8/28/2013 5:15 PM ET|
Buying a car? Do this first
An automobile is one of the biggest purchases you'll make. Before you walk into the dealership, make sure your finances are in order.
Just a year and a half ago, I bought my first brand-new car.
Until then, I’d always bought used. But thanks to the recession, people were holding on to their cars longer and prices for used cars in good shape with low mileage had risen. As a result, buying new made more sense.
While I find auto shopping completely stressful, I am luckily married to someone who loves the hunt and doesn’t mind spending hours researching vehicles.
But I wasn’t about to let him loose without clear parameters.
So before I headed out to start my car-buying experience, I had a slew of options for my first step:
- Calculate car payments for various loan amounts to figure out what I could afford;
- Use Kelley Blue Book to estimate the value of my trade-in; or
- Scour reviews on Edmunds.com and Consumer Reports to identify the best cars based on reliability and price.
Although I did all of those things, the very first thing I did was to check my credit scores to make sure there were no problems with my credit. I needed to finance my new car and I knew that getting a good interest rate would be just as important as negotiating a good deal on the vehicle I chose.
Whether you’re buying a new or used car, as long as you plan to finance it, you’ll want to make sure you don’t overlook this crucial step in the car-buying process. And I am not just saying that as a credit expert. Car-buying expert Phil Reed, who has bought at least one car every two months for most of the 12+ years he has worked at Edmunds.com, warned in a recent interview that prospective buyers who don’t take this extra step may pay far more for a car loan than they need to:
So what happens is they go directly to the dealership without checking their credit scores — which is not a good thing to do — and their attitude is “get me done.” In fact, that’s sort of a slogan that some car salespeople use; this (customer’s attitude) was just “get me done.” And that means that the borrower almost feels that the dealer is doing them a favor by giving them a loan. If they had taken time to check their credit, they might have found that they were in a stronger position. However, what happens is the dealership will go ahead and possibly offer them a loan that’s 2% to 5% higher than it could be… But even two percentage points on a $25,000 loan is going to mean nearly $1,000 to $2,000 more over the term of the loan.
The Consumer Financial Protection Bureau is also concerned that some buyers are steered into more expensive auto loans. It recently announced that it will be clamping down on potentially “unlawful discriminatory pricing” in auto loans. Its focus is “dealer markups” — where dealers charge more than the rate the lender is offering in order to make more money — which they say can add significantly to the cost of a loan.
Why does the dealer’s score look different?
If you do check your credit scores before you start shopping for auto financing, you will probably find that the number the dealer or financial institution sees is different than the number you see. That doesn’t mean your free credit score is wrong. It’s different because there are many credit scores out there, and the credit scores used by the auto industry are usually customized to help them predict how likely the borrower is to pay that type of loan on time.
So when you do check your credit scores, be sure to focus on where you fall in comparison to other consumers, and what areas of your credit are strong — and what might need some work. For example, if you get your free Credit Report Card from Credit.com and earn an “A” in all the factors that make up your credit score, you know you should likely be getting a great rate on your auto loan. But even if some areas rate a “B” or “C” you may still be able to snag a good deal.
Once you know where your credit stands, you can shop for an auto loan before you set foot in a dealership. When you find the car or truck you have to buy, you can take the financing you have already lined up, or let the dealer make you a better offer. Either way you can enjoy your new vehicle knowing that, at least as far as financing goes, you got the best deal possible.
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Is it just me or did this "article" feel like an ad for KBB, Edmunds,Consumer Reports, & Freecreditreport.com?
Here's a tip. If the sales person ask s you where you want to be on payments and won't tell you the price of the car ..... run away! I've had a number of them do this and they are trying to get you into a car at a low monthly payment to make you happy but with higher interest rates, don't fall for their game.
If at all possible, use your own financial institution for financing. Credit unions are the best bet. If your credit score is below par <720 FICO, you may not be eligible for top tier financing and you may need to use the dealer's financing. Be advised you will be paying higher interest rates because of your added risk.
Financing is a profit center for the dealership. They can almost take a loss on the car (but they won't) if they can get a high enough interest rate locked in. Keep in mind agreeing on a price and then the subsequent financing are two distinct transactions. Keep them that way, the dealer will want to link them together.
Once again, yet another MSN article written by people who simply do not understand what is REALLY going on. In fact, dealers often get better rates than what consumers can get by shopping. In fact, the Consumer Finance Protection Bureau's efforts will indeed cost the consumer more money in the long run by intervening. Banks will raise rates to yet still compensate the huge amount of business dealers push their way.
Please stop trying to play hero by writing articles that scare consumers and cause them to go into places of business with a chip on their shoulder and therefore making their experience much more difficult than they're willing to bargain for!
Consumers . . . reader beware!
Step 1. Figure out what you can afford monthly.
Step 2. DO NOT USE KELLEY BLUE BOOK. THIS FIGURES ARE NOT IN LINE WITH ACTUAL MARKET VALUE.
Auction prices are ACTUAL MARKET VALUE. Kelley is usually over $1000 higher.
Then you're frustrated with the discrepancy.
I don't know who wrote this article but the credit score you see is the same credit score the dealer sees.
Most dealers will lie to you and say there were some problems with your credit score or, the credit score you see is over blown because the credit companies want to make you feel good...yeah right. When a salesman says this get up and walk out the door because they will not be an honest dealer to buy a car from.
Always buy the year old dealer car versus new.... Too much depreciation on new cars...
Get your financing checked out first to see your best opiton if you cant pay cash...
Decide on the car model first and shop/watch several on line. This removes dealers offering the "other car" and clouding the decision making progress.
Always go to the dealer in mid January during a snowstorm or the superbowl..Hungry car dealers are fun to watch.... Walk off the lot without the car at least once and tell the dealer " you want to think about it" overnight and they will be calling you with better offers the next day....
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