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Auto Advice - Financing

How Much Car Can You Afford?
So you've made the Big Decision. No more dreaming or just thinking about it -- you're ready to go shopping. The process of buying a car can make your head swim with all the brands, models and options that are out there. And let's not forget the salespeople who can sometimes neglect your best interests when they're pushing a contract under your nose. Take heart though, your Perfect Car does exist. It just takes a little effort to find it. And the search begins before you even set foot on the lot.

When pondering this all-important question, you'll want to consider how much of a down payment you've got for your new car, and your monthly income. A standard guideline is that your monthly car payment should not exceed 20% of your monthly net income. Once you've determined this number, the other costs associated with your car fit neatly into two categories: fixed and variable.

Fixed Expenses
Even just sitting there looking great in your driveway, your new car comes with fixed expenses. These are expenses you have no matter how much or little you drive your new car. They would include the down payment (for the first month), loan payment, insurance, tax and license fees.

The down payment, in the form of cash or trade-in, lowers the purchase price of the vehicle and the amount you'll need to finance. If you're financing a lower amount you'll gain some flexibility to choose lower payments over a longer loan period, or a shorter loan period that'll save you months of interest payments and very likely get you a lower loan rate.

Your loan payment will be the same each month unless you choose to prepay on your loan. Prepayment is not an option for many people, but there are benefits to adding a few extra dollars to your payment each month. You'll reduce the amount of interest you'll ultimately pay on the loan. Your credit report will reflect your good payment history. And, of course, you'll own your car sooner!

Insurance costs will vary greatly depending on where you live, the car you're insuring, your driving record and the other drivers in your household. Remember, all insurance companies are not created equal. You may be surprised to find massive price variation between three different quotes for the exact same coverage, so it's wise to shop around. Insurance rating services such as A.M. Best can give you an idea if an insurance company is a good choice to consider.

Tax and license round out the fixed costs associated with your new car. The sales tax is a one-time charge that varies from state to state based on the stated value of your car when you purchase it. License charges also fluctuate between states. Some charge a flat rate for all car licenses while others charge on a scale depending on the value of your car and it's age. A quick call to your local license bureau can tell you what you'll pay to license and register your new car.

Variable expenses are just that -- variable and dependant on how much you drive, maintenance you perform, and any improvements you make on your new car. First there's the day to day expenses associated with owning a car like gas, oil, oil filters, and those occasional trips through the car wash.

Maintaining your car can cost almost nothing if you have a brand new car, or somewhat more if you choose a preowned model. No car is immune from these expenses -- you can expect to replace your tires, belts, shock absorbers, and refurbish various mechanical parts as your car ages and the miles add up.

Finally, there's the improvements you choose to make to your car. The possibilities are endless: custom wheels, high end stereos, security and navigation systems, performance enhancements. All these make your car unique and more fun to look at and drive. They also add to the cost of your car and should be considered when you're coming up with a new car budget.

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Loan Pre-approval Pre-empts Shopping Stress
You walk into a car dealership, knowing you want a new car. You've got a good job and are quite sure you can make the payments, whatever they turn out to be. By the time you've negotiated a price and trade-in value for your current car, the loan process can be an afterthought. ...Bad idea! Sure, the dealer may come up with a payment that fits your budget, but will those payments continue long after the car is worn out and tired? Shop with confidence, and avoid any dealership slight of hand, by getting your car loan preapproved.

Preplan Your Car Budget
As with any big expense, a new car will make a sizeable impact on your household budget. By applying for a loan before you shop, you will find out exactly what your monthly payment will be. Once you fill in the other fixed costs of insurance and license, you'll have a good idea of the overall monthly costs of a new vehicle. What's more, your Credit Union can also look up the value of the car you're considering. You'll know right away what your payment will be, and even the book value (or the true value) of your vehicle.

Take the Pressure Off
A car shopper who doesn't have financing in place is fair game for whatever loan programs the dealer has available, and those may cost you much more than a low interest loan. Your Credit Union's goal is to get you the most affordable financing possible. The dealer's goal is to sell you a car, which may mean finding you any financing necessary to make the sale. Such loans may provide a monthly payment that fits your budget, but can wind up costing you hundreds or even thousands of dollars more over the term of the loan.

Free up more time to drive

When you're looking for a new car, one of your main objectives is negotiating the lowest purchase price, and, if trading in a vehicle, getting the highest possible trade-in value. These two important tasks are time consuming and, quite honestly, take a lot of concentration and energy. By getting your loan preapproved, you've saved the time and effort otherwise spent figuring out the dealer's financing options. You'll spend less time dealing, and more time with your new car!

Broaden Your Shopping Horizons
Say you're at a dealer far from home. The selection is great and the prices are even better. Loan preapproval lets you make your purchase without having to come back to the Credit Union to discuss a car loan, after which you'll make another trip back to the dealer to get the car - if it hasn't already been sold. The same holds true of purchasing a car over the internet if you're so inclined. It's simply a matter of convenience. Once you're preapproved, you've got buying power to make your move on a good deal and reduce your time spent at the dealership...and the Credit Union!

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Budgeting For Your New Car
Buying and owning a new car for most people is an exciting experience. It can also be more than you might expect financially. After all, there's more to your vehicle's expenses than your monthly loan payment. You'll have to maintain the car from the moment you drive it off the dealer lot. By coming up with a car budget before you buy, you'll have no surprises at what your new car will really cost to own. Money management services and automotive publications have come up with general budgets based on compilations of several types of cars. But the truth is, your budget will be as unique as your car and driving habits.

Break It Down
Most of your car expenses can be considered either fixed or variable costs. Fixed are those expenses you must pay no matter how much or how little you drive the car. Variable costs increase with each mile you drive.

Fixed expenses include:

  • Down payment (one time expense)
  • Loan payment
  • Insurance
  • License fees
  • Taxes
  • Miscellaneous (auto club, accessories, etc.)

Variable expenses include:

  • Gas
  • Oil
  • Tires
  • Maintenance
  • Repairs
  • Miscellaneous

Once you've determined the monthly outlay for these expenses, add them together to determine your overall monthly cost (based on your average monthly mileage for variable expenses. Here's a few guidelines you can use to calculate the variable costs for your car.

For example:

  • Your gas expense can be figured by taking the average number of miles you drive each month and divide by the car's average fuel mileage. Multiply the result by the average fuel price for your gas expense.
  • Your engine oil (and filter!) should be changed about every 3000 miles. Based on the miles you put on your vehicle, you should be able to guess how often you'll be changing your oil. From there, a monthly expense should be easy to calculate.
  • Tires can last anywhere from 40,000 miles to 70,000+ miles if used under normal conditions. Research rotation and replacement costs, then determine your monthly expense based on your travel habits.
  • Maintenance intervals for your car can usually be found in your owners manual. The dealer's service department or your mechanic can give you an idea what various maintenance procedures will cost. Remember too that some maintenance and repair items may be covered under your new car warranty.
  • One variable that's hard to pin down is repair costs. Overall, cars are getting to be more reliable and trouble free but major repairs will be needed sooner or later, particularly on older used cars. To cover these potential costs, you may want to consider a 'slush fund' of cash for just such an emergency.

The numbers, combined with your fixed expenses, should give you a pretty good idea of what it will cost to operate your new car. After coming up with a budget for the car you want, you may decide it doesn't fit your overall budget and consider other cars that cost less to own. You may not be able to comfortably afford the exact car you want right now, but hey -- it's better to find that out now ...instead of later!

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0% APR Auto Loan or Rebate - which one is better?

Click here to use the Comparison Calculator

Are you confused by all of the auto offers out there? You're not alone. Deciding between a low-rate dealer loan or a rebate can be difficult. So take a look at these facts before you finance your next new vehicle.

A dealer loan rate of 0% (or whatever today's "special" rate is) sounds attractive, but beware of hidden costs. Most of these loans require larger down payments and offer shorter terms, and some dealers may even require that high cost credit insurance be added to the amount of your loan. That can lead to huge monthly payments. You also may find that these loans are available only on in-stock vehicles and on slow-selling models. If the payment is too high for you, the dealer may try to talk you into a higher rate with longer terms. That's where it gets tricky, because they know you are eager to get into your car, and their goal is to close the sale.

That's where the credit union can help. For example, choosing the rebate may be a better option. A rebate can be applied to your down payment, lowering the amount of your loan. Then, with a low-rate loan from your credit union, you can choose longer terms to fit your budget.

Consider a typical vehicle loan of $20,000. With 0% APR and a 36 month term, your payment will be a whopping $555 per month! Plus the dealer may require credit insurance protection, which will increase your payment even more (most credit insurance plans offered by car dealers add the premium to your loan balance, while Credit Life/Disability insurance offered by the credit union is charged monthly based on your current balance). Or you can take the rebate of say $1,500 and reduce the amount of your loan to $18,500. You then finance your new vehicle at the credit union for 48 months at 5.99%* APR. Your monthly payment will be about $434, a savings of $121 per month! Think of what you could do with an extra $121 every month. You could even invest it and perhaps earn a higher return than the 5.99% APR you are paying the credit union. So even if you can afford the high payment, 0% APR is not necessarily the best option for you.

Before you shop, give us a call!

*Rate listed is for example purposes only. Actual Rates are subject to change

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The Truth About Super-Low Interest Rates
Each year, car makers set their goals ever higher to sell the millions of cars they produce. This can be good news for us, the consumers. It means there will be keen price competition and attractive deals to get us to buy, buy, buy. One tactic manufacturers use to move the metal is an incredibly low interest rate. It can certainly spark our interest, and it could even be a good deal... Maybe.

Check the Fine Print
We've all seen the 'Super-Low' interest rate when shopping for that new car. Typically, these ridiculously low rates mean you'll be borrowing the money right from the manufacturer. And like any sound business, they are out to make money. If they're lending money at 3.9%, 2.9%, .9%, or even 0%, they're losing out on other higher interest investment opportunities. Since they're running a special promotion to sell cars they may give you the low rate, but for the shortest time period possible. Your low interest rate could be for a term as little as 12 months. If you're buying a car worth, say, $20,000, your monthly car payment would be over $1600 a month even with 0% interest for 12 months. Of course, your car would be paid off in a year. Wouldn't that be great! Unfortunately, for most car buyers, a year - or two - or three - is too little time to pay off a car when there are other household bills to consider as well.

Keep in mind that not all super-low rate programs mean a short-term loan. In fact, some programs of late have been known to extend fantastic rates with terms of up to five years. Before you sign the dotted line, however, make sure you've checked the fine print on any loan you're considering.

The Dealers Secret Weapon
The dealer may use the super low interest rate as an excuse not to bargain on the purchase price of the vehicle. Besides, they may reason, with an interest rate that low you're already going to save a bunch of money (no matter what the purchase price.) Think again. In the negotiating process, the finance rate should not be a factor. Your goal is to get the lowest reasonable price for the new car, and the highest reasonable trade-in value for your current car if you're trading. The money saved with a super low finance rate could go down the drain if the car was overpriced in the first place.

The Real World Alternative
If you can afford a higher than average car payment, or have a large down payment or trade in value on your car, this deal may well be for you. But before you possibly wind up with a higher car payment than you can comfortably afford, it would be smart to consult your credit union. They specialize in helping you get the best deal in financing. -- taking into effect your other household expenses and financial commitments. Your loan officer can help you run some numbers for a credit union loan vs. a manufacturer loan so you can compare monthly payments. They can also help you determine a fair value for the car you're purchasing and trading. And they can get you a loan with a longer repayment period and lower payments that may fit better with your overall budget.

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