Let’s Go Car Shopping!
It’s official. You’ve got the fever: the car-watching, car-buying fever. You notice every car on the street. You can picture yourself driving each one, with the windows down and the radio blaring. You know which ones are cool and which ones you wouldn’t be caught dead in. The car ads on television seem to be calling your name. You’ve been saving money for years, and everyone agrees that you are ready to buy your first car. But what should you buy? A shiny new car or a reliable used vehicle? Or should you lease a car instead? What should you look for in a car? Well, buckle up, keep reading, and let’s get ready for a ride!
BUYING YOUR FIRST CAR Should I Lease Or Buy?
How do you determine which of these options is best for you? Let’s look at the advantages and disadvantages of each.
If you are planning to purchase a vehicle that costs more than you have saved, you are probably looking at making payments for the vehicle. In that case, should you lease or buy? Let’s take a look at both options.
Leasing is like renting; you need to make a down payment, and make monthly payments, but there are some distinct differences between buying with financing and leasing a car. As we will see, you sign a contract for a specific period of time with both options, but when that time is up and you’ve made all your payments, you will own your car when you buy it. When you lease a car, at the end of the contract term, you have to either turn in the car or buy it at the price that was stipulated in the lease. Leases are generally only for new vehicles, so that may eliminate the choice if you decide that a used car is more appropriate for you. Businesses that require their employees to do a lot of driving will often lease vehicles for their employees to drive so that they can turn them in at the end of the lease and start all over with another new vehicle. They are continually making payments on a vehicle, but about the time the car may start to need some work, it is turned in for a newer model.
For the purpose of comparison, let’s assume we are debating between leasing and buying a $20,000 car.
Buy Versus Lease Debate
BUY LEASE
Ownership: You own the car at the end of the loan You do not own the car at the end of the lease
Mileage Allotment: No mileage restriction Pay if you go over the mileage allotment
Down Payment: Usually higher Usually lower or none
Monthly Payment: Usually higher Usually lower
Vehicle Choices: New or used Usually new
Insurance, Upkeep &Maintenance: Your responsibility Your responsibility
The American Automobile Association (AAA) recommends that you consider a lease only if you meet all four of the following criteria:
1. Able to write off your lease payment as a business expense on your income tax return
2. Drive less than 15,000 miles per year
3. Prefer to trade in your car every three or four years
4. Want to avoid the hassle of selling your used car
Many people find that, at this early stage in their adult life, it makes more sense to buy rather than lease a car.
Is New Or Used Better?
The number one problem you notice when you start shopping is that cars aren’t cheap, at least not the ones that you really like. You thought you had enough saved for a nice car or at least a good down payment on a cool set of wheels. But at the first car lot, when the salesman starts showing you cars, you get a jolting dose of sticker shock. Your dad, who hasn’t bought a car since Clinton was President, almost passes out. After realizing you are way out of your league, you and your dad scurry back to his old Chevy and head on down the street.
What do you do now? You might need to reevaluate the situation. If you have saved $2,000, which is a great start, this will make a good down payment. Although there are used cars available for that price, your choices are pretty limited, and you probably aren’t likely to get something that you can really rely on to take you back and forth to school and work every day. And although you have a job, you don’t want your whole paycheck to go to a car payment, especially since you also need to pay for your own insurance and gas.
If you are leaning toward a used car, be sure to check the car’s history before you buy.
If you find a car you really like, you can go to www.carfax.com, which sells a service that helps protect used car shoppers by allowing prospective buyers to get a report of a vehicle’s repair history using the vehicle identification number (VIN). Checking out a VIN can show if a vehicle is a lemon, a salvaged vehicle, or if it has been in an accident.
A car is considered a lemon if it continues to have a defect that substantially impairs its use, value, or safety. Generally, if the car has been repaired four or more times for the same defect within the warranty period and the defect has not been fixed, the car qualifies as a lemon. Vehicles marked with a salvaged brand were involved in an accident or incurred considerable damage from another source, such as a flood or vandalism. This brand includes previously dismantled (junked) vehicles. Even though it may cost $20 -$25 to get this report, avoiding a bad car can be well worth the money spent.
Looking at the state-issued Certificate of Title should also tell you if this vehicle is branded as a lemon, salvaged, or was previously a taxi cab or a police vehicle. Each of these brands could mean the vehicle has a history of major problems, high mileage, or some other problem you don’t want. When you see the Certificate of Title, look in the upper right corner in a red box labeled “Vehicle History.” If there is anything in that box, it is probably not good news, as this is where these brands are reported.
Also ask to see the vehicle’s service records. This may give a clue as to how well the vehicle will perform in the coming years. If it has been regularly maintained, chances are it will last longer than one that has not had regular maintenance.
You can also check a used car’s reliability record with Consumer Reports. On their website, www.consumerreports.org, they rate used cars based on consumer feedback regarding the service record of their vehicle. Problems with the engine, engine cooling, transmission, and drive system are weighted more heavily than other problems. This website lists both the best and worst used cars and, since this information is free, checking to see if a car you are interested in is on either list could help you make a decision.
Be very careful when considering purchasing a used car from a private party. There are many good deals available when buying directly from an individual, but there are also people known as curbstoners who try to sell you an inferior vehicle. A curbstoner is defined as a person who poses as a private seller but who buys and sells vehicles in volumes that require a dealer license.
How would you know if the vehicle you are looking at is being sold by a legitimate owner or a curbstoner? If you see a vehicle in a newspaper advertisement, for example, try doing a little detective work. See if the phone number in the advertisement appears in multiple ads or if it appeared in other ads in last week’s paper. Also pay attention to where the person wants to meet to show you the car. Curbstoners don’t want you to know where they live, so they will offer to meet you at a neutral place, such as a parking lot.
Another big key is that the documentation should be in order. While you should expect and receive a signed bill of sale that matches the seller’s identification (another good way to get their actual address), be wary of someone who will not immediately give you a signed title. Ask them to accompany you to the DMV to have the title transferred into your name. Once you pay for a vehicle, you own it. If the title is not present, don’t even negotiate, but walk away from the deal as fast as you possibly can.
Finally, check the ownership dates. Make the seller tell you the story of the car. Find out when they purchased the vehicle and who sold it to them. If a story sounds fishy, that’s because it probably is not exactly true. If the title is in the seller’s name, look at the date it was issued. Be very wary if the seller has a new title with a recent date; this person is “flipping” the car. Flipping means quickly buying and re-selling a vehicle. Ask them why. There might be mechanical or title-related reasons that they don’t want to share, but that means that you don’t want the vehicle either. Taking the time to ask lots of questions and to do some research before you buy can save you a lot of headaches later on.
New cars are fun to look at, and it’s great to drive one off the lot, but they do come with a pretty hefty price tag these days. They also come with an option to purchase an extended warranty, which some people feel is worth the extra money. However, a new car loses 40% of its value in the first two years. So if you finance this new car, chances are you will owe more than it is worth if you decide to sell it in the first two to four years. Be sure to do an extensive price comparison to get the best deal. Once again, there are many websites that offer this information, such as www.edmunds.com, and www.carsdirect.com, or sites that offer a host of other car buying information, such as www.carbuyingtips.com.
There may also be some first-time car buyer or college rebates available, so check with the sales person to see if there are.
Now is the time to do some serious number-crunching, and try to get an idea of how much money you really have coming in and going out each month, so you will know how much car you can truly afford.
How Much Car Can I Afford?
There is a lot more to owning a car than just making the car payments. You also have to budget for insurance, gasoline, registration, scheduled maintenance, and car repairs. If you don’t make room in your spending plan for each of these costs, you will soon find yourself in a financial fiasco. So how do you know how much to budget for each of these areas, especially the repairs and maintenance? Let’s look at each one individually and come up with some ideas. Then once you know how much all these extras might cost, you can look at your budget again to see how much you have left for the car payment.
Automobile Insurance
Unfortunately, this can be a big drain on your budget. Vehicle insurance prices are based on risk factors, which rate the likelihood that you will get in an accident or file a claim. Young people tend to get into more accidents than, say, their parents, due to a variety of factors: their age, inexperience behind the wheel, carelessness, and divided attention between the music, their passengers, and their cell phone. According to statistics, males tend to be more aggressive drivers than females, so their car insurance rates are usually the highest.
There are a few things that new drivers can do to decrease their insurance rates, such as taking a driver safety course or maintaining good grades. Not all companies offer these discounts, but it’s worth asking your insurance company.
One such program is called teenSMART. It is offered by Advanced Drivers Education Products & Training, Inc. (ADEPT Driver). ADEPT is a research and instructional technology company that designs and markets multimedia products that measurably reduce automobile crashes. The company was founded in 1995 by Allstate Insurance Company, Sylvan Learning Systems and Dr. Richard Harkness. teenSMART® utilizes full streaming digital video for driving simulation. Software applications currently run on multimedia computers with CD-ROM or DVD-ROM drives. Allstate and AAA Insurance Companies both offer a discount for drivers who pass this at-home driving course and receive the certificate of completion. AAA reported a 20% discount for students who finish this course. Other safety courses may also be available; check with your insurance carrier.
Maintaining a 3.0 or better grade point average is another way to shave a few dollars off your insurance rates. Although it may seem unfair, it has been established that students who get good grades seem to be more conscientious, in general, and get into fewer accidents. So working hard in school will not only help you get into a good college, it may save you some money while you are in high school. If you are in college, taking 12 or more units, you may also qualify for a full-time student discount, if it is offered.
There is still one more option for earning a discount on car insurance, and it’s the best one of all: do not get any tickets or into any accidents within the first three years of getting your license. This could qualify you for a good-driver discount, which is offered by most insurance companies.
So, how much should you plan on spending each month for car insurance? That depends on several factors, including whether you qualify for any of the above discounts. Other factors that an insurance company takes into consideration are: your age, gender, and the zip code where you live; and the model, year, average repair cost, and crash safety rating of the primary car you will be driving. In addition, you will usually save money if you can be added on to your parents’ insurance policy, especially if they have good driver discounts, and/or a combination auto/home policy.
Depending on all these variables, you and your parents will probably compare prices and determine if it will be less expensive to add you to the family policy or insure you separately. It is generally less expensive to add you to the family policy unless you start having problems with accidents or tickets; then you are on your own!
Sample Insurance Rates Gender Age Length of Time Licensed College GPA Tickets or Accidents Monthly Premium
Male 19 Three+ years 3.0 0 $ 253.40
Male 19 Three+ years 3.0 1 $ 316.74
Male 19 Three+ years N/A 0 $ 399.29
These sample rates are based on a 2004 Honda Civic, valued at $8,000, and includes comprehensive and collision coverage, uninsured motorist coverage, and carries a $250 deductible in California. Each State has different rates, however the concept is the same.
In the last scenario in the chart above, the young man was not a full-time student anymore, and even without a ticket or accident, his insurance rates are significantly higher than when he was in school. Young women, with all the same criteria, could expect to pay between 10-30% less than their male counterparts.
When shopping for insurance, you will usually have two options: either work with a local insurance agent or shop for insurance on the Internet. Although the Internet insurance companies may offer better rates there is often no substitute for working with someone who knows your situation and looks out for your best interests. Talking to an agent can help you understand the different types of insurance coverage and can save you money by not selling you insurance that you don’t need.
Gasoline:
This cost will depend heavily on these three variables: the price of gasoline per gallon, how many miles per gallon your car will get, and how many miles you drive in any given time period. Naturally, you do not have any control over the price of gas, but you do have control over the other two factors.
When you are choosing a car, find out what kind of gas mileage this make and model usually gets and what type of gasoline the manufacturer recommends. Traditionally, the more cylinders in the engine, like an eight-cylinder engine, the more gas the engine will consume. Six-cylinder vehicles usually perform better, and four-cylinder engines tend to get the best mileage. Four-wheel drive vehicles usually consume more gas. If you are buying from a car dealer, they should be able to provide you with this information; otherwise, look on the Internet.
Most gas stations offer three grades of gasoline: regular unleaded, unleaded plus, and premium unleaded, although the actual name for each may vary from station to station. The regular unleaded is the least expensive, while the premium is the most expensive, often 15-20 cents per gallon more. When you are shopping for a vehicle, you would be wise to find out what grade the vehicle requires, so that you are not shocked the first time you stop at the pump.
Gas mileage is also influenced by how well your car is maintained. Periodic oil changes, topping off engine fluids, and maintaining proper air pressure in the tires all make a difference in how your car performs which, in turn, can save you money in the long run.
We will discuss car maintenance in more detail on the later.
Once you have a car, the tendency is to drive absolutely everywhere. While there is nothing wrong with that, just remember that every trip costs money. Let’s do a little math on this one. If gas costs $3 a gallon, and your car gets 20 miles a gallon, then driving 100 miles will cost you what? _______________
That’s right: $15. If you drive 300 miles a week, you will spend what? _______________ Right again: $45. And if you did that every week for a month, you probably already figured out that your gas costs alone would be $180. That’s a good chunk of change just for gas!
Registration
In almost every state, when you own a car, you will need to pay an annual registration fee to your state’s Department of Motor Vehicles, (DMV). Once you pay your fees each year, they will send you an updated registration card, which most people keep in the glove compartment of their vehicle. If you have a compartment between the seats that closes securely, that is also a good place to keep it. Just make sure you know where it is and can access it quickly in case of an accident or during a chat with a law enforcement officer. The registration card proves that you are the legal owner of the vehicle. In addition, the DMV sends a small sticker with the last two numbers of the upcoming year. So, if you are paying your registration in September of 2007, the sticker will be a “08,” meaning that your registration is good until September 2008. The sticker is placed on your license plate, in the place designated for it. You might hear people refer to this as their “tags,” as in “My tags are due next month.”
Depending on the make, model, and year of your vehicle, your annual registration fees could run anywhere from under $50 to several hundred dollars. If your registration comes due and you do not pay it on time, it becomes increasingly more expensive, and if a law enforcement agent notices that your “tags” are expired, you could get a ticket that will cost even more money.
Since this registration can be a shock to the budget, set aside a little money each month to cover the registration when it comes due, so that you will not be trying to figure out where the money will come from. This is a good example of a “periodic expense” in your spending plan.
Scheduled Maintenance
As we mentioned earlier, cars need regular maintenance and that costs money. Although there might be a temptation to skip getting your oil changed periodically or having your brakes checked and tires rotated, most maintenance helps prevent bigger problems that could cost you far more later on. Once you truly understand this principle, you will see that spending a little now is much better than spending a lot later on.
Car Repairs
It is almost impossible to guess how much car repairs will cost, because there are so many things that can go wrong with a car. The list to the right is just the tip of the iceberg. Again, there are several factors which determine how much you might spend on car repairs in any given month or year. We can’t stress enough how important the maintenance is to help avoid bigger, more expensive problems. Let’s look at a common example.
Jeremy has a nice 1998 Toyota T100 SR5 Xtra-cab. He has spent money, when he can, to fix it up and make it look really cool. Each time he had a little extra cash, he used it toward something for his truck, like new rims or better speakers. There never seemed to be anything left for oil changes or a brake job. And even when his brakes were feeling pretty mushy, and he heard metal grinding when he hit his brakes, he wasn’t too worried. But that changed the day he gave his girlfriend a ride to the store in his truck, and almost couldn’t stop at a traffic light.
She pretty much freaked out and insisted they head right over to Brakes-R-Us. Jeremy thought they would be in and out in an hour and that getting his brakes fixed wouldn’t cost much more than maybe $100.
Boy, was he wrong! The mechanic told Jeremy that the brakes, rotors, and master cylinder were shot, and it was going to cost $989 to get them fixed. The worst part was, the mechanic said the brake job would have only been around $150 if Jeremy had brought the truck in when he first noticed a problem. Now, a lot of damage had been done, and Jeremy was forced to learn a hard lesson. Unfortunately, there is no one who can bail him out, so now Jeremy is in a real predicament. He needs the car to get to work, but he doesn’t have enough money to get it fixed.
What are his choices? He will probably have to get rides to work with family or friends, or take the city bus, until he works enough hours to save the money to pay the mechanic. If his job is fairly close, he may have to walk or ride his bike. He will probably ask his boss for extra hours so he can make the money even faster!
So, assuming you are now convinced to budget a little every month for car maintenance, do you still need to budget for car repairs? Unfortunately, yes. Although many problems can be avoided or minimized by regular maintenance, that doesn’t apply to all car problems. And, if you buy an older car because it is less expensive, you can plan on it having more problems than a newer car. That seems to be one of those unspoken facts of life!
Finding The Right Car: It’s More Than Kicking Tires!
In the not-too-distant past, it was generally believed that the best way to pick a car was to “kick the tires.” In other words, most used cars were purchased based upon just a visual inspection. Fortunately, the art of finding the right car has improved a bit since then, and now young men and women can car shop with more confidence.
Automotive Budget Busters
Any type of problems with:
• Tires
• Heating or Air Conditioning
• Transmission
• Clutch
• Brakes
• Starter
• Battery
• Head Gasket
• Cracked Windshield
When you go out on your automobile scavenger hunt, you should pay close attention to several key factors:
• The age and mileage of the car;
• The service record of the car;
• How the car sounds: when it is idling and when you are driving;
• Whether the car has ever been involved in an accident;
• The overall condition of the car’s body and interior;
• The condition of everything under the hood;
• And, of course, the condition of the tires!
Some of this you will be able to observe for yourself, like the mileage, condition of the vehicle, and the sound of the engine. Other information, such as the service record and information regarding the car’s history, should be available from the seller, especially if it is a dealer. To be extra safe, consider finding a used car that is still under the manufacturer’s or an extended warranty.
Before you buy, don’t be afraid to take a car, even from a dealer, to your trusted mechanic a book that lists the fair to let him take a look at it. It will cost you a little but could save you thousands. Your market value based mechanic knows what to look for and can easily spot problems that are on the horizon. He may be able to help you research the car on the www.carfax.com website and see if condition, and features anything is disclosed there that would be a red flag. Having a mechanic check out vehicle is one way to make reasonably sure that this big investment will be a good one.
Car Payments
So, let’s assume that you are prepared to make at least a small car payment each month.
The questions remain: how much can you afford, and how much car can you get for that?
There are several factors to consider when you are making this decision. Let’s look at what those are:
How Much Will My Car Payment Be?
FACTORS RANGE
Price of car Varies Kelley Blue Book of car
Down payment Varies
Length of loan 3 – 6 Years
Interest rate 5.0% - 20%
Credit score 350 – 800+
*Rates vary based on current market conditions
Kelley Blue Book:
The Kelley Blue Book is a small blue book, first published in 1926, that lists the fair market value based on age, mileage, condition, and features of an automobile. It is the gold standard for determining an automobile’s value, and is used by virtually every car dealer or seller, insurance company, and financial institution in the world.
It is important that the vehicle you are buying is listed in the Blue Book at least as high, or higher, than the price you are asked to pay. Let’s say you found a great 1997 red convertible Honda del Sol S Coupe from a small car lot in town. They are asking $8,000, but you look on the official Kelley Blue Book website, www.kbb.com, and discover the value to be anywhere from $5,300 to $7,200. Based on the mileage of the car, which is 82,000 miles, and the car’s condition, the Blue Book suggests a retail price of $7,120. The dealer is either going to need to come down on the price or you would need to keep shopping!
Financial institutions generally won’t give a loan on a vehicle for more than the Kelley Blue Book value. So, assuming you all agree on a price of $7,000, with your down payment of $2,000, you will need to borrow $5,000, right? Not quite. There are fees and taxes that will be added to the price. These usually average about 10%, depending on the sales tax rate where you live. That means the car actually costs $7,700, so you would have to borrow $5,700. If you were to purchase that same car from an individual, you would probably save some money on the fees, but sales tax is still paid, usually directly to the Department of Motor Vehicles (DMV).
You can also take the car to your local credit union or bank and let them evaluate the vehicle to see what the maximum loan and monthly payment would be for the car.
Remember Jeremy with the 1998 Toyota T100 SR5 pickup? He paid $10,500 for his truck, which includes tax, license, and any other fees. He had $1,500 for a down payment, so he needed to get a loan for $9,000. Here is a look at what he can expect for payments:
Sample Monthly Car Payments
Loan Interest Rate # of Months Monthly Payment Total of Payments
5.59% 24 $ 397.13 $ 9,531.12
5.59% 48 $ 209.68 $ 10,064.64
5.59% 60 $ 172.28 $ 10,336.80
7.05% 24 $ 403.06 $ 9,673.44
7.05% 48 $ 215.73 $ 10,355.04
7.05% 60 $ 178.42 $ 10,705.20
10% 24 $ 415.21 $ 9,965.04
10% 48 $ 228.21 $ 10,954.08
10% 60 $ 191.18 $ 11,470.80
Do you notice some of the differences? The longer you stretch out your payments, the smaller the payments will be BUT the more you will have paid out in the long run for the car. If Jeremy’s loan is at 7.05%, he will save $1,031.95 on his loan if he finances for 24 months instead of 60. Of course, his payments are more than doubled, but his loan is paid off in just two years instead of five. He also just saved a ton of money! Plus, if he is really smart, since he is used to making those car payments, he could keep putting that same amount in his savings account every month after he pays off the truck, and after another three years, he would have $14,510.16 in the bank! That would come in quite handy the next time he wants to buy a vehicle!
Shopping For An Auto Loan
You may have found the perfect car at the perfect price but now comes the hard part: finding the right source of financing for your auto loan. If you or your family is a regular customer of a credit union or bank, you may want to start your loan with that financial institution. Although many car dealers will encourage you to use their auto financing, your own financial institution may offer better rates.
There are several questions that you will want answered in your quest for an auto loan. What is the interest rate? How long would the loan be for? Those are the basic terms of the loan. You also might ask if there is a grace period, which is a period of days after the due date that you can still make your payment without incurring a late charge. Sometimes there is just a very short grace period, or none at all; other times, it may be up to 10 days.
Most of the time, you will hear a range for the interest rate answer. That’s because the interest rate, which is the annual rate charged by a lender, usually varies from one customer to another, depending on your credit score. Another factor is whether it is a variable or fixed interest rate. A variable rate allows the lender to charge an interest rate that reflects current market conditions. A fi xed rate does not change throughout the duration of the loan.
What are the questions they will ask you? Think about this from their perspective. You are asking them to loan you money to buy a car. What are they trying to be reasonably sure of? Yes, that you will pay them back. So, they are going to need to gather as much information about you as possible, especially regarding your ability to repay the loan. They will get this information from two sources: the credit application you will fill out and from your credit report.
Information about you, including your address, your employer, and your history of paying back money you owe, is all reported to the three national credit reporting agencies:
Experian, Equifax, and TransUnion. They collect the information sent to them, and compile it into what is known as a credit report. In addition, each agency summarizes this information, and assigns a credit score to represent how likely you are to repay a loan. This score is based on factors such as: how much money you currently owe, how much unused credit you already have available to you, how reliable you are at making payments on what you owe, and how long you have had credit accounts. Credit scores generally range from 300 to 850, and the higher your score, the more people will want to loan you money! You will also be offered lower interest rates. Since you are just getting established in the credit world, you will either have a pretty low score, or because there isn’t enough information available about you, you might not have a score at all yet.
So, your credit report will give the bank or credit union some information about you. You will provide the rest of the information on your loan application. This information is, by the way, what gets reported to the credit reporting agency. The next time you fill out a credit application somewhere, maybe to get your first apartment, the information from this application is what will show up on your credit report. Always get a copy of anything you sign, including applications for a loan. It’s a good habit to get into!
Turn the page for a sample credit application to give you an idea of what to expect.
SAMPLE AUTO LOAN APPLICATION
Applicant Co-Applicant
Full Name: ___________________________________________ Full Name:__________________________________________
Address:_____________________________________________ Address:____________________________________________
City, State, Zip: _______________________________________ City, State, Zip: ______________________________________
Email Address: _______________________________________ Email Address: ______________________________________
Home Phone: _________________ Cell Phone:____________ Home Phone: _____________ Cell Phone: ______________
Length of Time at This Address: Length of Time at This Address:
yrs. ____________________ mos._________________________ yrs. ___________________ mos. _______________________
Rent or Own:_________________________________________ Rent or Own: _______________________________________
Amount of Rent or House Payment: ____________________ Amount of Rent or House Payment: ___________________
Social Security #: _________ - __________ -______________ Social Security #: _________ - _________________________
Date of Birth: (mm/dd/yyyy) __________________________ Date of Birth: (mm/dd/yyyy) __________________________
Employer Name: _____________________________________ Employer Name: ____________________________________
Occupation: _________________________________________ Occupation: ________________________________________
Length of Employment: _______________________________ Length of Employment:______________________________
Work Phone: _________________________________________ Work Phone:________________________________________
Gross Monthly Income: (before taxes) __________________ Gross Monthly Income: (before taxes) _________________
Other Monthly Income: _______________________________ Other Monthly Income: ______________________________
Source: ______________________________________________ Source:_____________________________________________
Auto Loan Application
Vehicle Make: ___________________________________________________________________________________________________
Vehicle Model:_______________________________________________________________________________________________________
Vehicle Year:_________________________________________________________________________________________________________
Vehicle Mileage:_____________________________________________________________________________________________________
Vehicle Price:________________________________________________________________________________________________________
Kelley Blue Book Value:_______________________________________________________________________________________________
Down Payment:______________________________________________________________________________________________________
Total Amount Financed:_______________________________________________________________________________________________
Dealer Name:________________________________________________________________________________________________________
I/we the undersigned give our permission for the above named lender to pull a credit report and conduct an income verification. I/we also verify that all the information stated above is true and correct.
Applicant Co-Applicant
Date Date
Collateral And Co-signers — What Lenders Look For
The factors that will determine if you will have your own permanent set of wheels include:
• How long you have been at your current job;
• Your monthly income;
• Your monthly expenses;
• Your credit score;
• Your down payment; and
• The value of the car related to the loan amount.
There is no magic formula for looking at all these factors but, if a lender likes what he or she sees in your loan application, your loan may be approved with you as the sole applicant; the only person responsible for the loan. If he or she feels your application is not strong enough, it may be necessary for you to get a co-signer. This requirement is very common for young people getting their first car because they don’t have a long employment history, may not make a lot of money, and haven’t established credit yet.
If you are under 18, you are not legally able to sign a contract, so a co-signer would Co-Signer: be mandatory. a second person on a loan who is legally responsible for the repayment of the loan.
So what is a co-signer? This is a second person, who has a more established credit and employment history, who agrees to be included on your loan agreement. By doing this, it means that should you not make your car payments, the co-signer is financially responsible for making the payments. As far as the lender and the credit bureaus are concerned, being a co-signer is just the same as being the primary person on the loan.
If your grandpa agrees to co-sign your $10,000 car loan, it will show up on both of your certificate of title or credit reports. Even if you make all your payments as agreed, your grandfather’s credit pink slip; it documents report will still show that account as if it was his.
Is it a good idea to buy something with a co-signer? Many adults feel that it is never wise to co-sign for someone, due to the risk that they are undertaking. They may adopt the philosophy that they never co-sign, no matter what the circumstances. That alleviates the uncomfortable position of telling one child no, after co-signing for of something because another. Others will co-sign for someone based on how responsible they feel the other person will be, and they make their determination on a case-by-case basis.
Whether or not you need a co-signer, the car that you buy becomes the collateral for the loan. In the case of a car, if you finance it through ABC Finance Company, they will own the title to the car, or the pink slip, meaning they have a financial interest in the car. You can’t sell that car without the finance company releasing the pink slip to you, and signing off that they no longer have an interest in the car. When the loan is paid in full, you will receive the pink slip. Until then, since the finance company is considered a part owner of the car, if the car payments aren’t made, they have the right to take your car away from you. This is usually called repossession, when a tow truck comes and hooks up the car and drives away with it. You never want to get to that point! As long as you keep making your payments, that shouldn’t ever happen.
Caught! Who Can Afford A Speeding Ticket?
Driving faster than the speed limit seems pretty commonplace these days. You can be heading down the highway, staying right at the speed limit, and cars are zipping past you like you are standing still. You start to feel kind of goofy, and think, “If they can go faster than the speed limit, so can I.” And off you go.
The next day, you are late for something important: a special date, work, a nail appointment, and the only way to make it on time is to push the speed limit. Plus, there is always a huge temptation with a new car to, “see what it can do.” You may want to take it on the open road and see how it handles at 70, 75, 80+ miles per hour.
You might get lucky and not get caught the first, or second, or even third time you exceed the speed limit but, sooner or later, it WILL catch up with you. And if you happen to have a car that looks like a fast, racy car, and you are a young male, the cops will keep an even closer watch on you.
Speeding is dangerous enough, but quite often it leads to a loss of control of the vehicle. If you are going 80 down the freeway, and the car in front of you swerves briefly into your lane, it would be very easy to overcorrect and lose control of the car, causing a really nasty accident.
When you get your driver’s license, you take tests and sign your license to show that you know, understand, and plan to follow the rules of the road. As you can imagine, those rules are there for a reason: to keep you, and everyone else on the road, safe.
Naturally, the Department of Motor Vehicles (DMV) has ways to enforce those laws. Punishment, especially directed at our wallets, tends to get our attention. When drivers ignore the rules and get caught, it “costs” them in a variety of ways:
• Pay a fine to the court; often hundreds of dollars;
• Pay for traffic school, if eligible; and
• Pay more for car insurance.
In addition in some states, the DMV uses a point system. When a driver does something wrong, whether it is getting a speeding ticket, failing to stop after being involved in an accident, or having an open container of alcohol in the car, the DMV assigns him or her points. Too many points can cause any number of problems:
Driving privileges may be suspended;
Driving privileges may be revoked; and
Car insurance may be cancelled, and available only through a high-risk, high-cost insurance carrier.
Not obeying the rules of the road can cause loss of your freedom, your license, your job, your disposable income, and even your life. It’s not worth taking the gamble.
Car Rules
When you finally get your first car, you will undoubtedly treat it like your most prized possession. If you are still living with your parents, and especially if you are on their insurance, they will probably have a long list of rules they expect you to follow in the car. It is likely to look something like this:
• No drugs or alcohol in the car;
• Don’t let anyone else drive the car;
• Don’t drive too fast, and no drag racing;
• No drugs or alcohol in the car;
• Always buckle up, and make sure your passengers do the same;
• Pay attention to what you are doing;
• No drugs or alcohol in the car;
• Don’t talk on the phone while you are driving;
• Obey the rules of the road; and
• No drugs or alcohol in the car.
Do you see a theme here? Drugs and alcohol are huge contributors to teenage motor vehicle accidents and deaths. In fact, traffic accidents are the leading cause of death for teenagers. If you are under 18 years old, your risk of a fatal accident is about 2 ½ times that of the “average” driver. Mix drugs or alcohol with lack of experience, carelessness, and peer pressure and you have a very dangerous combination.
Getting this car is a huge step in your life. But rules such as those listed above almost make you feel like people are treating you like a kid, telling you what to do. The truth is, disobeying basic safety principles with your car can lead to your loss of car privileges faster than you can say, ”Make mine a double tall latte.” Not only can your car be taken away, but the Department of Motor Vehicles can and will suspend your license if you get too many tickets or are at fault in multiple accidents. And, if under-age alcohol is a factor, you can kiss that license good-bye for several years. But, worst of all, an accident where someone else is injured or even killed will haunt you for the rest of your life. Just talk to someone whose best friend died in an accident for which they were responsible, and they will tell you: your life can change in an instant. Don’t do something you will regret forever.
In addition to the other consequences of being at fault in an accident, it can also impact your ability to secure and keep a job. It is much harder to get to work without a car or to borrow a car if you need one to perform the duties of your job. Unfortunately, if you wind up losing your license due to an accident, your job could be in jeopardy as well.
If you are at fault in an accident, you could also face criminal or civil lawsuits, either of which could negatively affect your life, and your finances, indefinitely.
The most important concept to remember about whatever set of rules you adopt for your car is that the time to adopt them is BEFORE you need to enforce them. In other words, once you are legally allowed to have passengers in your car, they should know that, as soon as they get in, they need to buckle up. Don’t wait until the third time they have been in your car before you decide to get tough and enforce the rule. Make sure they know up front what the rules are in your car. This is especially true for drugs and alcohol. The time to enforce that rule is before anyone gets in the car, not when the guys pile in with a 12-pack.
Purchasing your first car will be an exciting, scary, and nerve-wracking experience. With what you have learned through this chapter, you should be able to approach this milestone with confidence.
Lease: a contract granting use or occupation of property during a specified period in exchange for a specified rent.
Lemon: a vehicle that has been repaired 4+ times for some defect within warranty period, but is not fixed.
Salvaged: vehicles that were involved in an accident or that incurred considerable damage.
Curbstoner: a curbstoner is defined as a person who poses as a private seller but who buys and sells vehicles in volumes that require a dealer license.
Flipping: quickly buying and re-selling a vehicle.
Grace Period: specific period after due date before late charges apply.
Interest Rate: the annual rate charged by a lender.
Variable Rate: this enables the lender to charge an interest rate that reflects current market condition.
Fixed Rate: the interest does not change throughout the duration of the loan.
Credit Report: a collection of information about where you live, how you pay your bills, and whether you’ve been sued or filed for bankruptcy.
Credit Score: credit bureaus assign a number, based on the information in your credit report, that determines your credit worthiness.