A car purchase is one of the most exciting purchases a consumer makes. But let’s face it, cars are expensive and you have to figure out how to pay for them.
Before visiting the dealership, consumers must review their finances and evaluate payment options. Informed buyers allow for making the best car buying decisions. Car salespeople are known to pressure potential buyers in to selecting vehicles from their lot — often ones the consumer may not want or be able to afford.
Four steps to prepare for purchasing a vehicle
STEP 1: Obtain current copies of your credit reports
Lenders request access to consumer’s credit files in the process of evaluating the buyer for a new loan. Credit reports provide detailed information related to the consumer’s credit accounts, including balances and payment history. When reports reflect incorrect information, lenders may deny applications for credit.
Before submitting a credit application, consumers should obtain current credit reports from each bureau – Transunion, Experian and Equifax — and evaluate the reports for accuracy. If there are errors, written disputes must be sent to the bureau.
To obtain credit reports, prepare a request and send it by US Mail to the bureau. The letter should be accompanied by two forms of identification, such as a current driver’s license, a utility bill, or pay stub. It may take about two weeks to receive reports from the three bureaus. Alternatively, you could visit annualcreditreport.com to obtain reports online.
STEP 2: Review credit reports for items that could hurt your Credit Score
Banks, credit unions or financial institutions review the consumer’s credit reports and scores in the process of determining whether to extend credit or not. Various factors are considered in the evaluation process:
- Payment history: Were payments made in full and on time?
- High Debt to Credit Utilization: How much credit is used compared to the total amount of credit that is available?
- Multiple Hard Inquiries: How many credit inquiries have been made within a period of time? Would this borrower be considered high-risk?
When there are errors on credit reports, the consumer must take steps to correct them. Sometimes, tradelines are not listed accurately by lenders or creditors on credit reports. These errors, which could result in lower credit scores, must be corrected in advance of a new credit application.
STEP 3: Evaluate options to pay for the new car
Determine the price range of the car you can afford before deciding on the car you want to drive. Evaluate your finances and determine how you’ll be able to pay for the vehicle.
Should I pay with cash?
The advantage of purchasing a car with cash is that you own the vehicle free and clear. You will not pay interest on monthly loan payments, or have lease payments which do not build equity in a vehicle that can be sold later. However, car buyers must consider whether it makes the best financial sense to allocate funds to purchase a car with cash.
Should I enter in to a lease?
Leasing a car allows for driving a “better car” for less money. This option can be advantageous to some consumers as there is no down payment, lower monthly payments, and repair costs can be covered under the manufacturer’s warranty. At the end of the lease, the vehicle is returned to the dealership — you don’t own the vehicle. Issues such as early termination costs, mileage overages, or wear-and-tear must be addressed with the leasing company. After leasing, some consumers may choose to purchase the vehicle they had leased and enter a finance agreement to pay for it. Others may choose to enter a new lease for a brand new car.
Should I finance the vehicle?
The process for selecting a car can be tedious. Decisions involving which manufacturer, model, color, and options, as well as availability can make the purchase difficult.
Equally important is the process to determine how to pay for the car. Questions such as: Do I have funds to put towards a down payment? Do I have a vehicle to trade? How much will the dealership give me for the trade? Which lender provides the financing rates and terms? Do I need to purchase a warranty?
Shop for the Financing
Once the decision is made on the specific car you want to buy, and you know how much it will cost, it’s time to shop for financing. Whether its with a bank, credit union, or financial institution, explore and compare loan offers for interest rates, loan terms, and monthly payment amounts. Most dealerships encourage buyers to work with their finance manager for these arrangements. But beware of add-ons, such as extended warranties, GAP insurance, or extra equipment which add to the total cost of the vehicle.
Do not feel pressured by the salespeople at the dealership. Take your time to review the documents. Think about the following:
- Shop for the car, then, separately, shop for the financing.
- Review the Paperwork: Does the Buyers Order list all items you want on your car. Do the numbers add up?
- Is the amount of the down payment listed correctly?
- Is the amount of the trade listed correctly?
- Read the loan agreement carefully before signing. Do you agree to the terms? Payment due date? Do the numbers add up?
If the paperwork is not correct, demand that it be corrected. If you’re not satisfied, you can always go elsewhere.
STEP 4: Cost of Ownership
Do not overlook the cost to care for the vehicle. On average consumers keep a car for about 6 years, whether it’s new or used, . Estimate expenses such as, maintenance, repairs, insurance, and fuel. No matter which car you buy, maintaining the vehicle is an important part of your investment.
Legal Evaluation of Credit Reporting Problems
Have you been denied an auto loan due to errors on your credit reports? Flitter Milz is a nationally recognized consumer protection law firm that represents consumers in matters against the credit bureaus for inaccurate credit reporting. Contact us for a no cost legal evaluation.
Pictured: Attorneys Cary Flitter (center), Andy Milz (left), Jody López-Jacobs (right)