THE PROOF II

     After proving your income,  You will need to prove where you live and provide references.  

Proof of Residence

     Proving your address should be one of the easier things in the process.  Acceptable types of proof are Utility bills and bank statements sent to your address in your name.  You should  bring the last 3 bills and statements to the dealer so they can make copies.  One tip though,  make sure none of the bills has a "Past DUE" balance.....most lenders do not like to see that.

References

     The proof that most of my customers had the hardest time with was references.  Lenders are now looking to see if you have roots and stability.  Most will require from 3 to 10 references to approve your loan.  For a reference to be accepted by the lender you will need the Name, Address with zip code, phone number, relationship (friend-co-worker-relative) and how long you have known them.  It would be wise to prepare your list before going to shop for a car.  Be sure to let these folks know you will be using them because the lenders do check.  

THE PROOF IS IN THE...PROOF

     As you look to purchase a car, you will be asked a lot of questions.  You will be asked how much you make.  You will be asked where you live.  You may even bee asked to provide references.

Proof of Income

     In filling out your credit application you will be asked how much money you make.  You may surprised at how many people do not know.  The figure that most lenders want to see is your GROSS INCOME.  Gross is the amount of money you are paid BEFORE taxes or any other withholding is taken out.  It is always the larger amount.  The NET INCOME is what is left after all taxes and withholdings are taken.  That is the amount we get to "LIVE" on. You should bring several of your most recent pay stubs as well as 2 to 3 bank statements to prove your numbers.  

But I don't get a "Pay Check"

     Some workers do not receive a "normal" paycheck.  Folks who are self employed, freelancers, investors, or tipped employees in the service industries will have a harder time Proving their income.  Lenders are not as likely as they once were to accept our word about income. If you own a small business you may have to provide Tax records,  Bank statements showing monies deposited regularly for several months will often be accepted as proof.  SO  if you work for tips you will need to deposit those in your bank for them to be provable income.  

MORE ADD ONS???

     As you sit with the finance manager a LOT of products will be offered to you.  One that you should pay attention to is GAP insurance.

What is GAP Coverage?

     In a nutshell, GAP coverage or insurance covers the difference between what you OWE on your car and what it is WORTH in a "total" loss.   When you finance a car or truck you will be required to get "full coverage" insurance.  The terms of this insurance will only pay what your car is worth not the amount stilled owed to the lender.  So if your car is worth $10,000 and the amount you owe is $15,000 you will still be responsible for paying the difference to the lender.  GAP coverage steps in and covers the difference.  

Do I HAVE to buy it from the Dealer?

     The simple answer is NO you do not.  Many insurance companies also offer GAP coverage, but you will want to secure the policy before you take delivery of your car.  

I was told that GAP Insurance was REQUIRED!!

     As of this writing, there are no state or federal "requirements" for you to obtain GAP coverage.  Some lenders may make it a condition of their approval of your loan.  Remember, lenders will only lend money based on the level of RISK.  GAP coverage removes some of the risk involved in a loan.

Is GAP a good idea?

     I can't answer that for YOU, but I will relate a situation I had with one of my clients.  A young couple came in to buy the husband a car.  After deciding on the car, they went to the finance office.  The wife was trying to save every dollar possible.  She had been told by a "friend" to not buy ANY extras.  So she declined ALL the products offered even the GAP coverage.  The finance manager asked me to speak with them and stress the need for GAP coverage.  I tried but to no avail.  She was convinced that GAP coverage was worthless.  Some 8 or 9 months later they were back in the market for a car.  The husband had totaled the car 2 months after they had bought it.  It took them 6 or 7 months of making payments to the lender on a car they no longer had to be able to buy him another car.  The wife INSISTED on GAP coverage after that.

EXTENDED WARRANTIES

II

     Some extended warranties are Great and some are not worth the paper they are written on.  How do you know which is which???

Which Warranty is the RIGHT warranty

     Used car "warranties" actually work more like health insurance policies  They are designed to pay a portion of the repair cost after a deductible is met.  Like health insurance none will cover a "pre-existing condition".  There are a variety of options available to cover used cars, from basic powertrain coverage to nearly "bumper to bumper" coverage.  All are available at a wide range of prices and some are better than others.  Most dealers sell cars "As Is" meaning no warranty at all. and if there is a warranty "included" it is for very limited conditions/time.  The terms and conditions will vary from policy to policy, but in general expect to pay more money for more coverage.  You can purchase these policies from a number of places.  If the used car meets certain age and mileage restrictions you can even get the Manufacturers own extended warranty, possibly the best option.  Warranties are also available from many insurance companies and usually offer good value.  Third party warranties are the riskiest.  Some are offered by larege dealers and tend to be OK while others only separate you from your money and offer no protection at all.

     The Finance Manager is the person usually selling this product at the dealership.  Feel free to ask pleanty of questions about the product before you agree to buy, remember it is your money.  The attraction to getting the warranty from the dealer is that the cost of the warranty is "rolled" into the financing, just remember you are paying interest on this.   

EXTENDED WARRANTIES

     The likelihood of repairs increases as machines get older.   This universal truth is the reason behind extended warranties.  A car is just a machine and it will need repairs even if you buy a brand new one.

Should I buy an Extended Warranty?

     Whether or not to purchase a warranty is a very hard question to answer with a simple "yes" or "no".  In a perfect world, we would all have the discipline to save money from each check for "rainy days" .  Sadly most of us DO NOT.  Some of you are in the process of rebuilding credit and do not have a handy dandy credit card to fall back on.  A warranty may be right for you.  The cost of repairing a car can be EXPENSIVE.  Even what seems to be a minor repair can set you back major money.  

MINOR repairs?

     I grew up working on my own cars.  I do not claim to be a mechanic but in the past I could handle most minor repairs myself.  Today cars are much more complex.  Computers and sensors are all over the place and it looks like there is 100's of miles of wires.  I will use a radiator as my example.  On my older cars replacing the radiator cost under a $100 and would take me at most 2 hours,  My sister had a similar problem on her Kia.  You might think it would be cheap to fix a radiator on a Kia, you would be wrong.  Her radiator had a leak and in turn this caused several other components to fail costing well over $400.  An employee of my sister also had a radiator problem on her Mazda.  At last report she had spent over $800 and still going.  Getting cars repaired can be as expensive as going to a doctor.  

We will cover more about warranties in part II

CHRISTMAS IN APRIL?

     In the Retail world, Christmas is the  B I G  sales time.  Most retailers 'make' their yearly profits during the Christmas shopping season.  Now you know why Christmas Items show up earlier and earlier each year.  Car dealers have their "christmas rush" at Tax Time.  Think about it, most of us work hard all year and have very little savings.  April 15th comes and  B O N U S  we get a  R E F U N D !!  Suddenly we have  C A S H for many things.  Sadly many of us use the over payment of Federal Income Tax as an annual savings account.  What we don't realize is in realty we are giving the government  an interest free 'loan' of our money.  Yet we almost all of us do it year after year.  When we do get our refund we can't wait to spend it. Car dealers are more than willing to help us do just that.  

Use your refund WISELY 

     Over the years, more and more 'tax preparers' offer  I N S T A N T refunds.  These tax services offer an instant refund which is in reality a L O A N given at a very high interest rate and you get your money in 3 days or less.  The average refund from the I R S is in your hands in less than 2 weeks.   In reality, you would be paying a good portion of your refund to a company you have already payed to PREPARE your taxes in order to get your own money a few days sooner.  I bring this up because I have seen a trend of Car dealers having tax preparation services on site so you can do your taxes and drive home T O D A Y!!  No one does something for nothing, so dealers are making money not just on the car but on the refund loan as well. Some of the less reputable dealers even go so far as to offer "your W2 IS your down payment"  meaning they will file your taxes FOR you, take a huge fee and the rest is applied to your down payment.  Don't fall for it!!

Do it yourself and SAVE

     If you are using your refund as your down payment, do yourself a favor and wait for your your refund.  Let all of the money you have work for you and give you a larger down payment.  Waiting  a few extra days can put quite a bit more money towards your car and help you keep your payments as reasonable as possible 

WEEKEND FEVER

     The toughest hurdle a car buyer faces is their own emotions.  Seeing a dream car right there....waiting for YOU!!   The emotion, the "love" can cloud your judgement.

Saturday ONLY Price!!

     Dealers are well aware of the emotional aspect of car buying and some will even exploit that.  In most dealerships, the sales people are paid commission.  In other words, if you don't buy they don't get paid.  Some sales folk will try almost anything to get you to buy the car, they use all kinds of high pressure tactics to sell you.  If you have some issues with your credit, it is very important to guard what credit you do have.  It will be a bit of a challenge to find a sales person to help you as they are looking to make the most of a busy time.  

Shop at a slower time

     A better time for you to shop for your car would be Tuesday, Wednesday or Thursday during the day.  The sales people are generally more eager to spend the time to help you without the pressure.  This also allows you to make sure the deal they offer fits your budget and needs.  

CAR BUYING

When is the deal DONE?

     When I was selling cars, many of my clients seemed confused as to when the deal was DONE.

Most thought the deal was finished when they said YES to the car,  The truth of the matter is in most cases that was just the beginning.  

Meeting the Manager

     After you say yes to the car, you will meet a "manager".    These folks will go over your credit and attempt to get your loan approved by any one of a number of lenders that work with the dealership.  They will tell you things such as your expected interest rate and payment based on guidelines from the lenders.  They will also tell you about all the other items you "need" to go with your new purchase. These may include warranties, pre-paid maintenance, GAP insurance. credit life and disability,etching and the list goes on and on.  We will look at some of these in later posts, for now the important thing to know is that these products are a good source of revenue and the "manager" is often paid a healthy commission to convince you to buy these products.

Is the deal DONE now?

     Even after you finish with the "manager", you will have to sign what seems like HOURS worth of paperwork.  Then  you will be allowed to drive your new car home.  But wait, the deal is PROBABLY not DONE yet.  Most dealerships "spot deliver" cars.  

Spot Deliver?

     In most cases spotting a car is not a bad thing.  The dealers base decisions on guidelines given by the lenders.  They then send you home in your car, and submit your paperwork to the lender for approval.  If the dealers do their job well, the lenders will approve the loan and all is well.  It may not always work so easy when dealing with credit challenges.  A lender may require more documentation, a higher interest rate. a larger down payment, or a larger monthly payment.  Remember, the lenders have the ultimate say in whether you get a loan.

BUYING A CAR

part III

     In my last post we discussed how you. the consumer, is far more educated now.  That is not the only dynamic changing car sales.

Used Car  SUPERSTORE

     Quite a few years back, some executives at a consumer electronics business decided to diversify their business.  They took their time and studied ALL the things that used car dealers were doing and took a long look at what worked and what didn't.  This company had already had good success in changing the consumer electronics market creating a demand for a "Superstore" with a vast selection and providing good customer service. Things that would translate well in the automotive sales market.  So in 1993 Circuit City gave birth to the first CarMax used car lot.

     From the very start, CarMax did things very differently than most used car dealers.  Most used car dealers had a relatively small selection of used cars,  They did not recondition the cars. They also did not have any kind of return policy.  They used traditional "hard sell" techniques to "push" buyers into cars.

     CarMax started out with inspections and reconditioned their cars, so they not only LOOKED good but they RAN good as well.  They also treated their customers like customers.  Offering knowledgeable sales consultants rather than the traditional hard sell used car salesman.  They also offered a HUGE selection of cars 300 to 400 cars on one lot, something unheard of in used cars at the time.  Probably the most RADICAL thing they offered was a 5 day return policy and a 30 day warranty!!

     CarMax began selling more and more cars and other used car dealers had to change in order to compete.