The Tips Bank

                 Lowering the finance cost on
                          your next vehicle purchase
                                                                              ©2002by Kyle Busch, author of:
                                                                              "Drive the Best for the Price ...
Before making a purchase, especially a large one most buyers
ponder an equation that goes something like: What is it going to
cost me, and will that equal what I am going to get?
Consider that equation when buying your next vehicle. Naturally,
you want to get the most vehicle for the money you spend. Here
are several tips that will help you to lower your transportation
First, and foremost, consider eliminating some of the steep
depreciation cost incurred during the first three years of vehicle
ownership by purchasing a 2- to 3- year-old used vehicle.
The price can be further reduced by paying cash. However, if you
need to finance your next vehicle purchase consider doing the
following to keep its cost closer to the "as if you were paying
cash" figure.
- Take the time to carefully identify your current and
your future transportation needs, and choose an
appropriate vehicle. Transportation represents different
things to different people.
For some drivers, it represents status in society. Other
drivers place greater emphasis on reliably just getting
from point A to points B and C.
The more closely that you match your driving needs
with the vehicle you buy, the more driving pleasure
you will experience and the more likely you will want
to hold on to the vehicle. When you reduce unnecessary
vehicle trades, you save money.
If you can't fully identify your transportation needs or
the vehicle that can best satisfy them, consult the
April issue of Consumer Reports at a public library.
The publication groups vehicles into categories,
provides frequency-of-repair information for many
vehicles, and gives vehicle price information.
It is a good idea to identify 2 or 3 vehicles in a
particular category that meet your transportation
needs. This enables some latitude when shopping
for the vehicle.
- Identify how much you can afford to spend per month
on transportation. A rule of thumb suggests that the
cost to rent an apartment per month should not be
greater than 25 percent of your monthly net pay.
The cost of an auto loan should not exceed 10to 12
percent of your monthly net pay.
In some instances, leasing a vehicle could be abetter
option than taking out a loan.
- The vehicle down payment should be the largest
possible, and the amount of money borrowed the
lowest possible. In addition, borrowing money for
the shortest period of time (i.e., a 24-month loan
rather than a 48-month loan) will reduce the overall
cost of the loan.
- Identify the various loan sources such as 
banks, savings and loans, credit unions,
and national lenders. For example, go online
toask and specify "automobile
financing sources."
In regard to national financing vs. local financing,
it can be useful to determine what the cost of a
loan would be from the national sources, but
accept a loan from a local source if the loan
cost is comparable or nearly comparable
between the two.
Compare the APR (annual percentage rate)
that each of the sources will charge for the loan.
The cost of a loan is negotiable. Therefore, be
certain to inform each source what the others
have to offer.
In addition to the loan's APR, remember to also
compare the other costs associated with a loan,
such as loan insurance and loan processing costs.
- Be certain to read and understand any fine print
contained in the loan contract. Insist that the loan
contract gives you the option of making payments
early and that the payments will be applied on the
loan principal with no penalty or extra cost if you
payoff the loan early.
- Do not settle for a vehicle that does not entirely
meet your transportation needs because of low dealer
or manufacturer incentive financing. Sometimes dealers
or manufactures offer extremely low APR financing on
vehicles that the dealer is having a hard time selling.
That's why it helps to have initially identified the correct
vehicle before encountering the sales pitches and other
influences of buying a vehicle.
Kyle Busch is the author of Drive the Best for the Price:
How to Buy a Used Automobile, Sport-Utility Vehicle, or
Minivan and Save Money. He has over 300,000 miles on
his 1986 Volkswagen Jetta-a used vehicle that he bought
in 1991 for $2,600.

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