Common Auto Financing Terms

Defining the essential vehicle finance jargon you should know
Calculator with car keys on top of keypadPurchasing a vehicle from a dealership, be it a brand new or moderately used model, is rarely as simple as you would hope. What should be a basic transaction can quickly become a complicated discussion rife with uncommon phrases you wouldn’t hear elsewhere.

In preparation for the next time you intend to shake hands and sign on the dotted line to purchase a car, familiarize yourself with the following information.

Understanding pricing
Even before you step foot on a car lot and introduce yourself to a sales representative, it is crucial that you understand how each vehicle is given a price. If you’re researching vehicle prices, you will likely come across these terms.

The manufacturer’s suggested retail price of a vehicle (MSRP), also known as list price, is the manufacturer’s recommended price at which to sell a brand new vehicle. It’s not required that a dealer adhere to this amount, but according to the experts at Bankrate.com, it is required by law to be posted on the vehicle window’s Monroney sticker, along with the destination (freight/shipping) charge.

This differs from the invoice price, which is the amount the manufacturer initially charges the dealership to obtain and, in turn, sell the car to a buyer. The invoice price can be lowered by rebates, incentives, holdbacks and other ways to ensure the dealer makes a profit.

According to the DMV.org’s guide to understanding car financing, incentives and rebates can also be offered to retail customers looking to purchase the vehicle. The dealer may launch a short-term program to offer financial enticement to buyers in order to sell certain models. Manufacturers can also temporarily reduce the price of a model in a rebate program to make the cost accessible to more buyers.

Understanding financing
Once you negotiate and agree upon a fair price for the vehicle, the process moves to financing the purchase. Since most people don’t pay the entire bill up front, the transaction will be financed, distributing the cost across multiple years to be paid back with interest in monthly installments.

The Federal Trade Commission’s Consumer Information guide explains that the annual percentage rate (APR) measures how much the loan will cost the buyer and expresses it as a negotiable percentage. The APR includes not only the basic interest rate but also other fees involved with making a loan. The APR can be affected by many factors, from your credit history to local competition among dealerships. If you have poor credit history, based on an inconsistency of bill payment and financial dependability, you may be deemed a non-prime lender and receive a higher rate.

Interest rates can either be fixed, remaining the same throughout the entire repayment term, or are variable and fluctuate based on the current index.

Once you pay the initial down payment on the vehicle, the remaining balance will be financed and will consist of the principal, the amount of the vehicle cost still owed, the interest charges and any other fees.

Understanding your future
Ideally, you will continue to make monthly payments until you repay your auto loan on time. If you happen to pay it off early, Bankrate.com experts warn that you might be charged a prepayment penalty by the dealer, so inquire beforehand.

If, down the road, you believe you could get a better deal on the loan than you currently have, you can refinance the loan, either with the current lender at a new rate or with a different lender. Refinancing allows your loan to be reevaluated and potentially adjusted to a better rate.

According to DMV.org, there are two things you don’t want to have happen to your new car: be upside-down or have it repossessed. If you are upside down or underwater on a loan, the vehicle has negative equity and you owe more on it than it is worth. If you fail to make your payments on the vehicle, your lender might repossess your car, taking the vehicle from you without warning or court involvement.

Hopefully by understanding how the auto financing process works and what these common phrases mean, you can avoid any penalties or pitfalls and purchase your next car without issue.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

What Vehicle is Right for You?

Seven steps for finding your perfect car

Finding the “perfect”carBuying3_Featured vehicle sounds quite cut-and-dry, but there is actually a lot more involved in the process than pointing out a car that looks pretty. In fact, there is no “perfect” vehicle, but there very well could be one that is perfect for you. Follow the tips below from Edmunds.com’s Senior Consumer Advice Editor Philip Reed to pick a new or used car, truck, SUV or van that will best suit you for years to come.

1. Assess your needs. Be practical. As Reed says, “Functionality should trump flash.” Consider the present and future answers to questions such as:
How many passengers do you need to carry? What type of driving do you do — highway, city, off-road, all weather? Do you have a long commute necessitating better fuel economy? What safety/cargo features are important to you? How much garage or parking space do you have?

2. Set a budget. Before you even lay eyes on a vehicle, you will need to discern your budget, and not just for the car. Figuring out how much you pay per month for other things (i.e. rent, utilities, groceries, etc.) compared to your income will give you an idea of what you can afford toward a car payment. Reed recommends a general rule of no more than 20 percent of your monthly take-home pay should go toward your vehicle payment, otherwise you are foolishly overpaying.

3. Compare leasing and buying. This is another aspect that is not ‘one answer fits all.’ Each options carries pros and cons. For example, a lease requires little or no money down and offers lower monthly payments, yet when the lease ends, you have to start the shopping process all over again. On the other hand, buying a car is more costly up front, and the monthly payments are a bit higher, but when the loan is paid off, you own that vehicle outright. That is just the tip of the iceberg, as there are many other advantages and disadvantages of each to consider.

4. Consider all the costs of ownership. Think long-term. It may be true that a car, especially a pre-owned one, may be cheap to buy, but it can also be expensive to own. Therefore, before signing on the dotted line for anything, estimate ownership costs for the long haul. This includes depreciation, insurance, maintenance and fuel costs.

5. Look at other cars in the class. Say you see a car on the street that strikes your fancy. It happens a lot. Nowadays, dealerships and other companies in the auto dealership have a plethora of tools that help you identify, research and compare that vehicle that was “love at first sight” to others that are similar but may be a better fit for you.

6. Set up a test drive. This is one of the most important parts of your vehicle search. After you scour the Internet for the vehicle you like, call or visit the dealership to schedule a test drive.

“By making a test-drive appointment, you ensure that the car will be waiting for you when you arrive,” explained Reed.

While on the test drive, you need to know what to look for. Drive it like you would during your every day life, be that in mountainous terrain or stop-and-go traffic. Try out each seat for comfort that meets your standards. Feel carefully for the smoothness of the ride, and keep the radio off while driving so as to listen for the engine hum.

7. Make your choice and sign for it. If your choice isn’t clear after test driving several cars (never try out just one; you need to compare), sleep on it. If you still can’t decide, go back to the drawing board and rethink your priorities.

But if you think you’ve found your perfect car after following steps 1-7, grab the keys and hit the open road. And as always, contact us today to help get the right financing for whatever you’re looking for.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Financing a Car? Head to Your Financial Institution

Why your financial institution is the best place to get an auto loan
Looking to buy a 474480091(1)new vehicle? If you’re like most people, you probably plan to use an auto loan to finance your new purchase. And if that’s the case, you’ll need to determine the best place for you to obtain financing.

Where you receive an auto loan can make or break a good decision.

“The big mistakes are made in the financing office,” explains Phil Reed, the senior consumer advice editor at Edmunds.com, a leading auto research website. “Making the right decisions can save thousands over the life of the loan.”

One of the best options for getting an auto loan, according to a report on car dealer financing from the Center for Responsible Lending, is through a financial institution, preferably the one that you do your personal banking with.

There are more advantages to seeking a loan through your financial institution than going through a dealership. Here’s why it may work in your favor:

You can get pre-approved early – Getting a loan through your financial institution means that you can apply for a loan before you visit a car dealership, and that way, you’ll know how much you can actually afford to pay before going car shopping. In turn, you’ll eliminate any potential embarrassing moments at the dealership, such as getting declined for financing or approved for a smaller amount than you thought you would be.

You’ll get the best loan rate – By knowing your financing rate and terms, you also have more of an upper hand when negotiating the final price of the car, whereas dealers don’t have to give you the best loan possible.

“Most consumers aren’t aware that dealers can mark up rates without their consent and often don’t know what the interest rate is on their car loan. Dealer finance staff members may tell buyers the rate quoted is ‘the rate that is available,’ rather than the ‘best rate they qualify for,’ to avoid legal challenges over deceptive practices,” notes a New York Times blog. According to the Center for Responsible Lending report, consumers who presumed that their dealer gave them the “best” loan possible actually paid rates 1.9 percent to 2.1 percent points higher than others in a similar credit rank.

You’ll obtain a lower interest rate – Your financial institution may be able to negotiate a lower interest rate for you. And that means you’ll have lower monthly payments or even a shorter loan term, thus you’ll save money and ultimately pay less for the car. If you go through a dealer, you may think you’re saving money, but they could easily burn you with a high interest rate.

“You might think you’ve negotiated the best price on a new car or truck, but the dealer could cost you hundreds or thousands of dollars extra by offering an auto loan with an interest rate that’s much higher than you could have won on your own,” says Interest.com.

It’s more convenient – If you’re financing your car through your usual financial institution and you have an open banking account there, you may be able to add your loan to that account, which will make it easier to make payments simply by logging onto your account that you already have.

Ready to get an auto loan from your financial institution? Stop by or give us a call today to see what we can offer you.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.