Car Negotiation Coach

Because of Europe’s debt crisis, interest rates are back down to record lows and a new wave of mortgage refinancing is occurring.  But what most people don’t realize is that those same low interest rates are available to refinance car loans.  Refinancing your auto loan is an often overlooked way to slash your car payment dramatically.  And the application process is a heck of a lot simpler for a car than for a home (it only takes about 10 minutes).  And unlike home mortgages, car refi’s are based off the outstanding balance of your loan, not the value of the car, so no appraisals are required!

So when does it make sense to refinance your car loan?

You’re a good candidate for refinancing if interest rates have improved since the time you got your original loan.  And since interest rates are currently at the lowest level for over 50 years, most everyone meets that criteria.  It also makes sense to refinance if you have improved your credit and qualify for better rates.  Lastly, it makes sense if you have a high interest loan because you financed directly through a dealership and didn’t realize you can shop around online for competitive offers.

Even a 1 or 2% reduction in APR from your current rate can save you hundreds of dollars with minimal effort.  At the time of writing this, up2drive’s advertised refi rates are as low as 4.29% (depending on your credit and length of loan). 

To see just how much you can save per month, use this simple refinance payment calculator.

How does it work?

First, contact your existing lender to find out the payoff amount for your existing loan.  Then go to up2drive or myAutoloan and submit an online application.  Once approved, they’ll send you a check to pay-off your existing loan.

Both these lenders offer refinancing without any fees or points so comparing to your current monthly payment amount is easy.  If you refinance through your own bank or credit union, be sure to read the fine print and avoid any with fees.   And if you have bad credit, don’t fret, myAutoloan works with high risk borrowers.   

Refinancing can be a great way to save money and even allow you to pay off your car quicker.  Consider taking advantage before interest rates go back up!

Photo by: votejoehiggins

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Not knowing the difference could cost you.  How do you handle big ticket purchases? Do you tell a salesman how much you want to spend per month or do you focus on the total price?  Let’s see which approach has the best results.

The Monthly Payment Buyer

Whether you’re buying a car, jewelry, or a big screen TV, buying based on the monthly payment is a bad idea.  We’ll use the example of a car purchase (of course ). 

When you walk into a car dealership, one of the first things a salesman will attempt to do is get you to commit to a monthly payment amount.  He does this because the other financing terms can easily be changed to sell you a more expensive vehicle.  The monthly payment is just one factor going into the total purchase price.  He can meet your desired monthly payment amount by changing the interest rate, length of loan, or amount of down payment.  

For example:  Adding one year to a $300/month loan will cost you an extra $3600. 

Because the total car price is not the focus, the Monthly Payment buyer will typically end up paying much more in the long run.

The Monthly Payment Budgeter

On the other hand, you still need to know what monthly payment amount you can afford, but you don’t have to discuss it with your salesman. 

The monthly payment budgeter does her homework in advance.  She creates a car budget and knows just how much she can afford on a monthly basis.  She also lines up competitive financing offers before the negotiations begin.  These can be used to haggle with the finance manager after a price has been agreed upon.

Once you’ve budgeted monthly payments, plug them into an affordability calculator.  Based on financing terms you specify (not the salesman), the calculator will tell you a car price range you can afford. 

Another reason why focusing on the total price is a better approach is that it allows you to get competitive bids.  A single price can easily be compared to other offers and provides transparency to a deal.  If you focus on monthly payments, you’ll find it quickly becomes difficult to evaluate and compare multiple deals to each other.

The Monthly Payment Budgeter has a clear advantage.  If you focus negotiations on just one aspect of financing instead of the big picture you’re likely to spend more than you had planned. 

Photos by: purpleslog and alancleaver_2000

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Can you get a better deal on a car if you pay in cash?  Surprisingly, the answer is no!  Maybe if you were buying Rolling Stones tickets in a parking lot, but if you want to buy a car, financing will probably get you the best deal.  

Let’s forget for a moment that you will obviously pay more over the life of a loan due to interest and just consider how the payment method affects the purchase price. 

Understand that auto dealerships make their money 3 ways: 

1. Profit from the car you buy (plus dealer add-ons)
2. Mark-up from reselling the car they buy from you
3. Mark-up from financing deals

If you take away one of their profit centers, do you think that will help your negotiating position?  Nope.  So use financing to your advantage.    Make the deal as if you were financing the car, but if you are paying cash or making a large downpayment, wait to mention this until after you’ve settled on price.  

If you will be financing, just be sure the dealer’s financing offer is comparable to low financing quotes you can get online.  Higher monthly payments from a high interest rate could easily outweigh any gains you make from a lower car price.

As for credit cards, it’s highly unlikely a dealer will allow you to pay this way.  Merchants pay 2-4% in fees to the credit card companies for accepting payments.  For most retailers, this is a cost of doing business, but for car dealers it could completely wipe out their profit margin. However….

 …many dealers will let you put your down payment on a credit card.  As long as you have the money to pay it off immediately, I always do this to get the points!

There are many other factors to consider when deciding between financing and paying cash.   Do you have enough cash available? Do you have good credit? Can you make more money investing than you would pay in finance charges? Consider these questions first, but keep in mind that financing is an option that may help you get a lower purchase price. 

How do you like to pay for a new car?

Photo by: Emsago

Edits by: BFS

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You’ve probably been driving for years and picked up good financial habits along the way.  But while some finanical ideas are second nature to you (like why incorporate in Delaware), a teenager probably needs some guidance to avoid expensive mistakes.  Why not take a fresh look at your financial habits and see if you can remember some lessons learned to share with your teenager?  Here are a few nuggets of wisdom to get you started:

1. Good credit is soooooo important.  Establish good credit practices early and save yourself thousands of dollars over the course of your life (or even in a single car purchase).  Credit affects how good a car loan you can get, whether you can get one at all, and your insurance premiums.
2. Reckless driving affects your wallet.  Aside from the obvious result (getting hurt or hurting others) accidents can be costly in a variety of ways.  If you are at fault, then…
   1. You have to pay the deductible on your insurance (usually $500 to $1000)
   2. Your insurance premiums will probably go up (easily hundreds or thousands per year)
   3. You could get a hefty ticket or fine
   4. You could be laid up and unable to go to work
   5. You could be sued
3. If you’re in a minor accident, consider fixing it without reporting it to your insurance company.  Depending on the amount of your deductible it may be cheaper and your rates won’t skyrocket.
4. Don’t drive without insurance! Penalties include suspension or loss of license, tickets or fines, and being personally liable for an accident.
5. Good grades or a driving class could lower your insurance premiums.  Some insurers will reduce your premiums based off of driver’s ed classes or defensive driving courses.  Some also offer reduced rates to students with B+ or higher grade averages.  It pays to be smart!
6. New cars appreciate fast.  The second you drive off the lot, the car depreciates 20%. Consider buying used if it’s your first car…you’ll most likely give the car a beating anyway.
7. Don’t owe more than the car is worth.  Do everything in your power to keep from getting upside down in a loan.  It will make your next car purchase that much more difficult.  When budgeting for a new or used car, make sure you pay a sizable down payment to help avoid this scenario.
8. Take care of your car.  Be religious about oil changes, replacing tires and brakes, and other regular maintenance.   Letting your car go can cost so much more in repairs, not to mention lowering the resale value.
9. Learn how to change a tire (especially if you’re a woman).  You never know when you’re going to get stranded and out of cell service.  Even if you can reach help, towing is not cheap.  Just in case, give your kid a free cell phone so they can call you if they run into trouble.
10. Don’t drink and drive.  This could literally ruin lives.  And if prosecuted, you’ll find legal fees and fines incredibly expensive, not to mention the possibility of jail time.  Consider offering a “no questions asked” option to your teen if they find themselves under the influence with no way home.  Let them call you for a safe ride rather than risking the drive themselves.

 Do you have any other suggestions for new drivers?

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If you’re like me, with every new car purchase you add to a cumbersome collection of financial documents.  When it comes time to find something, it can be intimidating to sift through the mess.  The best solution is to use a filing system and stick to it whenever you get new paperwork rather than letting it pile up.   If you’re ready to clean up the clutter, take a look at how I organize my own car financial documents and see if you can implement a similar system that works for you.

In my home office I keep three separate folders for each car: Maintenance, Ownership, and Legal.  For the most part, I hang onto everything until I get rid of a car with the exception of expired insurance policies.  Here’s the breakdown:

 Car Maintenance Documents

• Documentation of all auto maintenance performed. This includes oil changes, tire purchases, replacing the brakes, service appointments, etc.  This can be handy to establish a good resale value when trading in.
• Warranty agreements.  Hang onto any documents from the manufacturer or if you purchase an extended warranty.  Most warranties are very particular about how you go about servicing your car, so you’ll need to refer to your agreement.

 Car Ownership Documents

• Title. If you have a safe keep it there instead, otherwise filing it is fine.
• Original purchase receipt. Trash all the extraneous brochures and flyers you receive from the dealer.
• Loan or lease documents and payment book (or payment coupons).  Keep these until the loan is paid off and then keep the letter from your lender that confirms the loan has been fulfilled.
• Monroney sticker (or window sticker) that contains all the options installed on your car.  I like to keep this handy for when I resell or trade-in the car.  It’s easy to forget all the bells and whistles you originally paid for, and a high MSRP compared to your new price can make the next buyer feel like they are getting a good deal.

 Car Legal Documents

• Registration. I file one copy and keep one in the car.
• Receipts for state inspections and emissions tests
• Tax documents. Some states require personal property taxes to be filed for vehicles.
• Auto insurance policy. You only need to keep the latest copy.  When you get a new one, discard the old one.
• Documentation of any repairs due to insurance claims (normal wear and tear goes under maintenance).
• Rental cars agreements during repairs.

 And in my car I keep…

• Registration. I keep one copy in the car and one in my files.
• Insurance Card
• Owner’s Manual
• Disposable camera (unless your cell phone has a camera).  If you’re in an accident, taking pictures can help you get more money from a claim and identify who was to blame.

When budgeting for a new car, an organized set of finanical documents can be a real budget helper.  How do you store your car financial documents?

Photo by mcfarlandmo

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Budgeting in the Fun Stuff was kind enough to have us guest post today on negotiating car financing.  Most people don’t even realize that car financing is negotiable!

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It’s tax time again, and while you’re digging through your financials, it’s a great time to check in on your auto financial health. 

Here’s an auto finance self-checkup you need to perform at least once a year. 

Can you lower your car insurance rate? 

• Check with your agent and see if all possible discounts have been applied.  Do you have a home or renter’s insurance policy with the same agency (to qualify for a multi-policy discount)? Have you installed a car alarm or lojack, took a defensive driving class, or has it been three years since your last accident?
• How many miles did you drive this year?  Were you laid off, do you carpool, or work from home and use the car only for “personal use”?  Less miles typically means a lower rate.
• Can you save any money by raising your deductibles or dropping collision on an older car? 
• Have you shopped around for competitive quotes recently?  Insurance.com and Esurance are good for competitive quotes from multiple agencies.
• Are you paying your premium in installments with extra service fees?  If you can swing it, consider paying annually or semi-annually to avoid those fees.

What’s the interest rate on your car loan?

If it’s high, consider refinancing.  Check out rates on a site like up2drive and see if refinancing makes sense. [...]

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