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					               THE ABC’S OF VEHICLE FINANCING CURRICULUM




           Getting a Vehicle Loan

Module Objectives
    Buying a vehicle is a major purchase. You can borrow the money you need from
    a bank, a credit union or other financing company, many people like to finance
    through the dealership from which they purchase the vehicle. Getting a loan for
    a large amount of money entails research, knowledge, and finally negotiation of
    the best deal for you. After completing this section you will be able to:

           Understand how a lender decides whether to finance your vehicle loan
           Calculate how much you can afford to borrow
           Recognize companies that make car loans and provide vehicle financing
           Recognize the types of loans that are available for vehicle purchase
           Understand how to shop for the best loans rates and terms
           Understand the loan application process
           Understand the loan approval process
           Recognize your rights as a consumer




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                            THE ABC’S OF VEHICLE FINANCING CURRICULUM



Module Table of Content
MODULE OBJECTIVES .................................................................................................... 1
KEY TERMS ...................................................................................................................... 3
VEHICLE LOAN TRANSACTION BASICS ...................................................................... 4
   WHAT IS A VEHICLE LOAN? .............................................................................................. 4
   PRINCIPAL, INTEREST AND APR ....................................................................................... 4
   DOWN PAYMENT .............................................................................................................. 5
   TRADE-IN ......................................................................................................................... 6
HOW DO I GET A VEHICLE LOAN? ................................................................................ 7
   WHO CAN GET A VEHICLE LOAN? ..................................................................................... 7
   THE 4 C’S OF CREDIT: A REVIEW ..................................................................................... 8
   CALCULATING YOUR GROSS INCOME ................................................................................ 9
APPLYING FOR A VEHICLE LOAN ............................................................................... 10
   WHAT IS A CO-BORROWER? .......................................................................................... 12
   USING PRE-APPROVAL AS LEVERAGE............................................................................. 12
   HOW TO DETERMINE WHAT I CAN AFFORD ....................................................................... 12
   SHOPPING FOR THE RIGHT FINANCING ........................................................................... 12
     Loan Categories ....................................................................................................... 12
WORKING WITH LENDERS ........................................................................................... 14
   FINDING THE RIGHT LENDER .......................................................................................... 14
   SHOPPING FOR A VEHICLE LOAN .................................................................................... 14
   COMPARING LOANS........................................................................................................ 15
   APPLYING FOR DEALERSHIP FINANCING ......................................................................... 16
   SPECIAL LOAN PROGRAMS............................................................................................. 17
     Dealer Incentives ...................................................................................................... 17
     Review: Things to Keep In Mind When Shopping For a Vehicle: ............................ 18
LOAN APPROVAL PROCESS ....................................................................................... 20
   APPROVAL OR REJECTION.............................................................................................. 20
   YOUR RIGHTS AS A CONSUMER ...................................................................................... 20
   ALWAYS COMMUNICATE WITH YOUR LENDER ................................................................. 21
SECTION REVIEW .......................................................................................................... 22
ADDITIONAL LEARNING RESOURCES ....................................................................... 24




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                  THE ABC’S OF VEHICLE FINANCING CURRICULUM




                                   Key Terms

Annual Percentage Rate or APR: Total cost or charge for the financing of a loan
                          yearly expressed as a percentage of the loan amount.
Car Loan:                   A personal loan to purchase a car.
Co-Borrower:                A person that signs a loan contract and shares
                            responsibility for the debt with another borrower.
Conventional Loan:          A private loan secured by real estate or personal property,
                            not guaranteed by the government.
Dealer Originated Financing: The loaning of money to an individual or business to
                           purchase a car by a company that works in partnership
                           with the dealer.
Dealership Incentive:       Price promotions or discount programs offered by auto
                            manufacturers to increase sales or to reduce excess
                            inventory. Dealers may elect to pass the savings on to the
                            buyer.
Down Payment:               The upfront part of the purchase price paid in cash or
                            trade-in value by the buyer in order to obtain a loan. The
                            down payment reduces the amount of the loan.
Gross Income:               The amount of your pay before taxes and payroll
                            deductions.
Interest:                   The amount paid to a lender for money that is borrowed,
                            usually described as an Annual Percentage Rate (APR).
Lemon Law:                  Laws in many states that provide remedies to consumers
                            for vehicles that repeatedly fail to meet certain standards of
                            quality and performance during the initial period of
                            ownership of a vehicle.
Super Prime Loans:          Loans with the lowest rate of interest on bank loans at a
                            given time and place, offered to preferred borrowers.
Principal:                  The original amount of the loan or debt on which interest is
                            calculated.
Secured Loan:               A loan secured by property.
Sub-prime Loans:            A type of loan that is offered to individuals with lower credit
                            scores that do not qualify for prime loans, usually with
                            higher interest rates.
Trade-in:                   The net value of your vehicle credited toward the purchase
                            or lease of another vehicle. If you own the vehicle being
                            traded-in, you sell it to the dealer or lessor. If you are
                            leasing the vehicle being traded-in, you are turning in the
                            vehicle (either at the scheduled end of the lease or upon
                            early termination) to the dealer or lessor who has agreed to
                            pay any remaining balance on your agreement

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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM




Vehicle Loan Transaction Basics

What is a Vehicle Loan?

     Anytime you borrow money you sign a promissory note, which is your written
     promise to repay the loan. When you get a car loan, you are agreeing to use the
     car as the loan guarantee. In other words, if you don’t make the car payments,
     the car goes back to the dealer/lender.

     A car or mortgage loans are considered secured loans. Secured loans are
     protected by an asset or collateral of some sort. Once you have applied for a
     loan and it has been approved, you will sign loan documents that details all of the
     loan terms including interest, number of payments, and total amount financed.
     Read everything carefully before signing the paperwork, once you have signed
     the loan documents, very little can be changed and you are bound by a legal
     contract.


Principal, Interest and APR

     In a previous lesson, we reviewed the APR and interest concepts. However,
     because your interest can drive your car payment up or down, we will take some
     time to look at these terms again.

            Interest is the cost paid to a lender for the money that was borrowed

            Principal is the original amount of the loan or debt on which interest is
            calculated.

            Annual Percentage Rate or APR is the total cost or charge for the
            financing of a loan yearly expressed as a percentage of the loan amount.

     Prior to signing for a loan, shop around for the best Annual Percentage Rate or
     APR. Even a 1% of APR can affect the price of your purchase for the life of the
     loan. The following table shows how much you would pay for a five-year, $5,000
     loan with different APRs.




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                THE ABC’S OF VEHICLE FINANCING CURRICULUM



          COMPARING THE ANNUAL PERCENTAGE RATE (APR)

                          The cost of a 5-year, $5,000 loan


    APR                    Monthly payments                      Total Cost

    10%                        $106.24                           $6,374.40

    11%                        $108.71                           $6,522.60

    12%                        $111.22                           $6,673.20

    13%                        $113.77                           $6,826.20

    14%                        $116.37                           $6,980.00

    15%                        $118.95                           $7,137.00

    16%                        $121.59                           $7,295.40

    21%                        $135.27                           $8,116.20

    Your “principal” amount owed is the figure to which the interest is applied to
    figure your balance and monthly payments. The lower the principal amount is
    the less interest you will pay. If you pay extra against your loan during the time
    you have it, make sure that you let the lender know that you want it applied to
    your principal.


Down Payment

    We all know that a new car loses a significant amount of its value when you drive
    it off the lot. That's where the down payment -- the amount of cash you bring to
    the purchase -- comes in. The down payment can demonstrate to a lender that
    you're willing to make an investment in the deal, and perhaps gain a more
    favorable interest rate. It also helps take some of the shock out of the instant
    depreciation so you're not "upside down'' on your loan for years and years.

    Upside down
    What's it mean to be "upside down?'' You learned in an earlier chapter that it's
    the industry term for a car owner who owes more on a vehicle than it's worth.
    Almost every new car -- and most used-cars -- transactions involve a period of
    being upside down on the loan. After all, if you put 10 or even 20 percent down
    on a car and it depreciates 25 percent in the first three months, you're upside
    down, at least for awhile.


    But where it gets worrisome is when the owner remains upside down three and
    even four years into a loan. You've also seen earlier how some folks make
    matters worse by rolling the old car's remaining debt into a new loan. They're


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                     THE ABC’S OF VEHICLE FINANCING CURRICULUM



         forced to pay interest and make payments on a car they don't even own
         anymore. And tacking the extra debt on their new auto loan puts them upside
         down all over again.

         Up the down payment
         How do you avoid that situation, aside from making the best initial purchase deal
         possible and not rolling your old car's loan into the deal? Make a substantial
         down payment. These days, the average down payment for an auto loan isn't
         much of a payment at all. A typical car buyer puts just 5 percent down. That often
         doesn't even cover the cost of sales tax and other fees, much less make a dent
         in the depreciation factor.

         If at all possible, a buyer should plan on putting down at least 20 percent of the
         purchase price. With that much down, a buyer should begin to see positive equity
         about two years into a four-year loan, assuming the vehicle's kept in good shape.
         If you can't put down 20 percent, scrape up as much cash as you can and keep
         the term of the loan as short as possible. 1


Trade-in

         Buying a car means having to pay for it in one of several ways. You can pay
         cash, take out a loan or lease a vehicle. You may also trade in the vehicle (called
         a trade-in) you currently own to the auto dealer, who will assign a trade-in value
         and apply it toward the purchase price of the replacement car. Generally, the
         dealer bases the trade-in value on the vehicle's blue-book value.

         Even if you trade in your vehicle, a dealer or other lender may still require you to
         make a cash down payment, depending on your credit history and their
         willingness to bargain.




1
    AOL Money and Finance: Sizing up your down payment by Bankrate.com

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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM




How do I Get a Vehicle Loan?
     Obtaining financing can be confusing and intimidating. Lenders have tried to
     streamline this process as much as possible; however, for some individuals this
     process might be confusing. As you complete this course you will be able to
     understand the loan process, and increase your confidence about securing a
     vehicle loan or any other kind of loan in the future. Below are some of the steps
     involved:

            Research: Shop around for the right lender and loan product. This will
            take some time and effort, but finding a loan with the best rates for you
            can save money in the long run.
            Pre-approval: Before you begin shopping for your dream car, you will
            want to know how much you can afford to spend for a car. Meet with a
            lender at a bank, credit union or dealership of your choice to apply for a
            car loan, taking all the necessary documentation.
            Loan Application: After you have a sales contract, apply for the loan by
            completing a standard loan application. The form includes questions
            about your income, assets, debts and credit as well as the vehicle that
            you want to purchase.
            Loan Processing: Once the loan application is completed and
            processed you will be notified whether you have been approved or not.
            (Most car loans are processed on line by a loan processor using a
            computer and might be approved in less than an hour.) If you are
            approved, you will review and sign your loan documents agreeing to pay
            the lender for the money borrowed. You will give the lender rights to your
            car if you fail to repay the loan.

Who can Get a Vehicle Loan?

                                                                      Most consumers
                                                                      ask the question,
                                                                      can I get a good
                                                                      vehicle loan?
                                                                      How much
                                                                      interest I will have
                                                                      to pay? To
                                                                      answer these
                                                                      questions, look at
                                                                      yourself through
                                                                      the eyes of the
                                                                      creditor. The
                                                                      lender wants to
                                                                      make sure you
                                                                      can afford the
     loan and that you are likely to repay the loan.


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                   THE ABC’S OF VEHICLE FINANCING CURRICULUM



       This section explains how lenders decide to whom they will loan money. It will
       show you how to figure out how much money you can afford to borrow.

The 4 C’s of Credit: A Review
       Lenders are in business to make loans

       The person approving or rejecting the loan relies solely on the information in your
       credit history. Therefore, it is important to know what is on your credit report and
       what your credit score it before applying for any loans for financing. This
       information will enable you to be prepared for the process and attain the best
       possible loan for your new vehicle.

       To decide if you are a good credit risk, a lender looks at four things, called the
       4 C’s of credit – capital, capacity, credit history, and collateral.

Capital
       This is the amount of cash you have available. The more cash you have in
       savings accounts, certificates of deposit, bonds or any other place where you can
       access it quickly, the more comfortable the lender is that you can cope with
       emergencies. What are you worth? Do you have other assets, such as savings
       account, certificate of deposit that could be used in an emergency to repay the
       debt?

Capacity
       The ability to make the new loan payments and still pay all your other living
       expenses is called capacity. What is your ability to repay the loan? Do you have
       a job or another income source? Do you have other debts? How much are your
       debts and what percentage of your monthly income do you use specifically to pay
       debts?

Character
       A lender will look at your credit and the way that you have repaid any money
       borrowed in the past. Will you repay the loan? Have you used credit before? Do
       you pay your bills on time?


Collateral
       Your new car will be the collateral or extra security for your loan. If you fail to
       repay your loan, is there something of value that you agree to forfeit? If you are
       buying your first car, it could be used as collateral to insure that you will repay the
       loan. If you default (do not pay the loan as agreed), you lose your car.

       Many people do not have a credit history. They do not have a checking account
       or credit cards and have not borrowed money from banks. If you do not have a
       credit history, the lender might consider your good payment record on other
       regular monthly payments such as rent or phone companies. Most car loan
       companies will mainly look for your capacity to pay, your good credit history and
       your collateral which will be the same car that you are purchasing.


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                   THE ABC’S OF VEHICLE FINANCING CURRICULUM




        Keep in mind that the better your credit history and your capacity to pay, the
                lower the interest rate and the monthly payment you will get.


Calculating your Gross Income
        Applying for a loan requires the lender to ask a great amount of your personal
        information such as “what is your gross income”? Knowing and gathering some
        of the information beforehand will make your loan application experience a lot
        easier. Below is a table to calculate your gross income:

        In order to figure your gross annual (yearly) and gross monthly income, let’s use
        the following steps. Gross Income = amount before taxes and payroll
        deductions. (A similar exercise table was used on “Income” Section of the
        “Counting your Money” lesson.)

Exercise
        Check the box by the answer that describes how often you get paid.

Step 1: Determine how often you get paid.

        □ Weekly (generally, every Friday)

        □ Bi-weekly (every two weeks, generally every other Friday)

        □ Semi-monthly, (twice a month, for example on the 15th and 30th of the month.

        □ Monthly (once a month)

Step 2: Calculate your gross monthly income

    Pay before      How are you        Multiply by:         Equal gross    Divided by 12
      taxes           paid?                                annul income     equals gross
                                                                          monthly income
$                 Weekly                     52        $                  $
$                 Bi-weekly                  26        $                  $
$                 Monthly                    12        $                  $




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                THE ABC’S OF VEHICLE FINANCING CURRICULUM




Applying for a Vehicle Loan
    When applying for a vehicle loan, it’s essential to ensure you have all the
    relevant information on hand. For joint borrowers this information will be required
    for both (or all) signers at the time of application. The information needed varies
    depending on the lender, but in general it requires:

           Proof of income and employment details, usually pay stubs or a signed
           letter from your employer
           Proof of identity such as a photo identification card or other form of
           identification accepted by the lender
           Assets, your lender will want to know how much is in your bank accounts,
           any property and vehicles or other personal property you own, whether
           you rent or own your home or apartment
           Debts such as credit cards, mortgage loans, verifications of other loans
           held
           Details of the vehicle you are purchasing, generally dealer invoice, any
           registration papers, proof of insurance

    The following is a complete list of all items an underwriter could request in a loan
    transaction. Most loans today are processed with automated underwriting which
    reduces the amount of documentation required to approve a loan. Please do not
    be overwhelmed.

           Current paycheck stub/s covering a one month period.
           W-2’s for the last two years.
           Your most recent three months of bank statements. Including retirement
           and investments (all pages of every statement).
           The last two years of your rental or mortgage history. Rental or landlord
           name and phone number, mortgage coupon or statement with address
           and account #s’ for payoff must be included.
           If you are:
                   o Self-Employed – complete last 2 years 1040’s.
                   o Corporations – complete 2 years 1120 tax returns if you hold
                       25% or more stock in the company.
                   o Partnerships – complete 2 years 1065 tax returns if 25% or
                       more ownership in the company. K-1’s must be provided if
                       there is a partnership or corporation.
                   o Tax extensions filed must be submitted.
                   o 1099 income – Complete last 2 years of 1040’s.
                   o Proof of self-employment with a no-income verification loan.
                       I.E. Business license, sales tax license, or CPA letter certifying
                       minimum 2 years self-employment.
           Divorce decree and separation agreement.
           Bankruptcy papers (complete filing plus discharge papers).
           Current rental leases on all income properties, complete two year 1040’s.
           Copy of signed purchase contract with earnest money check. Realtor’s
           names and phone numbers.

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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM



             Old title work, surveys and/or appraisals are very helpful in expediting the
             process (refinance only).
             Copy of note on first mortgage (second mortgages only).
             Homeowners Association dues, condos/townhomes-property manager &
             phone numbers.
             Listing agreement/copy of contract for house being sold for down
             payment and a copy of the signed settlement statement, proof it is sold
             (purchase only).
             DD214 (required on VA loan only).
             Subordinating second mortgage - (refi-not paying off 2nd mortgage).
             Second mortgage company’s phone #, contact person, and loan #.
             12 mo. Cancelled checks on alimony/child support income or 12 months
             bank statements evidencing monthly deposits that match the income
             exactly.
             Gift Letter (should state relationship, amount gifted by each donor, no
             repayment) cashier’s check or money with remitter/receiver referenced.
             Include name, address and phone # of donor. Specify (will gift/have gifted
             as of date).
             A copy of your valid identification (any one of the following current ID’s):
                      o State ID Card
                      o Passport
                      o Driver’s License

      Your lender will consider your debt repayment history as well as your credit
      history overall.


Exercise:


      Practice completing a loan application form using the attached sample loan
      application form. For keeping your personal information confidential, do not use
      real information. Make a list of all required information. Make sure that
      whenever you complete an application at the finance department of the
      dealership or at your financial institution you bring all required information.




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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM




What is a Co-Borrower?

      In certain occasions, you might need a co-borrower if you have not established
      credit at all or if you had some credit problems in the past. If more than one
      person will be responsible for repaying the loan, the second person listed on the
      application is the co-borrower. When someone signs as a co-borrower on a loan,
      he/she assumes responsibility for the repayment of the debt.

A co-borrower’s obligations are the same as those of the primary borrower. If the
primary borrower does not repay the loan, the co-borrower accepts responsibility
                                  for repaying.

Using Pre-Approval as Leverage

      You may use your loan pre-approval as leverage to negotiate at the car
      dealership. Sales people at the dealership earn their income by selling vehicles,
      options, and service products. They will want to sell you a vehicle especially if
      you have been pre-approved by a lender. You may visit the loan department at
      your bank, credit union or dealership prior to choosing your vehicle.

How to determine what I can afford

      Financial experts recommend spending no more than 12% to 15% of your after
      tax monthly income for car payments. To calculate how much you can afford,
      multiply your monthly net pay (take home pay after taxes are deducted) times
      15%. Your car payment should not exceed this general guideline. You can find
      a car payment calculator on the Internet, but remember that there is more to the
      cost of a car than just the car payment. You may want to consider the cost of
      insurance, parking and any repairs and add it to your total monthly car cost.

Shopping for the Right Financing

      The lending market has evolved considerably in recent years. It is easy to get a
      loan these days because there is a lot competition and innovation in the lending
      process, still lenders will check your credit scores and history to base their
      decisions. Automated underwriting makes loan approval fast.

Loan Categories

      Auto loans typically fall under two main categories: prime and sub-prime loans.
      Prime and sub-prime lenders differ in the type of loans they offer. Prime lenders
      offer “A” loans to those with credit scores of 650 or higher. Sub-prime lenders
      provide loans to everyone else. Sometimes though, financing companies offer
      both types of financing.

      A subprime loan is a type of loan that is offered at a rate above prime to
      individuals who do not qualify for prime rate loans. Quite often, subprime
      borrowers are often turned away from traditional lenders due their low credit


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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM



     ratings or other factors that suggest that they have a reasonable chance of
     defaulting on the debt repayment.

     Subprime loans tend a higher interest rate than the prime rate offered on
     traditional loans. The additional percentage points of interest often translate to
     tens of thousands of dollars worth of additional interest payments over the life of
     a longer term loan.
     However, getting a subprime loan could still be a good idea if the loan is meant to
     pay off a higher interest debt (such as credit card debt) and the borrower has
     no other means for payment.

     The specific amount of interest charged for a subprime loan is not set in
     stone. Different lenders may not value a borrower's risk in the same manner. This
     means that a subprime loan borrower has an opportunity to save some additional
     money by shopping around.

     Some banks and credit unions make loans on the “sub-prime” area. Usually,
     specialty companies make sub-prime loans and they charge accordingly. On
     average, a sub-prime borrower pays at least 4 percentage points more. For
     example, if the average national auto loan rate is 9.04%, then a sub-prime
     borrower would pay 13.04%. On a typical four-year, $18,000 loan, the payments
     would be about $448 at 9.04% and $483 at 13.04%.


                               Prime vs. Sub-prime
Compare the monthly payments between a four-year, $18,000 loan at 9.04% vs. 13.04%
(a sub-prime rate)
Percentage rate:          9.04%                  13.04%
Monthly payments:         $448                   $483



     Sub-prime loans have higher rates and fees since the risk is higher for lenders.




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                  THE ABC’S OF VEHICLE FINANCING CURRICULUM




Working with Lenders

      Conventional Loans – The easiest way to get car financing is to go to a bank or
      finance company and take out a loan that is secured against the vehicle itself.
      Most loans from finance companies must be paid off over two to five years,
      although banks offer personal loans that can be repaid over a longer period.

      Automotive loans are generally offered at a fixed interest rate, which simplifies
      budgeting for repayment. One of the biggest factors behind the record sales of
      new cars has been the low interest rate environment available in the market, and
      the ability of consumers to borrow against their equity in their homes to buy new
      cars. Financing companies offer other options such as different types of leasing
      for individuals and business owners. Ask your dealership for any innovative loan
      incentives that they might be offering at the time of purchase.

Finding the Right Lender

      Before you begin
      working with a lender,
      shop around to find
      someone who has the
      experience and skills to
      help you find the best
      loan product. You may
      find a lender through
      referrals, newspapers,
      the telephone and the
      Internet. In comparing
      lenders you should
      analyze:

             Whether or not they have competitive interest rates
             The experience of other borrowers
             Whether or not they are reputable as a company

Shopping for a Vehicle Loan

      Before you shop for financing make sure you check your credit rating by
      requesting a credit report. When you buy your online credit report from one of the
      credit bureaus it is known as a soft inquiry. This has NO adverse affect on your
      credit or credit score because you as the consumer are merely reviewing your
      own credit report. Many consumers are confused about how credit scores work
      and how credit report inquiries can affect your credit score.

      When you go to an auto dealer and apply for a car loan or you apply for a
      mortgage or credit card the creditor undertakes what is known as a hard inquiry.
      This type of inquiry shows up on a credit report and can negatively affect your

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                    THE ABC’S OF VEHICLE FINANCING CURRICULUM



      credit score because you are making an actual application for credit. Too many
      recent applications for credit are often an indication that a consumer may be
      overextended or has been denied credit elsewhere. This is the reason why many
      recent credit inquiries may lower your credit score.

      Before you go to the dealership, your bank, or credit union, do some research on
      the Internet. The best way to find who has the best rates is to do your own
      comparison shopping. If you are looking for an auto loan online, remember to
      use primarily vehicle loan companies that will help you compare quotes and
      offers from more than one lender. This will help you get the lowest interest rate
      and best terms possible.

      Also, make sure to fill out your application as accurately as possible in order for
      the lender to give you the most realistic offer they can.

      While there are no instant solutions to find the best auto loan rates, on line sites
      do make it faster. A couple of hours securing your vehicle financing will both
      save you money and make the car buying process easier.

Comparing Loans
      When obtaining financing to buy a car, there are two factors that influence the
      total price of the car (1) time and (2) interest rate. The following table shows
      rates of various lenders:


 Lender                New Car Purchases                        Used Car Purchases

                 APR          APR          APR          APR            APR         APR
               36 months   48 months     60 months    36 months      48 months   60 months
Lender 1          7.79%        7.59%        7.99%         8.49%         8.49%        9.49%
Lender 2          7.54%        7.65%        8.00%         8.69%         8.69%        9.69%
National          8.90%        9.07%        9.09%         9.86%         9.86%        9.89%
Average


      The calculations below illustrate the effect of time on total purchase price.
      Although these figures are calculated using the same interest rate, in the real
      world, often the longer the loan term, the higher the interest rate.

      Suppose you plan to borrow $20,000 to purchase a new car and you have
      already been qualified for a loan at 7.54%. The lender asks you if you want to
      pay the loan back over a three, four, or five year period. If you choose five years,
      your payments will be lower; however, you're going to pay more for the total price
      of your car than if you chose a three year repayment schedule. The cost of
      buying your car over time is noted in italics

           3-year loan: $622.49 monthly payment x 36 months = $22,409.64 ($2,409.64)
           4-year loan: $483.95 monthly payment x 48 months = $23,229.60 ($3,229.60)
           5-year loan: $401.14 monthly payment x 60 months = $24,068.40 ($4,068.40)


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                   THE ABC’S OF VEHICLE FINANCING CURRICULUM




       Doing research, comparing loan terms and finding a lower interest rate might
       seem like an overwhelming task to you now, but it can save you hundreds on the
       price of your car.

Worksheet: Shopping for a Car Loan

Name ____________________________           Date:_________________

Instructions

You have decided to buy a new car. Select the model that you like and find out how
much it costs. Then, shop around for the best car terms.

When you have finished, look at your chart. Which loan will you take? What makes it
more appealing? Which institutions offered the best rates, and why do you think they did
so?

Amount of Loan $________________


                                 Financial Institution

                      Bank 1             Bank 2            Bank 3           Bank 4
APR

Length of Loan

Monthly
Payment

Total Finance
Charge

Total to be
Repaid



Applying For Dealership Financing
   This is the typical process when you apply for dealership financing.

   1. Before you sit down, be sure you have thought through what you want
      from the finance deal!
   2. Most dealerships have a Finance and Insurance (F&I) Department,
      which provides one-stop shopping for financing.



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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM



   3. The F&I Department manager will ask you to complete a credit
      application.
   4. The dealership will obtain a copy of your credit report.
   5. Since dealers usually sell your contract to an assignee such as a bank,
      the dealership will submit your credit application to one or more of
      these potential assignees to determine their willingness to purchase your
      contract from the dealer.
   6. The finance companies will evaluate your credit application using
      automated techniques, such as credit scoring, where a variety of factors,
      like your credit history, length of employment, income and expenses may
      be weighted and scored. Since the finance company does not deal
      directly with the buyer, it bases its evaluation on your credit report and
      score, credit application and the terms of the sale such as the amount of
      down payment.
   7. Each finance company decides whether it is willing to buy the contract,
      notifies the dealership and offers you a rate at which they will buy the
      contract.
   8. Make sure you ask your dealer if the car you are interested in has
      any special financing offers or rebates.
   9. When there are no special financing offers available, you can
      negotiate the annual percentage rate (APR) and the terms for
      payment with the dealership, just as you would negotiate the price of the
      vehicle. The APR you negotiate with the dealership is usually higher than
      the wholesale rate.

Special Loan Programs
      In an effort to keep up with competition and to offer better deals to consumers,
      finance companies offer a vast array of auto loan programs. There are programs
      for first time car buyers, programs for students, military personnel, and even
      green loan programs. Green loan programs offer special discount incentives to
      buyers of environmentally friendly vehicles. Credit unions and dealerships all
      have their own special programs to accommodate the buyer’s needs. No matter
      how good a special program sounds to you, do your homework and compare
      interest rates and loan terms carefully.

Dealer Incentives
      Automakers periodically offer an option to get a rebate or low interest rate when
      you buy a car. To decide which option makes sense for you, simply compare the
      savings you’ll get with a lower interest rate to the size of the rebate and the
      rebate’s impact on the total cost of your vehicle.




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                 THE ABC’S OF VEHICLE FINANCING CURRICULUM



Making Your Decision: Selecting the best vehicle at the best price
     The most important figure when financing a vehicle is its price. To get the best
     possible vehicle with the best price requires researching. Vehicle buying used to
     mean spending your Saturdays or Sundays visiting different dealerships looking
     at cars and reading stickers on windows. But, the Internet has changed forever
     the way to shop for a vehicle. It gives you the best of both worlds: the ability to
     research and comparison shop at your leisure, in the privacy of your own home,
     and put you in touch with qualified dealers who can answer questions and
     arrange that test drive. 90% of buying a car is research. So making your
     decision after sound research is the best way to ensure that you're happy with
     your new purchase.



Review: Things to Keep In Mind When Shopping For a Vehicle:
        Consider all of your vehicle needs, from who will be riding in it to what kind of
        driving you'll be doing. How often you use it and for what purposes, how long
        you want to keep your vehicle, etc.
        Decide how much money you can spend.
        Research various makes and models to determine which are the safest, most
        reliable, and gets the best gas mileage. Consider how much you can spend
        on maintenance and operating costs.
        Narrow your choices to several vehicles. Try to avoid having your heart set
        on one vehicle- it may reduce your bargaining power and there are many
        makes and models that you might not consider until you get behind the
        wheel.
        Comparison shop. The Internet allows you to readily see what vehicles
        compete with each other and how they differ.
        Once you've decided on a vehicle, consider questions about financing,
        insurance, service contracts, trade-ins, etc.
        Always take the vehicle out for a long test-drive, on low speed roads as well
        as the highway before purchasing it. Notice noise levels, driver and
        passenger comfort, braking and acceleration, turning radius, how easily it is
        to parallel park, etc.
        Read and understand the purchase contract thoroughly before signing.

Working with a Lender

     After you have selected the loan and lender, you can begin the application
     process. During this process you will meet with the lender to fill out a loan
     application. You can apply for the loan before or after you find the car you want
     to buy. However, you’ll need to know how much money to borrow when you
     submit your application. Having a lender look at your income and debt prior to
     the purchase will give you a good idea of how much you can borrow.




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                       THE ABC’S OF VEHICLE FINANCING CURRICULUM



Gathering Your Records

        Before meeting with a lender, call and ask what documentation (papers)
        you need with your losan application. As we have mentioned throughout
        the lessons, a lender has to have proof that you have a good credit record,
        a steady income and monthly expenses that you are able to pay. Use the
        “Loan Documentation Checklist “on the next page to help you gather your
        records and papers.

Loan Documentation Checklist

General Documents                                       Bank Activity
□      Social Security card and driver’s                 □   Most recent savings account statements
       license or other picture ID                       □   Most recent checking account
                                                             statements
                                                         □   Most recent statements for stocks and
                                                             bonds balances
Income                                                  Current Debt
□      The name, address, phone                         □    For each creditor (bank, credit card or
       number and fax number of your                         person) with whom you have an
       employers for the past two years                      outstanding debt: name, address,
□      Most recent two month’s pay                           account number, balance, monthly
       stubs                                                 payment

All Other Income                                        Explain Bad Payment History
□       Child Support payments                          □    Bankruptcy discharge papers
□       Pension payments
□       Seasonal employment income
□       Government assistance
□       Social Security benefits
History of Good Payment
□       Letters from landlords*
□       Receipts of rental payment*


*These items are for unusual circumstances and will be requested to you by the lender if needed.




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                  THE ABC’S OF VEHICLE FINANCING CURRICULUM




Loan Approval Process

      You have finally made your decision on the vehicle that you need, the amount
      that you can and the best loan for you. Now is time to apply for the loan and if
      approved, sign on the dotted line. Normally, when you apply for a loan, you (and
      any co-borrowers) will meet in person for about an hour with your loan officer. It
      is likely that you will:

             Discuss in detail the terms of the loan
             Complete and sign a written application form
             Give the lender copies of the documents you gathered
             Sign permission letters for the lender to send verifications of employment
              and deposits
             Discuss any issues that the lender should know about
             Discuss any questions that you will have about the loan and its terms

Approval or Rejection

      If the lender delivers good news to you, when your loan is approved, you should
      be prepared to read over your loan documents. Take as much time to make sure
      you understand the terms of the loan. Loan quotes are generally estimates;
      however, the final product should look pretty close to the initial lender’s offer. It is
      very difficult to change incorrect information once the loan documents have been
      signed, so ask questions about anything that does not look right. Check to make
      sure that your name and address are correct and that the interest rate and
      monthly payments are what you agreed to pay.

      If the lender delivers bad news to you, and your loan is rejected, do not despair.
      Ask the reasons why your loan was not approved, get a copy of the credit report
      used, and work to fix and improve your credit so that next time you can buy the
      item that you want. Shy away from accepting loans with extremely high interest.
      Sometimes, it pays to wait and get a better deal in the long run.


Your Rights as a Consumer

      You have the right to have your loan application reviewed fairly. Federal laws, in
      particular the Equal Credit Opportunity Act, do not allow loan applicants to be
      discriminated against, or treated differently, because of their race, religion, race,
      national origin, sex or marital status, or because they receive public assistance.

      There are also state laws that apply to the purchase of a vehicle such as the
      “Lemon Law”, which provide remedies to consumers for vehicles that repeatedly
      fail to meet certain standards of quality and performance. Lemon laws vary by



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                THE ABC’S OF VEHICLE FINANCING CURRICULUM



     state and may not cover leased vehicles.

     The Federal Trade Commission works for the consumer to prevent fraudulent,
     deceptive and unfair business practices in the marketplace and to provide
     information to help consumers spot, stop, and avoid them. To file a complaint or
     to get free information on consumer issues, visit www.ftc.gov or call toll-free,
     1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261.

Always Communicate with Your Lender

     Once you start the application process, one of the most important things to do is
     to maintain continuous communication with your lender. Your lender should be
     able and available to answer any questions or concerns in a reasonable amount
     of time. If a lender does not answer your phone calls or e-mails promptly, this
     may be sign of trying to tend to too many customers at once or just being plain
     careless. Not a good sign of someone you want to handle your business.




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                   THE ABC’S OF VEHICLE FINANCING CURRICULUM




Section Review
Choose the best answer by placing a check mark on the box: (Suggested Time on Task 20 min)
1. A loan application can be done before you choose
your vehicle
       □ True
       □ False
2. The lender will consider the following to approve my
loan:
       □ monthly debt
       □ income
       □ past credit
       □ all of the above
3. The 4 C’s or credit are:
       □ capital, capacity, character, and collateral
       □ consistency, capital, capacity, and collateral
       □ capital, consultancy, collateral, and credit
       □ consistency, capacity, collateral, and
       character
4. A guideline for your monthly car payment should be
25-30% of your income.
       □ True
       □ False
5. The Federal Trade Commission protects consumer
rights and provides educational resources
        □ True
        □ False
 6. The Equal Credit Opportunity Act protects
       □ the lender
       □ the buyer
       □ the credit card companies
       □ none of the above
7. If your credit is denied by a lender, you have the
right to
         □ ask the lender for the reasons
         □ get a copy of the credit report used
         □ re-apply if the denial was due to an error
         □ all of the above
 8. A lender might require the following at the time of
application
        □ Picture ID
        □ School grades
        □ Letters from friends
        □ none of the above




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                  THE ABC’S OF VEHICLE FINANCING CURRICULUM




  9. Someone that shares payment responsibility on a
loan is known as:
        □ Lender
        □ Co-borrower
        □ Dealer
        □ Salesperson
10. An example of a dealer incentive might be a lower
interest rate
        □ True
        □ False




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                  THE ABC’S OF VEHICLE FINANCING CURRICULUM




    Additional Learning Resources
Federal Trade Commission (FTC) — Provides free
online consumer information and resources for auto
leasing, purchasing and financing
        1-877-FTC-HELP (1-877-382-4357)
           TTY: 1-866-653-4261

Web Sites and contact information

   Federal Trade Commission (FTC) Web site:
   www.ftc.gov/bcp/menu-auto.htm
   National Association of Auto Dealers (NADA) –
   Provides auto financing resources for consumers.
   Web site: www.nada.org
   Kelley Blue Book – Provides consumers with car
   pricing and values for new and used cars, and
   resources for auto financing. Web site:
   www.kbb.com




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