Military Education Department
Personal Financial Management (PFM)
PFM Contact Information
Darrell Himmelspach
dhimmels@sdccd.edu
Phone: 847-746-2790
Fax: 847-746-2791
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Car BuyingBuying a car is a major decision and should not be taken lightly. It will have a big impact on your income for the length of the sales agreement. The biggest thing to remember is DO YOUR HOMEWORK! There are several steps to consider before buying a car.
How much you can afford will be determined by the total cost of the car, the monthly payments, the down payment, and insurance.
The monthly cost is based on the car payment and associated costs. The associated costs are maintenance, fuel, and insurance. The total cost should never exceed 25% of your net income. You can allow 15% for the car payment and 10% for the associated costs, but don’t go over 25% of your net income.
Things to consider when you’re selecting a car are where you intend to get it. New car dealers supply approximately 80% of all cars bought. The other 20% comes from used car dealers and used car dealers buy their cars from auto auctions. Those cars are the ones the new car dealers don’t want because they aren’t good enough to be on their lot. Then the used car dealer adds 5% for themselves.
New car considerations
Used car considerations
You can protect yourself with a used car by going to http://www.carfax.com/. If you have the VIN# from the car you can get the entire history of repairs made on any car. Any time a car is repaired the VIN number is used to track those repairs. If you want to know about a car check it out first. On this history you will see when the car first went into service, who all the owners were, all the repairs, all dealer shops, all parts used, and the mileage.
Are you looking for performance or practicality? A high performance car will cost you more for insurance and if you finance the car you must have full coverage insurance. A practical car will cost you less for insurance. If you pay the car off then you’re still required to carry liability insurance. Be careful here because some bases require different levels of liability insurance than others. You have to check what the requirements are where you’re stationed. If you want to know about insurance on any car you can go to http://www.insure.com/.
There are other things to remember when buying a car. A new car warranty stays with the car and not with the owner. The dealer will charge the manufacturer for warranty repairs and not you. If a new car dealer trades for a car that is still on warranty the chances are that car will not be sent to auction. They will keep that car and sell it as used.
Evaluating Dealers When you want to buy a car you need to evaluate the dealer or dealers that you’re going to be going to. A really good place to start is to talk with people who have bought cars from the dealer before. Find out how satisfied they were. Did they get a good deal and were they treated right. There are some things you might want to look at when considering a dealer.
Contracts When buying a car there is always a contract. You must make sure you read the fine print. Check all the information for accuracy to make sure it says what you think it does. Every contract has a Federal Truth in Lending Disclosures section. This is probably one of the most important sections on the contract. This is where you will see what the actual finance charge is, the annual percentage rate, the amount financed, total of all payments, and the total sales price, which includes your down payment. You’ll really see what you’re paying by looking at this section. Most people go for the monthly car payment instead of the real monthly cost. That $8000 car you bought might really cost you $11,000 after everything was figured in. You must analyze all the insurance provisions and carefully consider any other options on the contract. If you don’t get an insurance binder from your insurance company before purchase you’ll have to get the dealer insurance to buy the car. That can be very expensive and would be added to the financing. The dealer markup on insurance could be as much as 50%. You may be asked to purchase an extended warranty. Extended warranties are another way dealers get more money out of you. On this contract you’ll also see the taxes, title, license, and registration fees. This contract that you’re going to sign is going to cost you a lot of money so use the power of the pen. Don’t leave any blanks and take it to legal before you sign. If there is anything wrong with the contract the legal department will find it.
Fair Price When buying a car you will want to negotiate the deal. You’ll want to negotiate the price, the trade-in-allowance, and financing. Get yourself pre-approved for the car loan because it eliminates the dealer financing. You also never want to talk payment until you know how much the car will cost. The price, trade-in-allowance, and financing are all separate events. Don’t try to talk about all of them at the same time. There are some negotiating tips you can use when making your deal.
Tricks of the trade There are a lot of tricks dealers will use to sell you a car. You should be familiar with a few of them and be alert for more.
Consumer Protection For your protection there are laws regulating the buying of cars. You should be familiar with the laws in your state that apply. There is a law called the “Lemon Law” and it protects you from getting stuck with a car that is continually breaking down. The dealer is required to make good and take the car back or replace it. This law does vary from state to state and some don’t even have the law. It is against the law for anyone to roll back the odometer on a car. This used to be common practice on used cars so they wouldn’t show high mileage. You also have warranty protection. If there is a warranty on the car you’ll get it when you buy the car. Remember the warranty stays with the car and not the owner. If the paper in the window says the warranty is “As Is” that means you’re taking the car just that way and no repairs or problems will be covered. If you have a complaint you have several ways you can go.
Leasing You can also lease a car if you’re inclined that way. A lot of people do it. The dealer is the only one who makes money on a leased car. There are some things you need to think about when leasing.
Most people are intimidated by a car salesperson. You have to get over that feeling. You have the ability to take charge of the experience and not let the salesperson dictate how the process goes. For example: When you’re test driving the car don’t necessarily have to follow the salespersons route, follow your own. You’re the one that will be driving the car. You might find that the longer you’re away from the dealership the more nervous the salesperson will get. When you get the deal locked in take it overnight to think it over. Take it to legal, to another dealer, and to your bank. Make sure the deal is a good one. A lot of dealers will beat the price you have just to sell you a car away from the other guy. If they do that you might want to take it back to the original dealer and say look what someone else will sell me the car for. They might just beat the deal you had originally. The whole idea is that you take charge of your own deal and don’t be intimidated by the salesperson. IT’S YOUR CAR YOU’RE TALKING ABOUT!! Information Places
Consumer magazines
Kelley Blue book and NADA Official Used Car Book
New Car Pricing Guides (Edmunds, Intellichoice)
You local Library
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