Your Turn To Drive, Episode 5 discusses what you need to know before you try to finance a new car. Jim Dykstra, CEO of vinadvisor, Marc Dubis of Car Folksand Joe Webb of Dealer Knows are the panel of experts to help you with some inside tips and information to help shed light on the auto finance path.

Understand car depreciation

Jim Dykstra

Welcome to our Top Six Auto Finance Tips. First up, understanding that when you finance a car, it’s literally like nothing else you’re gonna finance because of the speed at which the car depreciates. If you’re a lender, you understand that a car is gonna be worth 20% to 30% less in the first 12 months, and maybe even as much 50% less in the first 24 months. So, the number one criteria for any auto lender is to evaluate the loan-to-value ratio. If you wanna borrow $20,000, and the car you’re borrowing it against is worth $30,000, that’s great. That’s a 66% loan-to-value ratio. If you wanna borrow $30,000 against a $20,000 car, that’s a 150% advance and there’s almost no lender who would even approve that deal. And if they did, the interest rate would be extraordinarily high to try to cover their risk.

Research auto valuation websites

Marc Dubis

That’s a good point, Jim. You need to know what the price of the vehicle is gonna be. And on a new car, that’s pretty simple. They have what’s called the manufacturer’s suggested retail price, or in the jargon, MSRP. So you can take a look at the window sticker on a new car. On a used car, what you wanna do is check the used car guides online. You have Kelley Blue Book at kbb.com, or edmunds.com which will provide a used car value. Now, remember, these are only guides. Things will vary based on your market, the type of vehicle, the mileage, and the condition of the vehicle. So it’s important to take a look at that.

#3 — Research vehicle incentives

Joe Webb

Now, that you have those figures, knowing what you can and cannot afford, do a little homework. Go into the manufacturer’s site, find out if there are any local incentives that are going be applicable for you that you qualify for, so you understand exactly what the best rate that is available to you. And then check with your bank. Don’t just go ahead and get the loan from your bank. Check with your bank and have all the numbers prepared so when you go in, you know exactly what you can and cannot afford on a monthly basis.

Gather your personal paperwork

Jim Dykstra

Next up, a couple of simple things that are too often overlooked. Number one, getting prepared to fill out the credit application. So, first and foremost, check your FICO score to make sure all that information’s accurate. If not, contact the bureaus. Number two, plan on income verification. You’ve got a full-time job, plan to bring your pay stub. If a year-end just came and passed, bring a year-end stub, as well as a monthly stub, same for your spouse or whoever else who might be signing. If you’re in a business for yourself, that means at least one or maybe two years of tax returns that the lender likely will wanna see. Number three, insurance. Don’t forget that, even if you have full-coverage insurance on whatever your driving right now, your insurance is likely to go up because you’re buying a brand new car or leasing a brand new car, and the value of that car is going up. So, important to be prepared, important to have this information available, at least, one or two references as well.

Your car affordability calculator

Marc Dubis

After establishing a fair price for the vehicle, you wanna calculate exactly what you’ve got in your monthly budget that you can afford for a car payment. So, the first step is to take a look at what your net take-home pay is. What do you have that’s spendable after your taxes? Then, from there, you wanna deduct your mortgage payment or your rent, your utility bills, your TV, your telephone, your cell phone, any other credit card payments or loans that you’ve got, and then your food. So that will give you a number that’s left over which will comfortably handle your car payment, and you may not wanna spend that full amount, so you take a portion of that. Then you wanna estimate what your buying power is gonna be. So, if you calculate you’ve got about $250 a month that you can spend on a vehicle, at a 60-month term at about 3%, you’re able to finance around $14,000. So if that’s correct, you get with your car sales person or the manager at the dealership, confirm that your numbers are correct on the vehicle you’re looking at, and then go out on the lot and find a vehicle that will fit your budget. So you can back into it that way. That way you’re able to get a payment that meets your criteria, covers the things you need to cover, and provides the vehicle you want and need.

Car dealers can offer the best rates

Joe Webb

I love telling a quick story. I am in the automotive industry, and even when I was buying my most recent car, I went ahead and did my due diligence. I went on to bankrate.com, found out what the local rates were available to me, and then I went to my own bank, my own branch. And they were giving me a… I think it was like a 2.29, a really good rate, but a branch only goes and gives five or six loans out of each branch a month. When I went to the dealership, the dealership was able to get me a loan with my own bank for a full point less than what my own bank was willing to do. So recognize that if a dealership is able to give out 200, 250 loans every single month, they have a lot more buying power and rate power than I do as an individual person going into my own bank. That’s just one story that I always share with everybody. Do your due diligence. Know your own figures. Know your credit score. You can pull it from Experian, you can pull it from TransUnion, whatever you prefer, and know your numbers on what you’re comfortable with, and then go into the dealership and see what you are being offered by them.

reposting from vinadvisor.net