Lowering the Finance Cost on Your Next Vehicle Purchase
Adapted from "Drive the Best..."
© 2002 by Kyle Busch
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 lower your transportation cost.
First, and foremost, consider eliminating some of the steep depreciation
cost incurred during the first few 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. When you reduce unnecessaryvehicle
trades, you save money.
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 borrowed the lowest possible. In addition, borrowing
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. For example, 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
principal 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.
In addition to the points covered in this article, the successful
purchase of a used vehicle involves many other details. Being attentive
to details and knowing what to look for when inspecting and test-driving
a used vehicle will translate into significant savings. Additional information
about the exterior and interior inspections, the test-drive, saving
money, and selling a used vehicle are explained in the book: Drive
the Best for the Price: How to Buy a Used Automobile, Sport-Utility
Vehicle, or Minivan and Save Money.
The book is available in print and e-book editions from 1stBooks Library
at: 1 800 839-8640 or at: 1stbooks.com
In addition, it is also available from Barnes
and Noble or through traditional bookstores and www.drivethebestbook.com.
Kyle Busch and his 1986 Volkswagen Jetta
A used vehicle that is closing in on 300,000 miles
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