Step-by-step basics to selecting, financing, purchasing, leasing and insuring cars

[AutoXpert]

A car is one of the "big" purchases you will make. Before you get your heart set on a specific model, you need to know what you can afford.

Often when people go shopping for a car, they begin by looking at dealer or manufacturer Web sites to see what type they'd like to buy. Before that step, though, shoppers should figure out what their needs are, how much they can afford to spend, and decide whether they should buy or lease or choose a used car instead of a new one. This chapter will help you make those decisions.


Begin with a budget

It's surprising. Most people have only a vague idea of what they can afford when it comes to getting a new or used car. Some people think in terms of the basic cash price, while others think only of what the monthly payment will be.

Both approaches have flaws.

There's more to buying a vehicle than the initial cost, even if you pay cash. There are insurance, fuel costs and maintenance. Almost any new vehicle -- whether it's fresh from the showroom or new to you -- will mean higher insurance rates. Maintenance on a used car, even one just three years old, may be required sooner than you think. And going from that small sedan in your driveway to a flashy new SUV will mean shelling out more per month at the gas station.

Setting out to buy a car with just a ballpark monthly payment in mind -- whether leasing or straight financing -- is a surefire way to pay more than you might otherwise.

Determine your budget
So sit down and look at all your household expenses, as well as cash on hand and your take-home pay and determine what you can reasonably afford to pay for a new car. If you've never done it before, take this opportunity to build a household budget. If you connect to this Bankrate story on family budgeting, you will find a downloadable interactive spreadsheet you can use to build your own budget.

Need a general rule of thumb? If you're devoting more than 15 to 20 percent of your household income to transportation, you should probably scale back.

 

[AutoXpert]

Check your credit first

Right off the bat, this is where the great majority of car buyers go wrong. After budgeting for an auto purchase, this is the very next thing you should do.

But most people leave it to the very end: Once they've decided on a car, driven it around the block and hammered out a price with the salesman and his manager, only then do they apply for credit and find out what their credit score is.

Do it the smart way: Check your credit up front, before you set foot in a dealer's showroom. Start this process months before you plan to purchase, if possible, because if you have incorrect or outdated information that's lowering your score -- and therefore raising the interest rate you'll have to pay -- it can removed, but it takes at least 60 to 90 days.

Get your credit report
There are three national credit reporting agencies, Equifax, Experian and Trans Union. You will need to get your report from all three agencies. You can get them by paying a nominal fee, usually less than $10. Better yet, thanks to the 2003 Fair and Accurate Credit Transactions Act, every American is entitled to a free report from each agency every 12 months. You may also qualify for a free report under certain circumstances -- being turned down for credit or if you suspect frau, for example. If you're married, make sure to get one on your spouse as well.


First, check to see what your FICO score is. Named after Fair Isaac Corp., the firm that developed the scoring model back in the 1950s, FICO compares the information in your credit report to what's on the credit reports of thousands of other customers.

FICO scores range from about 300 to 900. The higher your score, the better a credit risk you will be considered. It's very difficult to say what's a "good" or "bad'' score, though, since lenders have different standards for how much risk they will accept.

A used car lot that boasts it will finance anyone likely will not care if your FICO score is 500. That's because they will have jacked up the price on their cars and their interest rates to cover their costs of repossessing the vehicles they sell to high-risk customers who default.

How is credit score determined?
Your credit score is based on five factors:
• past payment history
• outstanding debt
• how long you've had credit
• how much new credit you've sought recently
• the types of credit you have

Using your credit report -- or your general knowledge of your credit situation -- you can estimate your FICO score by clicking on this free FICO Score Estimator. The vast majority of people fall into the 600 to 700 range, and the best auto financing rates are generally available only to those who score above 700.

Correct mistakes
Next, check the report for misinformation, such as accounts that don't belong to you, accounts that have been closed but still show as open, billing disputes that were resolved, incorrect credit limits or balances. Look for outdated information. As a general rule, a negative report stays on your record for seven years; a bankruptcy for 10 years. The credit reporting company has to support the information it has on you. No support -- no black mark. So ask to see it. If the support is erroneous, write to the company with which you originally did business. Send it copies of any documents you have supporting your position, and request that it send corrected information to the credit bureaus it reports to.

You have the right to include a statement of as many as 100 words in your report to explain your version of the disputed item. This will be included in reports provided in the future.

The credit reporting companies make mistakes -- oodles of them. So many, in fact, that there is a 50/50 chance that there's a mistake on yours. The Fair Credit Reporting Act gives you the right to challenge the reports, and have them corrected if they're wrong.

The Federal Trade Commission's Web site presents a concise summary of your rights under the act, written in language that's easy to understand.

Recheck your score -- it could be worth it
Once you have corrected mistakes, check your FICO score again in 30 to 60 days to see how much, if any, it has changed. How important is, say, a 50 point swing in your score? It could mean the difference in getting approved for a zero percent loan offer or paying 7 percent.

Is it worth the wait? Let's say you were financing $20,000 for five years. A zero-percent loan would give you payments of $333.33 and, naturally, zero dollars of total interest over the life of the loan. A loan at 3.9 percent would mean monthly payments of $367.43 and total interest of $2,045.71. A 7.9 percent loan would mean payments of $404.57 per month and $4,274.28 in total interest, or $71 a month more than the zero-percent financing.


If you are financing $20,000 for five years...

Interest Rate Monthly Payments Total Interest
0% $333.33 $0
3.9% $367.43 $2,045.71
7.9% $404.57 $4,274.28

In addition to disputing items on your credit reports, there are other ways to improve your FICO score:

Pay down any credit cards that are near their limit. Your FICO score suffers if it looks like you've maxed out your credit, even if you've made all the payments on time.
Don't apply for new credit, even if you are just exploring the option of financing a new washer and dryer. Frequent inquiries from credit providers can decrease your score.
Close old accounts you no longer use. That VISA with the $15,000 limit that you have in your wallet just in case of a catastrophic emergency could depress your score. FICO looks at how much credit you have available, not just what you've used. There's a catch, though. Closing all your accounts could adversely affect your FICO because the calculator likes to see that you have and use credit wisely.
Keep older accounts with a good history and let new credit mature. If you're just starting out and have only had that MasterCard for six months, wait a while. You'll score higher with a longer history of handling credit.

 

[AutoXpert]

Buying a new car vs. buying used

The allure of a new vehicle can be powerful, but three times as many used vehicles are sold each year in this country than new cars. Your budget and mindset -- some people just can't stand the idea of "buying someone else's trouble'' -- may determine which is right for you. If you're on the fence, here's a breakdown of benefits and drawbacks.


New-car benefits and drawbacks


Benefits
• It comes with a comprehensive manufacturer's warranty of at least three years or 36,000 miles that will cover almost any eventuality. Some go to 10 years or 100,000 miles.
• It will likely have the latest safety, comfort and convenience features available.
• There are no surprises. You are the first owner and there are no doubts about previous mechanical problems or accidents.

Draw Backs
• It will cost significantly more than a three-year-old used car.
• Comprehensive and theft insurance costs could be significantly higher than buying used, although insurers offer discounts for newer safety features.
• It will lose 25 to 40 percent of its value the moment you buy it, likely locking you in to long-term ownership.







Used-car benefits and drawbacks


Benefits
• It will be significantly cheaper to buy than a new one.
• Comprehensive and theft insurance costs are likely to be less.
• The rate of depreciation over time will be less than the first two years of ownership of a new car.
• A buyer may be able to step up to a luxury model for the same price as a new, plain-Jane sedan or SUV.

Drawbacks
• Questionable maintenance and repair history one.
• No comprehensive new-car warranty, though used-car warranties often are available at extra cost.
• Higher maintenance costs as the miles on the vehicle climb toward 100,000.
• Not as many safety and convenience features as newer vehicles.

 

[AutoXpert]

Buy or lease -- which works best for you?

Wow! A brand new car for only $179 a month!

You're enticed by newspaper and TV ads that promise the car of your dreams for a low monthly lease payment. It looks so much more attractive than buying a car the more conventional way of putting down 20 percent and driving off with a fat payment book.

But if there was ever an instance when the phrase "Buyer beware'' applies, it's in deciding whether buying or leasing is right for you.

Leasing pros and cons
Leasing is a good move if you're someone who wants the very latest model, puts fewer than 12,000 to 15,000 miles a year on your car and maintains it religiously. With those caveats in place, leasing generally offers lower monthly payments or allows a buyer to get a more expensive car for the same monthly payment they would make in a conventional financing deal.

But you never own the car -- it's the property of the leasing company -- and at the end of the lease you have to give it back and walk away with nothing, buy it outright for the residual value set in the contract, or trade it in for a new car and a new lease.

Buying pros and cons
Buying comes with some obvious pluses. Drive the new vehicle right and take care of it and it can be worth a significant amount when you finish paying for it. After about three years it will probably be worth more than you owe in case you want to get rid of it.

But if you're like most people, you'll likely extend the financing to at least four and more likely five years, meaning you'll be making payments on a car that at the end may well have started to deteriorate.

Five easy questions
To decide which option is best for you, before you begin shopping for a specific vehicle, honestly answer these questions:

Q Do you drive more than 12,000 to 15,000 miles a year?
A Remember, be honest. If you drive more than that, leasing isn't for you because you'll end up paying hundreds, if not thousands, of dollars, in extra mileage fees.

Q Do you mind always having a car payment?
A If not, leasing may be right for you. It will allow you to get a new car every three years without making a substantial down payment.

Q Do you take good care of your vehicles?
A And generally avoid parking lot dings and fender-benders? If you don't, then buy, don't lease, because lease contracts require you return the vehicle in good shape, fully maintained.

Q Do you foresee ever modifying your vehicle?
A Then buy, don't lease, because under a lease, you don't own the vehicle. Any changes you make could affect its value and the leasing company will want compensation.

Q Do you anticipate any lifestyle changes?
A If you foresee marriage or a new baby, for example, during the term of the lease, then buy instead. If you lease that two-seat sports car and two years from now, need a minivan, you'll pay through the nose to get out of the lease. You may owe more than the sports car is worth two years into a conventional loan, but you'll likely pay less making a vehicle switch than you would under a lease termination.

 

[AutoXpert]

How much can you afford?

How much should you spend on a new car? Not more than 20 percent of monthly income, say experts. And that should include payments on all the cars you may own, whether you have one vehicle or six. And we're talking about your take-home pay, not your gross income.

Even if your home is paid for and you have few monthly bills, the basic rule still stands.

By and large, cars are terrible investments. It's like taking your money to Las Vegas. You would be almost guaranteeing that a big chunk of money will get smaller and smaller because cars constantly go down in value.

To calculate monthly payments, you should factor in proposed purchase price, the down payment, interest rate and term of your loan. All will affect how much car you can get for your money. If interest rates are low, you can buy more car to fit under your monthly payment limit. You may be able to afford a BMW when interest rates are low, but that 20 percent may only get you a Honda when rates are higher.

No down payment?
Whether or not you decide to make a down payment will also affect the size of your monthly note. In the past, you almost always had to make a down payment -- it was like a down payment was proof you could afford to buy the car. Now, down payments are almost optional. Car companies and dealers are so anxious to sell cars that they don't want the stumbling block of a down payment to stand in the way.

The more down payment you provide, the more car you can afford and still be under your 20 percent limit -- but only as far as your monthly payment is concerned. You'll still be spending more money than you should for an asset that will constantly decrease in value.

The exceptions
As you might expect, there are exceptions to the 20-percent rule. One would be a recent graduate who still lives at home with Mom and Dad. Not having a house payment and probably having a rather small take-home paycheck might justify a larger monthly payment. If one spouse earns far more than the other, the one with the smaller paycheck can easily break the rule.

Other important considerations
At the same time, you should keep in mind the amount you can truly afford and that often depends on more than just the purchase price: Insurance rates, fuel costs, maintenance, and repair can play a major role in determining affordability.

Some models, such as sports cars and some luxury foreign models, cost more to repair than minivans and American-made cars. Cheapest to insure is a run-of-the-mill, good old American four-door sedan. German and Japanese cars cost more to insure because they cost more to repair.

Insurance rates can vary widely from model to model. For instance, insuring a sports car may cost 50 percent more than a minivan.

Maintenance is also a factor many people don't consider. Sometimes, more expensive cars come with free maintenance. A BMW may cost more than a Honda, but if it comes with full maintenance for three years, you'll be saving money in an area most people don't even think about when they're looking at cars. If you factor in all the costs of owning the car, you may discover you could buy the BMW for the same actual total cost. And of course, fuel costs and gas mileage affect how much a car will cost to run each year.

Although you should keep the 20-percent rule firmly in mind when deciding which car to purchase, make sure you consider the other factors that will affect the overall cost of owning and driving the vehicle. Edmunds.com provides a free calculator that can help you can obtain an accurate estimate of the actual cost per mile of driving a car, taking into consideration such costs as depreciation, interest, taxes and fees, insurance premiums, fuel costs, maintenance and repairs.


20 Percent Rule


All of these items should figure into your calculations for how much car you can afford:

Check List for 20 Percent Rule

• Down payment • Maintenance
• Monthly payments • Fuel
• Insurance • Repair

 

[AutoXpert]

Finding the best car for you

There's no "best" car for everyone, but there is a best one for you, and you should choose it based on your needs.

Consider the following questions when choosing a car:

Q Who's driving?
A Parents buying a car for a teenager should consider safety first. Usually, that quickly eliminates sports cars and SUVs. Kids drive differently when a bunch of others are in the car and they're trying to impress them. Young working adults probably are on a budget, so they should first consider an efficient, economy car. Older people may need small vehicles that are easy to maneuver.

Q How old are the passengers?
A Minivans are best if the primary passengers are small children because sliding doors make it much easier to position toddlers in car seats. Both the very young and the elderly can get in and out easily.

Q How many passengers?
A If you have three children, you might want to consider a minivan, station wagon or SUV that has third-row seating. If you buy a sedan that seats five, there's no room for company. An aunt or grandparent can't ride with the parents and children in the same car.

Q What's the primary use?
A If you're buying a car for commuting, gas mileage and comfort will be major considerations. Sit in a car before you buy and see if it supports your back. Check out the climate-control system. If you live in a cold climate, pick a cold day and drive a car before it's been warmed up. See how long it takes to get warm and how effectively it defrosts the windows.

Q City or country car?
A If you drive a lot in the city, you should consider small economy cars and minivans that are easy to maneuver and ideal for traffic and parking.

Q How much horsepower do you need?
A If you love performance driving, or have to accelerate rapidly onto crowded freeways, a four-cylinder car may disappoint you. If not, a four-cylinder car can give reliable performance while cutting fuel, maintenance and insurance costs.

Q Is economy important?
A Economy cars and hatchbacks usually get the best mileage, as do the new hybrid vehicles or one of the Volkswagen turbo diesel engines such as the Jetta or Golf, which get up to 40 miles per gallon.

Q Is space important?
A If you or your children participate in sports or have hobbies that need a lot of cargo space, you're going to need more than a car with a trunk. Look for a minivan, SUV, a wagon or a new crossover vehicle.

Q Will it fit in your garage?
A Some SUVs and vans are either too wide or too high for many garages. Measure before you buy.

Q Do you haul equipment?
A Need a vehicle capable of towing a boat or RV? Many small cars simply don't have the horsepower, transmission or chassis to handle those demands. Even some SUVs are not up to the task, so check on the vehicle's towing capacity.

Q Are you choosy about color?
A Naturally, you should pick a color you like, but keep in mind some unusual colors, such as yellow, can affect not only the car's resale value but also the cost to insure. Red generally costs the most because insurers associate red-car owners with being younger and more prone to get into accidents. White cars cost the least to insure.

Q How long will you own it?
A Look at car guides and check out Internet sites to see which vehicles hold their value. Every car drops in value, but some drop much less than others. The Mercedes Benz CLK class retains 64 percent of its value over a three-year period while a 2003 Chevy Tracker two-wheel drive retains only 17 percent.

Once you have narrowed your search, find comparable vehicles in that class. For instance, if you're interested in a Honda Accord, check out the Toyota Camry and the Ford Taurus to compare options, features, insurance rates and operating costs to find the best deal for you.

 

[cjam]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

Buying a new car vs. buying used

The allure of a new vehicle can be powerful, but three times as many used vehicles are sold each year in this country than new cars. Your budget and mindset -- some people just can't stand the idea of "buying someone else's trouble'' -- may determine which is right for you. If you're on the fence, here's a breakdown of benefits and drawbacks.


New-car benefits and drawbacks


Benefits
• It comes with a comprehensive manufacturer's warranty of at least three years or 36,000 miles that will cover almost any eventuality. Some go to 10 years or 100,000 miles.
• It will likely have the latest safety, comfort and convenience features available.
• There are no surprises. You are the first owner and there are no doubts about previous mechanical problems or accidents.

Draw Backs
• It will cost significantly more than a three-year-old used car.
• Comprehensive and theft insurance costs could be significantly higher than buying used, although insurers offer discounts for newer safety features.
• It will lose 25 to 40 percent of its value the moment you buy it, likely locking you in to long-term ownership.







Used-car benefits and drawbacks


Benefits
• It will be significantly cheaper to buy than a new one.
• Comprehensive and theft insurance costs are likely to be less.
• The rate of depreciation over time will be less than the first two years of ownership of a new car.
• A buyer may be able to step up to a luxury model for the same price as a new, plain-Jane sedan or SUV.

Drawbacks
• Questionable maintenance and repair history one.
• No comprehensive new-car warranty, though used-car warranties often are available at extra cost.
• Higher maintenance costs as the miles on the vehicle climb toward 100,000.
• Not as many safety and convenience features as newer vehicles.

Does anyone know of any good online warranty? I have looked at a lot and found Auto Repair Warranty affordable bumper to bumper any thoughts ???? They want $1099. sounds good to me but what does anyone else think??

 

[cjam]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

Please give info on online warranties I need help found I think a good one Auto Repair Warranty. Help? anyone know of better? $1099./60 mos 100,00 add on miles.

 

[AutoXpert]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

Aftermarket warranty depends upon the type of car you have. Post more information about your car so someone can actually help you out

 

[cjam]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

Aftermarket warranty depends upon the type of car you have. Post more information about your car so someone can actually help you out

It is 2004 camry wit 34,000 miles. / 60 mos 100,000 add on miles. $1099. what do you thonk?

 

[AutoXpert]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

It is 2004 camry wit 34,000 miles. / 60 mos 100,000 add on miles. $1099. what do you thonk?

1099 is a great deal! Is it through Toyota or some aftermarket company?

 

[Nabeel]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

Hi, This post is very informative, however I would like some specific information. If someone can help me then please send me a private message. Best Regards,
NO SPAMMING!

 

[darsh39]

Re: Step-by-step basics to selecting, financing, purchasing, leasing and insuring car

If u want to buy a new car then contact a professional man who have some knowledge about cars..otherwise visit our website..