Summertime! The season of fun in the sun, tasty homegrown tomatoes, and maybe even the perfect time to buy a car! With next year’s models waiting in the wings, and dealers anxious to clear showroom floor space for the next “best thing”, follow these steps to engineer yourself an amazing deal!
Do your homework! (part 1 of 2)
Since the advent of the internet and smartphones, it’s not uncommon for today’s car buyers to make over 900 digital inquiries before buying a car. Add MotorQueen.com to your favorites because we are here to assist you with research on new and pre-owned vehicles. Do not even think about heading into an auto dealership until you have done ALL of your homework!
Going to a car dealer unprepared will almost guarantee that you will either overpay or purchase totally unnecessary add-ons and high-cost/low-value services such as rust-proofing, fabric protection, or credit insurance.
Think of it as putting together a jigsaw puzzle, only without the box cover — the picture only becomes clear as more of the pieces are linked in their proper positions!
Start with a favored technique of this busy woman, making lists. Buy a new notebook, one with pockets so you can keep your notes, pictures, and other research in the same place. The first list you make will be of what you need in a vehicle in the first column versus what you’d like, but can live without, in the second.
Then do an honest assessment of your finances and what you can realistically afford based on your current income and financial obligations. From there, decide whether or not you need a lender to finance your purchase. Let’s face it, most of us don’t have tens of thousands of dollars in the bank or in a coffee can buried in the backyard. A recent study found that 63% of Americans are financially unprepared for an unexpected $500 medical or repair bill.
In other words, you’ll probably either be financing your purchase or leasing. Either option brings your credit score front and center, so, if you don’t know what it is, find out before you do anything else. Websites such as kreditkarma.com offer free scores, as well as interest rate comparisons for a variety of consumer loans. Credit card companies usually offer a free copy of your credit report annually. Most bank and dealer auto financing is tied to your Experian score, which comes in six tiers: Tier 1/A+ rating is a FICO score of 725+; Tier 2/A-: 690-724 FICO; Tier 3/B: 660-689 FICO; Tier 4/C: 630-659 FICO; Tier 5/D: 600-629 FICO; and Tier 6/F: <600 FICO.
Current interest rates on loans for used (not older than 2007) cars at my credit union range from 2.4% for Tier 1 to almost 19% at Tier 6. If you can get someone to loan to you. Those aren’t quite loan shark rates, but who in their right mind willingly pays that kind of interest? On new cars, the rates run from 1.99% for Tier 1 to 18.99% for Tier 6 on a 60-month term. So know what type of interest rate you’ll be paying before you start pricing dream cars.
If your FICO score is less than 600, you’ll need to move it up out of loan shark bait levels to get a decent deal. The sites mentioned above for free credit reports also have good information on how to raise your credit score. I had to do it recently because I had virtually no credit history, and what I did have, did not report to Experian. So, to Experian, I didn’t exist. So, I applied for two low limit credit cards, charged a few things, and paid my bills on time, thinking that would put me on Experian’s radar, but no, that credit reporting agency only begins to think about rating your credit after your accounts have been established a minimum of three months. So don’t think that adjusting your score upwards will be a quick process if you have no credit line or poor credit history.
If you already have established credit, your balance versus your available credit is very important to your credit score. The magic calculus between good and not-so-good seems to be to not let your balance go above 30-33% of your credit limit. So, if you have a $1000 credit limit, keep your balance below $350 or it can impact your score and hamper your ability to secure further funding.
OK, you’ve made your list of needs versus wants, gotten a copy of your credit report, and determined your FICO score, and you know whether you must raise your number to get your best deal. You have taken an honest look at your finances (another page in your notebook), and determined how much you can afford given your current financial situation. If yours is a high number on both what you can afford and FICO, you’re ahead of the game. If your score and income are more in line with the rest of us mere mortals, you won’t have as many options to choose from.
But your homework doesn’t end here! We’re just getting started! I’ll cover what’s next in Part 2 of Do Your Homework.
Until then, happy motoring!