How to Buy a Car In a Time of Crisis

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I was wondering how to buy a car in this time of crisis when I saw 2 very good articles on the net about it:

The first was written by CNN Money, the last by Stratton Finance. Better you read them :)

Auto dealers are hungry for customers: Worried consumers are putting off buying big-ticket items, and buyers on the market are finding it harder to get a loan. So if your credit is solid, now is a great time to say, Let’s make a deal.

“What you may not realize is that there’s equal desperation on the other side,” said Phil Reed, consumer advice editor at the automotive Web site Edmunds.com.

With few customers buying, there are deals to be had. And with inventories jamming dealer lots, you may be surprised to find that you can even find super-low interest rates.

“The discounts are almost unprecedented,” said Reed.

Toyota (TM) recently announced a nationwide 0% financing incentive on many of its most popular models. General Motors (GM, Fortune 500) wrapped up its “Employee Pricing” incentive at the end of last month, but it is now offering 0% financing and other incentives on many models.

But unless you’re prepared to pay cash for your car, you need to make sure you qualify for a loan.

Check your credit rating

You should do it at least once a year, anyway. Ask for a credit report from at least one of the major credit reporting agencies (Equifax, Experian or TransUnion) and read it carefully. If there is anything negative, make sure that it’s at least accurate. If not, contest it immediately.

“If you’re credit is good, you shouldn’t have any problem,” said Reed.

How much can you afford?

Web sites like Cars.com, Edmunds.com and AOL Autos have calculators that show how much you could spend on a car while still keeping monthly payments affordable over a given loan term. Look at loans of 48 months or less.

The danger of not doing that kind homework is that a salesman could blind you with attractive-sounding monthly payments. But those payments might be stretched out over a long term, like 72 months or more.

Long loans that stretch beyond four years, lengthen the period of time during which you’ll owe more on the car than the car itself is worth. That can lead to financing problems later on if you want to replace it with something else. (This kind of ultra-long financing will probably become less common as creditors become more conservative.)

Start shopping

Not for a car, but for a car loan. “Always check with a different financing institution before you go into a dealer,” suggested David Thomas, senior editor at Cars.com.

Start by going to your local credit union or applying at your own bank. Sites like CapltalOne.com will pre-approve you for a car loan up to a certain amount and send you a check you can take to the dealership. The loan doesn’t actually kick in until you use the check.

Getting credit lined up from the get-go takes care of a few things: It establishes that your credit score is good enough to get financing. And it lets car dealers know they’re going to have to work to get your auto financing business.

Closing the deal

In the end, there’s a very good chance you’ll never need the loan you just arranged. Car dealers working with automakers’ “captive finance” companies - Toyota Motor Credit for Toyota dealers or Ford Motor Credit for Ford (F, Fortune 500) dealers, for example - can almost always offer the best rates.

That’s because they’re in the business of selling cars as well as financing so they have a strong incentive to help you buy not just any car - but their car.

Car dealers often make little money on the actual sale of the new car. The money they get for arranging financing has become an important part of their revenue stream. “A lot of dealers still live on their financing,” said Thomas.

The biggest factor in how much you’ll pay for financing is how much you borrow. To minimize the principal, take advantage of all the discounts out there, as well as the dealers’ willingness to negotiate, to get the best price you can.

And above all else, don’t waste the effort you put into securing a low-interest rate by buying a too-expensive car. And now the second article:

Arrange your car finance ahead of time

Secure competitive car finance before you go car shopping to minimise your finance costs and beef up your bargaining power, helping you to purchase the right car for the right price.

New car sales are down and so are prices. The global credit crisis (and related decrease in consumer spending) combined with uncertainty resulting from announcements that two of the automotive industry’s major wholesale financiers (GE and GMAC) will shortly exit the Australian market has resulted in the lowest new car prices we’ve seen for some time. Car dealers are offering extremely competitive prices on new cars, but this does not necessarily translate into lowest total cost car finance at the dealership.

The wrong car finance can increase your costs by thousands. The decreased competition for both wholesale and retail car finance has had a significant impact on the range of finance options available to buyers at some dealerships, and the ability of dealer-based finance consultants to provide the right solution for a particular car buyer.

“Is that your best price?”

Be prepared to negotiate with the dealer (or seller).

With sales low and many dealers’ finance arrangements still uncertain, there is a real opportunity to negotiate hard for an extra competitive price on your preferred vehicle. In the current market, some dealers may be much more interested in moving a vehicle off their showroom floor than making much - if any - profit on the sale.

If you’re not confident negotiating, consider using a car broking service  to secure today’s best price for the vehicle of your choice.

Use the internet  to get a feel for the market value of your preferred vehicle. Purchasing a vehicle is a sizeable commitment at any time - shop smart.

Protect yourself against falling vehicle values

Prices are down today, but what about value tomorrow? There are an overwhelming number of deals for today’s car buyer to choose from, but some of the developments during this credit crisis may have a long-term impact on used vehicle resale values.

Before you rush out and purchase your new vehicle, check your requirements against the range of resale values for similar vehicles. Resale values are influenced by many factors including the reputation of the brand and model, and trends resulting from fuel price, environmental concerns, and more. Click here  to read more about protecting your car’s resale value.

While it may be hard to imagine car prices falling any further, in the event that your vehicle’s value does decrease, you may wish to consider the benefits of opting for “new for old” car insurance  and “agreed value” over “market value” cover to ensure that you’re covered in the event of a total loss. In addition, gap insurance  offers peace of mind in the event that your car is written off and the finance amount outstanding exceeds the insured value of your vehicle.

Car finance - get approved

The cost of funding has increased, the availability of funds has decreased and the approval criteria have tightened for lenders everywhere. The process of selecting the best car finance for your needs is essentially unchanged, but today it’s even more important to present the right application to the right lender.

A professional finance consultant will know which finance solutions fit your requirements, which lenders are likely to look favourably on your application and how to appropriately complete your application to increase your chances of an “approved” outcome. Secure the finance you need with the appropriate lender - first time.

Choose a broker with a top product range

Now, more than ever, it’s important to choose a car finance broker that is reputable. A particularly important aspect to consider is the range of lenders that your broker is accredited with.

A newly downsized range of products is not uncommon with the reduced availability of funding, and this decreased competition is not good news for your pocket if your broker has only limited options. A large panel of lenders  means more than just choice, it means that your broker is much better equipped to closely match your situation with a tailored, competitive offering, and has access to a wide range of funding sources.

A broker with significant partnerships will also be able to offer solutions that are not available to the general market, increasing your options for finding the best possible finance solution.

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