Buy a Used Car The Right Way
You may not be on the market to buy a used car, but at some point, your child, niece, nephew, grandchild or other relative friend or neighbor may be. Buying a used car can come with many “gotcha’s” that can ruin your savings. So, here are a few helpful hints.
WAYS TO BUY A USED CAR
There are many ways to buy a used car. Some are efficient and some are not. You can buy from a family member or friend and know the history of the car. You can also buy from the used car lot side of a new car lot, which is a good option when you go to a car lot. You can purchase a certified used car, but it is a good idea to check out the VIN number any. The certified used cars are usually 3-4 years old and typically are in good shape. You can also purchase a used car at one year old, from a rental car agency. You can also buy directly from a used car dealer, this requires a lot of homework on your part to make sure you have a quality used car, and you don’t get an over-priced car or predatory loan.
A lady I spoke to at a seminar of mine told me she was concerned for her son. He went alone, to a used car lot and brought home a car. She was proud of him for taking the initiative to go alone, negotiate a car price and loan, and provide his transportation to and from work. He was told the length of his loan period, but it was not true. That time period has long past, and he still owed a lot of money on his car loan. She could not understand how this could happen. I told her to get the contract out, read the fine print, and get back to me. Before she contacted me, I told her what to look for. The following items are what she looked for, and sadly, many are what she found.
GET INFORMATION ABOUT USED CAR LOANS FIRST
I informed her that she should talk to her son and tell him the importance of “doing his homework” before he makes a major purchase of any type. The next time he sees; “used cars for sale” – he should immediately start his research.
The first thing to do is to call the local banks and credit unions to find out what the going APR and interest rates are. Currently used car loans interest run from 2% to 5%. If you go to a used car dealer and he offers you 20%, you are better off riding the bus. Alternatively, if he offers you a 7-year loan on an inexpensive used car, that is also a red flag — that something is wrong.
If you can qualify for a used car loan from a bank or your local credit union, these loans are far superior to the used car dealer loans. You can get qualified from your bank or credit union first, then take your “evidence of loan qualification” papers with you to the dealer.
DEALER INTEREST KICKBACK
The women I spoke to about her son’s used car loan informed me that her son’s contract stated he was paying 21% interest, he was told the interest rate was 9% by the dealer. Understand more about debt and money when you get your free book excerpt on debt.
Used car dealers can charge something called a “dealer rate” over the “buy rate”. The dealer works with a lender who gives him the loan and allows him to “mark-up” the interest rate as he wishes, this is the “dealer rate”. The dealer is not really concerned about the markup because he will get the difference between his rate and the lender’s rate, or the lenders “buy rate”. He uses the excuse that his clients all have bad credit, and are high risk. That is not true, her son had good credit. His only problem was that he was a low-information buyer. The lenders “buy rate” is the lower rate the car buyer qualifies for — her son had a very low “buy rate”, but did not know it. Her son did not understand what the sign, “used cars for sale”, really meant, and neither did she.
A sad trick that some used car dealers’ play on low-information buyers is the conditional sale agreement. The buyer unknowingly signs a “conditional sale” agreement, after they have the car for a while, the dealer calls and tells them to bring back the car. He then, informs the buyer that he/she must now sign a permanent sells agreement, but the interest rate has been increased. Click “blog” at the top of this page for part 2 and part 3.
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