Finance with Credit Unions and Not Dealerships
If possible, consumers of all credit types should avoid doing the auto loan financing, with any car dealership. This is because the car dealerships have relationships with financial institutions, to which they forward consumers seeking to purchase automobiles. The financial institutions will likely pay a commission or some type of incentive, to the car dealerships for forwarding them the consumers. As a result, the financial institution is going to make up for the commission that they paid by charging the consumer a higher than average interest rate; and/or auto loan origination fees, sometimes called the closing costs. Before purchasing the automobile, consumers should go to a community bank or credit union to get the auto loan, because in most cases, they will offer cheaper interest rates and loan terms. After approving the consumer and the consumer decides on which automobile they want, the car dealership and credit union or community bank will then communicate about how much loan money is needed for the purchase. The financial institution will release the loan money to the car dealership and the consumer is free to take their car. Consumers need to be careful of car dealerships; they will try their best to convince the consumers to do the auto loan financing with them; due to the fact they make much more profit.
0% Promotion ? Does It Really Save Money?
Consumers need to be careful of the 0%, no payments, until a certain month and year, and cash back financing offers that they have on television, the internet, the newspapers, or hear on the radio stations. These offers sometimes have schemes that will allow for the car dealerships to make high profits; off of the consumers. The car dealerships announce these offers with the intention of luring consumers, to their dealerships. It is likely a greater number of consumers will agree to do financing with the dealership, because they will be eager to purchase a car after test driving it. The financial promotions are not available on all vehicles; they are only available on certain models and this is likely because those particular automobiles are being sold for, higher than average prices, than what consumers would normally pay for an automobile. By selling those particular car models, the car dealerships will be able to make the same amount of profit, if not more, as they would if they sold another automobile to a consumer; with an average auto loan interest rate. Another reason why certain promotions may be offered on particular automobile models is because those models are not selling quickly and it is costly too much money for the car dealerships to pay for the maintenance, of those cars. Certain car models do not usually sell quickly, because they have higher than average insurance costs consumers; would have to pay or the consumer reviews of the models are poor. For this reason, consumers need to check with their insurance company and ask what the monthly insurance payment of the car would be, if they purchased it. Consumers should go to http://www.edmunds.com/car-reviews/ for the purpose of reviewing the flaws, if any, associated with the particular car model. If a consumer purchases a car that has bad reviews then the consumer may struggle in selling it; if they choose to do so in the future. Consumers cannot get fooled into purchasing an automobile; that will be too expensive for them to afford considering there will be a monthly auto loan and insurance payment otherwise they run the risk of the automobile being repossessed thus damaging their credit profile and their chances at getting a job.Some car dealerships, offering the 0% interest promotion, may want that the consumer pay an expensive upfront fee, for the financing such $500 or more. In this sense, the car dealership is asking to get paid interest upfront; so they will not bill the consumer extra interest throughout the course of the auto loan. Consumers should only agree to the 0% promotion offer if it lasts through 60 months or longer; and only if there are no upfront fees, that they have to pay in order for them to get the promotion. Finally, consumers should not fall prey to the auto loan promotions indicating there are no payments required, for a certain number of months. Consumers should make payments anyway on their auto loans because the intention of the car dealerships is to make a great deal of profit through charging interest, which will compound more aggressively if the consumers do not make payments during the promotional time frame in which no payments are required. Making payments early will help raise the credit scores of the consumer because the overall levels of debt will be decreasing and in the eyes of the financial institutions, this lowers their likelihood of defaulting on the loans. The debt-to-income ratio and liabilities of the consumer are dropping by making payments on the loans; even when no payments are required. As a result, consumers can potentially get cheaper insurance premiums and interest rates, on their current and future loans; such as credit cards.
Repossessed and Used Cars = Risky Purchases
Consumers should be very careful when purchasing used or repossessed cars. Some financial experts think used cars are financially smarter to purchase because they already depreciated meaning they fell in value and for this reason, they are cheaper compared to most brand new cars. Used cars can have cheaper insurance premiums than brand new cars, because it costs less money for the insurance companies to replace or fix the parts of the used car and pay the consumer the value of the used car in the event it is completely wrecked. In some cases, used cars can eventually become more expensive than brand new cars, due to the fact some car dealerships over exaggerate about their used cars being in stable condition or being fully functional. Their only goal is to make a sale, because consumers cannot return the car after purchasing it. The consumers may end up paying money several times to get the used car repaired. Used cars, depending upon how old they are, can be more dangerous to drive than new cars because they do not have the most up-to-date security features. Such increases the likelihood of getting into an accident, which will result in the consumer paying expensive medical bills. Before purchasing a used car, consumers should always check its history on www.carfax.com using the vehicle identification number (VIN) of the car. The website will present a report that shows any accidents in which the vehicle was involved, any repairs or modifications that were made to the vehicle, and all the previous owners. Consumers cannot assume that the car dealer telling them; that the used car is in great condition, is the truth. Honestly, consumers do not know how the used cars were maintained; and the car dealers or current owners are going to say anything to sell the cars. They want to make money. Credit unions often sell used and repossessed automobiles, as well as boats, and so consumers should check the deals with them before going to car dealerships, because they also give extra financial incentives; such as a low auto loan interest rate.For consumers that get an auto loan, used cars tend to have higher interest rate; than auto loans for new cars, because the used cars usually have a low market value, which means if the financial institution repossessed the used car in the event the consumer stopped making payments then they could not significantly make up for their loan loss. They have to sell the repossessed car cheaper; than the amount of loan money that the previous consumer borrowed to purchase it.
Example:
Jasmine has a Hyundai Sonata on which she owes an $18,583 auto loan. The auto loan is issued by Wells Fargo Bank. Jasmine stops paying and Wells Fargo repossesses the car. The market value of the Hyundai Sonata is about $12,000, which is the price at which Wells Fargo would need to sell the car or a price that is close to it. $18,583 auto loan - $12,000 market value = $6,583.00 is the amount of loss Wells Fargo has had due to Jasmine and they cannot make up for this loss.
For this reason, the financial institutions need to make the maximum amount of profit available off of the consumers; that purchase used cars and they can only do so by charging high interest rates. Another reason why financial institutions charge higher auto loan interest on used cars, than they do on new cars, is because they think due to the fact the used cars are not worth a great deal of money; then the consumer is more likely to one day stop making payments on the used car, because they will not have a major loss if the used car is repossessed. For this reason, some financial institutions and car dealerships may grant cheaper auto loan interest rates; to consumers who make a large down payment on the used car, because they are less likely to stop paying on the auto loan. This is because if they stop paying then they lose the car and all their down payment money. Consumers that get auto loans for used cars; should make large down payments if the financial institution or dealership will give them a discount and if there is no additional fee then the consumer should use their credit card to make the down payment so they save money through the rewards program and then immediately pay off the credit card.Source: http://www.educationbubbleandscamreport.com/2013/06/do-not-finance-with-dealerships-lots-of.html
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