Used Car Buying Tips

Dont get hustled and lose out on buying a used car with major problems. Things to seek out.

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Evaluate your credit regularly. A bad credit score means HIGHER interest and loan rates

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In the market to purchase a new vehicle and dont know where to start?.

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Monday, December 1, 2014

Buying From Used Car Lots

To the untrained eye, most used-car lots look alike. But if you use this handy field guide, you can identify some of the different species so you can stalk and capture your prey — a great used-car deal.
A new-car dealership is often a good source of used cars, but it is different from an independent used-car lot in several important ways. A new-car dealership is more easily held accountable for its sales practices because it is a franchise, answering ultimately to the carmaker. Furthermore, the new-car dealership is nearly always connected to a service department that reconditions vehicles and is available to repair the used cars it sells.
While some independent used-car lots have been in business for decades, many others are transient and consist of little more than a piece of land to store cars and a trailer for the salespeople to write up the contracts. If an independent used-car dealer offers a warranty, the repairs are often handled by local garages.
There are two more big differences between used cars that are sold by new-car dealers and the independents. New-car dealers will also offer certified pre-owned cars (CPO). Such cars have a warranty backed by the carmaker, much like the warranty on a new car. Also, the new-car dealer may offer buyers loans from "captive" finance companies, which are lending institutions that carmakers have set up solely for auto loans and leases.
Why Shop at an Independent Used-Car Lot?
The main draw at many independent used-car lots is lower-priced cars, many of which new-car dealers won't carry in their inventory because of age. Larry Laskowski, executive director of theIndependent Automobile Dealers Association of California (IADAC), says that at an independent used-car lot, a customer gets "a better selection in a greater price range." On the other hand, he says, at a new-car lot, "the inventory will be restricted to a few years old and whatever they feel comfortable selling."
While there are many specialty used-car lots, Steve Monroe, owner of Woodlake Motors in Conroe, Texas, says an independent used-car lot usually reflects the tastes and needs of the area it serves. His business is in a suburb of Houston and many of his customers want cars in the $6,000-$9,000 range, although he also offers vehicles at much higher prices.
"Trucks sell real nice here," Monroe says, adding that they make up about 30 percent of his inventory of 150 cars. "But I also try to keep something that will attract a guy who needs a second car, maybe for his teenager." Most of Monroe's customers have less than perfect credit, and as such are willing to pay 18 percent interest or more on loans that typically run for three years or less.
Monroe stocks his lot by purchasing vehicles from auctions and private parties. Typically, he purchases a car at wholesale cost, has it transported to his lot for about $150 and then spends from $750-$1,000 reconditioning it. These expenses contribute to his asking price for the vehicle.
Now that you have a general idea of how used-car lots work, and the difference between new-car dealerships and independent used-car lots, here are some of the different subspecies of used-car lots that shoppers are likely to encounter.
Used-car superstores: These car lots are independent in the sense that they are usually not connected with a new-car dealership. In fact, an Internet search of any major city followed by "used-car superstore" yields many listings. One such company, CarMax, is growing quickly and has a vast inventory of used cars. Unlike the smaller used-car lots, CarMax offers no-haggle pricing, plus longer warranties. Of course, it's important to remember that while no-haggle pricing means lower stress, it doesn't always mean the lowest price.
Specialty used-car lots: Often, a used-car dealer will develop a preference for a certain brand or type of car and, over time, his inventory reflects this. In other cases, it's the clientele that dictates the choice of cars on the lot. Examples are used-car lots that sell German cars (Audi, BMW and Mercedes) or perhaps just luxury vehicles. Sometimes these lots will narrow the focus even further, selling classic cars of a certain vintage, for example.
While pricing at specialty lots isn't necessarily lower, the variety may be greater. Car collectors and aficionados who are searching for hard-to-find models often buy from such lots as these.
Consignment used-car lots: These lots sell vehicles for private parties who don't want the hassle of handling the transactions themselves. Usually the cars come from local owners, so the choice will reflect the local economy and lifestyle.
There's only one real advantage to buying from a consignment lot rather than going directly to the person who owns the car: The lot will be able to finance the purchase. Interest rates, however, will usually be higher. The prices will be higher, too, since there's a middleman involved.
"Buy Here, Pay Here" car lots: These lots are so named because they finance a buyer's purchase, but then require buyers to make their monthly payments in person. If the owner gets behind on the loan and then returns in the car to make a payment, it makes it easier for the dealer to repossess the vehicle.
The owners of Buy Here, Pay Here lots justify this practice by arguing that they are taking a financial risk in order to provide cars to people who have no other car-buying options. However, the interest rates involved are usually double or triple the going rate for an auto loan, which greatly increases the chances that the buyer will default on the loan and have to give up the car.
Shopping Tips for Independent Used-Car Lots
Shopping for a used car at an independent lot requires a bit more expertise than shopping for a new car or even shopping for a used car at a new-car dealer's lot. Asking prices at used-car lots are typically high to begin with, and many buyers don't realize that they have to negotiate extensively to reach a deal. If a consumer doesn't have an appetite for actively negotiating, it's probably best to steer clear of an independent car business. Also, since independents offer older cars with higher mileage and without warranties, determining the condition is more critical and harder to do, particularly when some dealers might try to cover up flaws.
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Used-car dealer Monroe suggests that shoppers find out the car's trade-in and dealer retail prices and negotiate in that range. True Market Value® pricing offers trade-in, private-party and dealer retail prices. Keep in mind that the dealer will spend some money reconditioning a used car. So when you're deciding on an opening offer to start negotiations, add a reconditioning fee of $500-$1,000 to the trade-in price.
To check the condition of a used car, Monroe recommends getting a vehicle history report. In addition, he says a buyer should also take the vehicle to a reputable mechanic for inspection. Larry Laskowski, a member of the IADAC, agrees. He adds that by law, all independent car lots in California are required to post signs in their sales offices acknowledging that a mechanic can inspect a vehicle before purchase.
Research and patience can easily offset the extra challenges of shopping at independent used-car lots and lead you to a reliable used car at a good price

New Car vs Used Car: Which is Best?

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Once you've finally decided to replace your current car, the next question to ask yourself is: Should I buy new or used?
That depends. Unfortunately there is no one-size-fits-all answer. There are sound reasons to buy new and sound reasons to buy used.
Too often the only questions we ask ourselves: Will I look good behind the wheel? and How big a monthly car payment can I afford? Neither of these questions will help you make smarter car buying decisions.
Here's a tip: Buying a car based on how much car payment you think you can afford per month will almost always ensure you buy too much car and pay too much for it. It's also the wrong question to ask yourself when deciding between new and used.
When making the new vs. used decision, each of us must examine our unique set of financial and life requirements. A little introspection is good for the soul and the wallet.
For most people, we think it makes more sense to buy used, but there are some exceptions.
Here are four questions to help you be a smarter consumer and navigate the new-used decision-making process.
Do you have a down payment or a trade-in with equity?
If your credit is good, you may have less problem buying new with little or no down payment than buying used. That's because many manufacturers offer incentives for new cars that simply aren't available in the used-car market. These are typically in the form of rebates, cash incentives and discounted financing.
Financing a used car will almost always require money down, whether in cash or a trade-in with equity.
If you do your research and wait for the right opportunity, you may find a new car with a large enough manufacturer incentive to cover the down-payment requirements.
Is there a good reason you, rather than someone else, should take the huge new-car depreciation hit?
Depreciation, or the loss in a car's value over time, is sneaky because it's a hidden cost most of us don't face until trade-in time.
But if a car depreciates, say, $7,500 from the time you buy it to the day you sell it, that's like throwing $7,500 away. That's $7,500 you will never get back and won't have available to spend on other things.
There's usually an emotional tie with a car that's missing in our relationship with the vacuum cleaner or washing machine; but in reality, a car is just another appliance. It's not a buddy; it's not an investment. It can convey status and provide some pleasure, but it won't make us smarter, better looking, more interesting or wealthier.
Because of depreciation, generally it makes more sense to buy used and here's why: On average, a new car loses between 20 and 30 percent of its value the moment it rolls off the dealer's lot. Some cars can depreciate up to 50 percent in the first three years.
You don't have to take our word for it. Kelley Blue Book has a Cost of Ownership calculator designed to figure the average five-year costs of any vehicle, including depreciation.
According to that calculator if you purchased a 2012 Honda Accord EX Sedan with a suggested retail price of $25,875, it would depreciate a whopping $6,735 in your first year of ownership and $1,883 in the second. That is, it would be worth 74 percent of its original value after the first year and 67 percent after year two. It would only be worth $15,525, or 60 percent of its original value, after three years. And Honda has a better track record for retaining value than many other brands.
How do you feel about throwing away $10,000 every three years?
If you purchased a two-year-old EX, the average retail price, according to, would be $20,675. That's a purchase-price savings of $5,200 - all of which is depreciation.
Depreciation, though, has little affect on owners who drive a car until the wheels fall off. After more than a decade or two, that old beater won't be worth much in terms of trade-in or resale value any way. Those same owners, however, don't seem to mind driving an older car, so why not buy a two-year-old model to begin with and save more than $5,000 on the purchase price?
Buying used should also translate into lower insurance premiums and personal property taxes - meaning even more savings.
Can you afford to maintain and repair a used car?
Some carmakers offer free maintenance for the initial years of new-car ownership. That's in sharp contrast to the average cost of upkeep for a used car. It can be argued that buying used is just assuming someone else's problems. It's a roll of the dice.
You can take some steps to minimize the likelihood that you are buying a "problem" used car by having it inspected by a qualified mechanic and obtaining a detailed vehicle history report from an agency like Carfax or AutoCheck before buying, but some issues may still go undetected.
No matter how well a car has been cared for, at 30,000 plus miles, some bits and parts are going to naturally wear out; consequently, maintenance and replacement costs will be higher for a used car than a new one.
Unlike depreciation, repairs and maintenance are hard costs that must be addressed as they arise. KBB estimates that a two-year-old Honda Accord EX will cost $1,838 in maintenance and repairs the first year you own it. Those costs drop to $880 the next year, but it's still a substantial amount. These are costs for which you will need to budget. Do you have the discipline to do that?
If you buy a nearly new used car, you may inherit some portion of the new-car warranty providing some protection for a few months or even a couple of years. Many car companies now provide powertrain warranties for five, six or even ten years. But be sure to check the automaker's rules on transferring the warranty before you buy.
Many car companies also offer certified pre-owned cars that cost a little more, but offer a factory-backed limited warranty.
Can you cope with the time a used car spends in the shop?
Not only does a used car cost more to keep operating, but it will likely spend more time in the shop. It may only be a day here and there, but could be a week or more for bigger repairs.
On average, new cars spend less time in the shop. Moreover some manufacturers or dealers offer loaner cars during routine maintenance visits while a car is under warranty. Can you deal with a used car's extra down time?
Once you answer these questions for yourself, you will figure out whether it makes more sense for you to buy a new or used car.

Your Credit Score vs Buying A Car

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Let's say you've made a few late payments on your bills. Perhaps you have a maxed-out credit card. Or maybe you bought more car than you actually needed and couldn't keep up with the payments. Hey, it happens. But now it's time to buy another car and you have serious doubts as to whether you'll get approved for a loan.
A few years ago, we tested the theory of buying a debt-free car as an alternative to buying at a used-car lot or a "buy here, pay here" dealership. We concluded that for some, the maintenance and repairs may prove too much for people to handle.
Buying a new car outright won't reestablish your credit. You'll need to take out a loan for that. But what options do you have? The "buy here, pay here" dealerships might be one alternative, but not all of them report your payment progress to the credit bureaus. Plus, you're still buying a used car that may require repairs. Is a new car out of the question? Not necessarily.
It is possible to buy a new car with bad credit — if you know where to look and how to prepare. Here's how this kind of car buying works and what to keep in mind throughout the process.
Why Would a Dealership Finance Your Car? 
How can you buy a brand-new car when you have a spotty credit history? There are a number of reasons why a lender would let someone with a troubled credit history finance a new car.
From the lender's perspective, a new car has more value and therefore offers more collateral that can be reclaimed if the buyer fails to make payments. The lender also has the assurance that a new-car buyer will actually keep up with payments. His money won't be diverted to the costly repairs that sometimes befall older cars.
From the dealership perspective, a new car is an investment in a relationship that will pay off in other ways later on.
"Half the time, we're not making any money on the deals," says Rinaldi Halim, general manager for Nissan of Duarte, a dealership in Southern California that says it's proud of the fact it takes on clients in all credit tiers. "We want to have a relationship with that customer," Halim says.
One new-car sale won't yield much (if any) profit, Halim says. But it will pay dividends when customers refer their family and friends, resulting in more car sales, including some that will be profitable for the dealership. The sales also pay off when people get their vehicles serviced in the maintenance department. Years later, the initial customers will likely trade in those "no-profit" cars for new ones. The dealership will sell the initial cars as used ones. And if they've been well maintained, they will turn a tidy profit for the dealership.
Start Prepping Early
If you're someone who has bad credit but wants to buy new, it is best to start planning for it well in advance, as you would with any major purchase.
You need to start with your credit report to see how it would look to a lender. Run it at least three months before you plan on buying so you can take action on any outstanding items, recommends Rod Griffin, director of public education for credit reporting company Experian.
Annual Credit gives you one free report a year on each of the major credit reporting companies: Experian, Equifax and TransUnion. Take advantage of it.
Getting your actual credit score typically costs money, but your score will give you an idea of the credit tier into which you fall. Experian defines subprime (which includes deep subprime, as low as you can go) as a 619 score or below on its Vantage scale.
Once you get the free credit report, pay close attention to the section that points out potentially negative items, also called risk factors. Risk factors could be anything from an old debt that went to collection to a fine you had to pay in a civil court case.
Rather than viewing them as black marks on your credit, "These risk factors can empower you as a consumer to help rehabilitate your credit," Griffin says. The risk factors are present in all reports, so if you fix an issue you found on one credit report, the action will be reflected on all the other reports.
Experian says it offers an added benefit with its credit report and score. For $40, you get your credit score from Experian and a 35-minute session with a credit educator. This person will go over your report and point out items that need attention and give you tips on how to address it.
Get Pre-Approved and Choose a Dealer
Because your credit is bad, you will be paying a high interest rate, perhaps as high as 18 percent in California, for example. But some rates still could be better than others. This is why it's important to seek approval from more than one lender.
To find out which car dealers may be willing to finance people with iffy credit, pay attention to radio commercials or billboards from dealerships that say things such as "Your job is your credit!" or "Bad credit? No Problem!" These are good places to start. Steer clear of the "buy here, pay here" lots, however, since they don't sell new cars.
Many dealership Web sites have credit applications you can fill out online to get pre-approved. If you don't see the application on the front page, it may be under the "Finance" tab.
Also, check with your own bank or credit union. They may be more willing to approve you since you already have an established financial relationship with them. You might also try Road Loans from Santander Consumer USA, which specializes in subprime loans.
Don't worry that filling out too many loan applications will harm your credit. "Lenders know you are searching for the best rate," Griffin says. As long as you apply for loans in a 14-day period, they will only count as one "hard" inquiry on your credit report.
Bring Documents To Show You're a Good Credit Risk
When you go into the dealership to talk about financing, you need to bring along some important paperwork. These items will allow a dealership to establish who you are and confirm that you have a job, that you have a history of making monthly payments on time and have friends or family the dealership can contact to find you if you stop making payments. Bring these items with you:
  • The most recent pay stub from your job
  • Your utility bill (gas, water, electricity)
  • Your driver license
  • Three personal references
Stay in Your Price Range and Look at the Total Costs
Most people know what they can afford for a monthly car payment. But that sometimes ignores the bigger picture. Just because you qualified to buy a $22,000 midsize sedan doesn't mean you should buy it. For example, if you scale back and purchase a $17,000 compact sedan, you'll free up $100 per month. This is money you could use for gas, insurance or to pay other bills.
"We love our leather seats and sunroofs," says Griffin, "but when your credit isn't stellar, it is better to look at a lower-end automobile."
A Typical Deal — and a Bad One
Halim gives an example of a deal made for someone with bad credit: a $16,000 Nissan Versa, minus a $1,000 bonus cash incentive, financed for 72 months with $1,000 down. The interest rate would be around 17.9 percent, which would bring the monthly payment to about $354. At the end of the six years, you would have paid $25,485 for that Versa.
These numbers will vary based on how much you're putting down, what you're financing and what you've been approved for, but it gives you a rough idea on what this type of deal looks like. A sizable percentage of the loan will be the interest ($9,927 in this example), but this is the reality when you're borrowing in this credit tier.
Just remember that it could be worse if you were dealing with a "buy here, pay here" car purchase. While talking to Halim, for example, we heard about a customer who had purchased a car from a "buy here, pay here" dealership and no longer wanted the car. The loan was for $4,200, to be paid over 36 months. The person already had made 22 payments of $322 and still owed $3,800 on the principal, thanks to an exorbitant interest rate. It approached the California legal maximum of 29.9 percent.
Resist the Urge To Trade Up
A number of new-car dealerships offer their credit-challenged customers the chance to trade into another vehicle without a significant increase in their monthly payment, provided they've made a year's worth of consecutive on-time payments. While it may be tempting to get out of a Nissan Sentra and into a Nissan Altima, for example, you will be adding more debt to your next loan.
If you want to move up to a larger or nicer car, a smarter strategy is to refinance the current loan for a lower interest rate and monthly payment, then stick out the loan until the initial car is paid off. When it's time to purchase your next car, you should be in a higher credit tier (assuming you've also done well on your other bills), and will qualify for a nicer car.
The New You
If you've done your credit homework, shopped within your price range and made all your payments, you've not only improved your credit score but also set up positive finance habits that will serve you well for years to come.


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