Credit Cars

By Chelle Cordero

April 3, 2009 4 min read

CREDIT CARS

Take baby steps to afford that dream machine

Chelle Cordero

Creators News Service

Glistening showrooms and shiny new cars tempt us to want that brand new leather interior and those stylish wheels. However, just deciding on the car of your dreams in today's economy won't bring you closer to driving it out of the showroom.

With the average price of a new car going for just under $30,000, it is almost non-existent to hear of someone simply plunking down the cash. Cars cost big bucks, and loans may be difficult to come by.

Many financial experts advise customers to buy used rather than new. Certified pre-owned vehicles, offered by many dealerships, have often undergone extensive tests and criteria. But then there are still loans and other financing requirements to contend with even for these cars.

"Through a simple check of their credit reports and scores, many consumers are likely to find that they're in a solid position when it comes to cashing in on these troubled economy car deals," said Lucy Duni, vice president of consumer education at truecredit.com by TransUnion. "At the same time, it's important for consumers to set their limits based on their credit position and their overall finances because there are many costs associated with making a car purchase, including regular maintenance fees and insurance."

It's important to start doing your homework -- and monitoring your credit status is a crucial part of that equation. "Managing your credit report on an ongoing basis will help ensure your finances are in the best shape, and can enable you to receive the most favorable rates for a car loan," she added. "Your credit behavior influences more than just your loan rate -- it can also play a role in determining the monthly insurance premiums for your home and car."

Dealerships often offer terrific sounding finance deals, but be cautious. "Typically financing through dealerships benefits the dealer, since they make more on the deal for the interest rate they charge the consumer," said Kayton Kimberly, author of "Repossess Your Life!" ($17.50, GHD Publications), explained. "This difference is given back to the dealer in form of rebate or cash. An example would be the dealer says you 'qualify' for a 7.65 percent loan when in fact your credit worthiness is good enough for six percent. That extra 1.65 percent is pocketed by the dealership."

It is important to understand how much you can afford to spend on a new car. According to Bankrate.com, recent rates for 36-month new car loans average 6.91 percent; that translates roughly to $700 monthly for an auto loan of approximately $22,000. Used car loans in early March averaged 7.51 percent. Doing some simple and realistic math can help you decide whether you can afford the purchase price.

Don't forget to calculate any additional costs of insurance. Remember that newer cars typically cost more to insure.

Before you go shopping for your next car, prepare your strategy. Know your credit score and find out which loans might be available to you. This type of knowledge may help you negotiate your way into a better deal. Be realistic about what you can afford to pay monthly on a loan and other costs associated with buying a new car such as auto insurance payments.

Make sure you understand the terms of your loan, including how the payment might change if you put more or less down at the beginning, any prepayment penalties and the rights of the creditor to raise your rates if you are late paying one month. Make sure there are parameters in your disability and life insurance policies that the car will be paid off in the event that something happens to you.

Walking in with plenty of knowledge and your eyes open can have you happily driving that new car you once only dreamed about.

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