Let’s talk about auto financing

Courtney from World Car contacted us to talk about car financing. They’d written some answers to common financing questions they face at Hyundai, but I think it’s pretty good information across the board. From (http://www.worldcarhyundainorth.com/hyundai-financing-what-you-need-to-know)

Q: What is the difference between a bank or credit union and Hyundai Motor Finance?

A: If you have a solid credit score, chances are you will get a better loan with a lower interest rate from a bank or credit union than with the dealer finance company. Finance companies such as Hyundai Motor Finance have to make a profit to stay in business, and they make that profit from higher annual percentage rates. If your credit score is less than stellar, dealing with the finance company is a good option. Sometimes, it is your only option. Regardless of what financing option you go with, if your credit is not very good, you will have a higher annual percentage rate to pay on your loan.

Q: How does Hyundai Motor Finance work?

A: When you are ready to try pre-approved financing, you need to visit HMFUSA.com; everything you need to complete is there. Once you submit the application, you will select the car you’re interested in. The site will then give you a list of dealerships in your area, and you must select one to proceed. From there, you will begin the application with listing your finance requests (how much cash you will put down, the term of the loan agreement, if you’re buying or leasing, etc.). Your personal, residential, and income information will follow. You will have the opportunity to review your application before applying. Within minutes of your submission, you will hear an answer.

Q: Why should I bother looking at finance options before I make any decisions at the dealership?

A: The best defense is a good offense, and the same applies for purchasing a car. If you know your financing options before going into the dealership, you will make the right choices that fits your needs without having to give up an arm and a leg. Also, Hyundai offers a variety of programs for loyal customers, college graduates, military families, and car buyers who need mobility modifications made on their car. These programs can involve credits toward your purchase, deferred payments, and vouchers for maintenance services. These promotions don’t last forever, but knowing that they are an option is important.

We hope you enjoyed this guest posting. We’ll get back to more original content very soon.

A Car Buying Odyssey: part 4

Recap:

K and her husband needed to buy a new car that fit their young family. After 6 long days, 5 dealerships, 7 car lots and two close calls they finally bought a car from a dealership. The negotiations look long into the night and couple felt they one every major point they wanted. The car had higher mileage than desired and no navigation or backup camera, but met all the other criteria they were looking for. They got the interest rate they wanted, the price they wanted, the trade in for their vehicle they wanted, and the monthly payment they needed. However, they felt that they’d compromised by agreeing to buy under the pressure of time constraint and because they didn’t have time to get it inspected.

Because they were taking a big gamble they couple is now awaiting the result of their inspection.

Part 1 link

Part 2 link

Part 3 link

Part 4 link

The fallout:

The next morning, K’s husband flexed his schedule to allow him to take the car for inspection. He enjoyed the drive over, but sat nervously in the inspector’s office while they went through the car from top to bottom.

The inspector noted evidence that the car had been a fender bender of some kind. The repairs made it difficult to spot which made it not a real concern. There was condensation in the mirror lights indicating the seals had dried out. There wasn’t any way to know how if that was an easy fix or not, but that wasn’t a really big deal to the couple. The engine, interior, and performance testing came back with very good scores.

The vehicle history made no mention of an accident, but the inspector indicated that accidents go unreported often. The only prior owner of the car had been a rental company which is why the car had such high mileage. The inspector echoed what K and her husband had been told by several people in the auto industry, that rental agencies maintain their fleets well and that shouldn’t really detract from the overall value of the car.

The inspector did find a one inch cut in the sidewall of a tire, which may or may not be a safety concern. Because the depth of the gouge was uncertain that impacted the value estimate by the cost of one tire. However, the car checked out great and received a “Very Good” rating.

Final analysis:

When K received the news via text from her husband she was visibly relieved. They value range on the car was somewhere between $17,600 and $18,300. Since the couple had negotiated the price to $17,999 and gotten the trade-in value and financing they wanted, they felt like they’d received a fair deal.

Taken as a whole they rated their experience as an A for results, and an F for experience. In short, they were exhausted and stressed. Getting a Sedan was a second choice since it didn’t have the amount of cargo space and baby seat room they hoped for, but it did have great fuel economy. All and all the couple felt they’d learned a lot about what to do next time, but they still wanted a better way to car shop.

From the staff here at the Kicker, we agree. We took on following this couple’s car shopping experience with the stated goal of taking the mystery and worry out of car shopping. Instead we found validation for the typical car shopper’s anxiety. Especially if you compare car shopping to house shopping.

If you’re thinking about buying a car soon, here’s some tips (inspired by ABCnews.go.com) to help you succeed.

  1. Never, ever, buy a used car without an inspection. Most private party sellers don’t really know if there’s something going mechanically wrong with their car and car dealerships inspect cars upon intake to determine if they want to sell the car at their lot or wholesale it at an auction. The vehicle history is often out of date. You need the current condition verified by someone who works for you.
  2. Calculate what you can afford to spend on a car including payment, insurance, gas and maintenance. It should be less than 20% of your total monthly spending.
  3. The age old debate between buying new and used is harder to call than in the past. After cash for clunkers, used cars have been running high and auto makers have reduced cost to compete for the increased need. Used cars still give more bang for your buck, but new cars have better warranty and can have lower interest.
  4. Don’t start at the dealership, research the cars you might want online. Pay attention to reviews, as well as features, and use MSRP as the price until you’ve settled on the car you want.
  5. Take the monthly amount you can spend and subtract 5%, then multiply by 60 or 72 to figure out what you can afford. When you’ve narrowed down the list use a site like Edmonds.com to establish the maintenance cost of that type of vehicle, and factor that in. You can also get more accurate numbers by figuring miles you already drive a week and calling your insurance agent for a quote.
  6. com offers calculators to help you figure interest. Shop around for the best interest rate so that you have something to compare a dealership off against. A dealership will consider your trade-in value or down payment, the interest rate on their financing and the final price of the car fluidly, so you can reduce the number of variables you’re dealing with at the time of purchase by arranging for your own financing in advance. Credit unions most often beat banks when financing cars.
  7. Use an interest rate vs rebate calculator to help you decide which option is best in your situation. A Trick to be on guard for is a dealership that offers a great interest rate (if approved) only to come back with a higher interest rate claiming you didn’t qualify for the lower rate.
  8. The prices to have in hand when shopping are Invoice price and MSRP on new cars, and wholesale price and dealer’s asking price on used vehicles. Begin negotiation by establishing the price for the vehicle you want before any discounts or rebates are applied. The dealer needs to make money, but both parties should be able to agree on the fair price for that car in that condition.
  9. Ask the dealer if you are eligible for military, student, or credit union membership discounts. KBB.com or Edmonds may have information about Dealer incentives manufacturers are offering dealers on the new car you’ve selected you can ask the dealer to split that incentive with you. Another place dealerships make money is selling you a service contract. The minimum markup on a service contract is $1,000 dollars and some dealerships don’t know that they can force that number lower. Refuse to pay the full price for a service contract. You don’t need to pay interest on $1,500 of pure profit for the dealer.
  10. Be very wary of “Internet” prices when researching. These are loss leader prices that dealerships use to get you onto the lot. The price in the window will be a couple thousand dollars more. If you found the car advertised for less—that’s the price of the car.
  11. Car dealerships will start talking about your trade in right away, especially if you drive it into the lot. After establishing the price of the new car, and all rebates, you can talk about your trade in. Do your research in advance and know what your car is worth. Don’t settle for a wholesale price on your trade in, KBB and Edmonds will help you establish your trade-ins value. You should also consider having your current car inspected to verify the current condition. It may be better to private sale your car and use cash for a down payment.
  12. Say no to any extras your dealership offers. You can research them online, apart from the pressure of car buying, and then go back later. Most dealerships are happy to let you buy things afterward.
  13. Plan on keeping your car for at least 5 years. K and her husband lugged their baby seat with them to all six days of shopping because it needed to fit into the back seat of any car they considered. They also installed it several times, as some cars are difficult to install.

However, the Kicker would like to challenge the automotive industry, which hasn’t really revolutionized car shopping since Henry Ford used the assembly line to make car affordable. We challenge you to come up with a better experience for your customers. We’re not talking about friendlier sales people, or letting customers take cars home for a day. We’re talking about something radical, like paperwork that can be finished in 15 minutes or complete customization even on used cars. Who knows what you could come up with if you really thought about customer experience instead of pushing sales. That’s our challenge to the automotive industry. We can do better.

A Car Buying Odyssey: part 3

Recap so far:

K and her husband needed a car that accommodated their child safety seat and stroller better. They don’t want to take on two car payments so they need to replace just K’s vehicle, a small “paid off” Honda, with something roomier that both of them are comfortable driving. K wants leather interior and navigation, her husband wants a sun roof and good fuel economy.

Thus far the couple has spent 3 days shopping hit 3 dealerships, 4 car lots, and eliminated all but one SUV, which turned out to have extensive corrosion throughout the car.

Shopping Day 4:

Returning to the sales lady they liked the most, K and her husband expanded their search to include larger sedans and wagons. After test driving several cars, they found a Subaru with low mileage that drove nicely but at a price over what they wanted to spend. K’s husband suggested that if they were going to go a few thousand over budget they should reconsider getting a new car.

The dealership had a wider selection of new cars, and the idea of getting a bumper to bumper warranty attracted the couple. The dealership also believed they could beat Ks’ bank’s interest rate (3%). So the couple quickly settled on a new car they loved that fit their needs. And that’s when things went sideways again.

The couple settled in for the long negotiation, with possible changing negotiators and high pressure. That didn’t happen. They were actually able to work with the same sales person all the way through. She did have to run the deal past a superior, which is where things went wrong.

K had already noticed that when she located a car online they listed an “internet price.” The MSRP appeared on the car window, several thousand dollars more, but there was a sale price that more closely matched the internet price. The explanation for the reduced price was manufacturer incentives that changed periodically. This seemed reasonable to the couple, but they were shocked when the paperwork came back…
* based on the MSRP
* reflecting only some of the incentives
* gave a small amount for her trade in
* showed a $5,000 additional cash down payment
* and had a much higher interest rate quoted (5.99%)

The couple had stated that they knew what their trade in was worth and if the dealership couldn’t offer that, they’d sell the car themselves and provide a $5,000 down payment. The dealership’s explanation was that you either got the lower price or the low interest rate. The dealership improved their initial value of the trade in, but the couple was out of time and rather than make a rushed decision or prolonged negotiation they walked away from the deal.

Exhausted and frustrated, the busy couple went home to talk over their options. They found several new and used vehicles of the same make and model they’d loved, with a better price and at that same dealership. They simply ran out of time and energy before they really explored their options once they widened their search to include larger sedans.

Day 5:

K’s anxiety over the purchase process had returned though. Her husband didn’t share her concern and felt they should state their conditions and if they dealership could meet them then they’d buy—if not they’d walk away again.

The couple revisited the first dealership and located a cross over version of the car the “under water” car. It was larger, nicer and both of them fit behind the wheel. However, K’s husband saw the fuel economy (15 city, 20 highway) and ruled it out. One of the big limiting factors of their new car was that it needed to be a daily driver for K.

K’s husband began searching online and also enlisted the services of a “free car finder.” The online search yielded some great possibilities but it turned out that K’s bank would only loan on a car through a dealership. In the Kicker’s opinion the bank simply needed to require a third party inspection to verify the current value of the vehicle, but…

The Next Step:

Being open to sedans provided a whole new set of options and being restricted to dealerships required the couple to come up with some improved way to search for cars. They decided K would search for cars online but at dealerships on her breaks from work and her husband would take long lunches to visit cars she found and screen them out.

Recap of cars tested and rejected by the couple:

(The couple ruled out all truck and small cars because they didn’t feel they fit their needs.)

(K’s husband ruled out all GMC because he used to own stock in the company.)

(K’s husband ruled out all minivans because he refuses to drive one.)

(K ruled out any red car, because she hates the color.)

 Ford

Escape – K’s Husband didn’t fit

Edge – K didn’t fit

Transit Connect – Too expensive

Flex – too expensive

Explorer – too expensive

 Hyundai

Tucson – K’s Husband didn’t fit

Santa Fe – K’s Husband didn’t fit

 Mitsubishi

Outlander – K didn’t fit

Outlander sport – K’s Husband didn’t fit

 Nissan

Xterra – terrible fuel economy

Armada – terrible fuel economy

Murano – all around okay, but a little too expensive, not great fuel economy, not really comfortable to drive

Maxima – too expensive but would have to find the right used one

Altima – too expensive but would have to find the right used one

Subaru

Forester – too expensive but would love to find the right used one

 Acura

MDX – Terrible fuel economy

RDX – expensive but would love to find the right used one

 Toyota

Rav4 – all around okay, but a little too expensive, not great fuel economy, not really comfortable to drive

Venza – Sat in but didn’t test drive, may have worked but would have to find the right used one

* all results are the opinions of two ordinary car buyers and reflect only their experience