxury auto, but no more. With terms as long or longer than the old limit of 60 months, more people can now indulge themselves in the ownership of “classic” luxury automobiles, both foreign and domestic. This is a definite advancement in equality for all.