Tips on Purchasing a Car by CrisLapuz

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									                                                                                                       FINANCES




Buying a car                                                            by Donald Ferguson, GMAC



1. When purchasing a car, how do            ment would increase to $5,000.                 money to use toward the purchase of
you determine the amount of your            2. What is the down payment formula?           a car. Do auto companies honor this
down payment and how much month-               Great question: Down payment =              and is it dollar for dollar?
ly payment you can handle?                  Cost of car – amount financed                     Actually, when you are buying the car
  The best way to determine how much                                                       from a dealership, it will allow you to use
monthly payment you can handle is to        3. How does the FICO score affect              the credit card money back program
complete a monthly budget. Start with       the purchase of a car, and how may I           toward the purchase of a car. Most of these
the amount of your take home pay and                                                       offers are for the purchase of a new car
                                            review and discuss my FICO?
deduct your monthly expenses (fixed,                                                       and the value is normally dollar for dollar.
                                            A number of lenders use FICO scores to
flexible and variable expenses). Don’t      determine the risk associated with financ-
forget to include the expenses associated   ing. Norm a l ly, the higher your FICO
with the new car: gasoline, insurance and
                                                                                           5. Some Christians talk about good
                                            score, the lower the rate offered when         debt and bad debt, good debt being
maintenance.                                purchasing your car. The lower yo u r
   D e t e rm the amount of your down
             ine                                                                           when a saleable asset is tied to the
                                            score, the higher the risk and that leads to   loan and bad debt when there is no
payment after you determine how much        a higher rate.
you want to pay as a monthly payment.                                                      saleable asset tied to the loan. Is a
                                               You can review your FICO score by
Let’s say for example that you want to
                                            ordering it from www.myfico.com. There
                                                                                           car loan a good debt or a bad debt?
buy a car that costs $15,000; the special                                                    Oh, tricky question! I’ll answer it this
                                            is a small charge to request this score. If
finance rate is 0 percent (for example).                                                   way. Based on your description, a car loan
                                            you decide to purchase the standard
After completing your budget, you deter-                                                   could be a good debt or a bad dept. If the
                                            FICO score, you can request a free simu-
mine that you want to pay $250 per                                                         value of the car is more than the amount
                                            lation that reviews your score and ana-
month for 48 months – this totals                                                          owed, based on your description, you have
                                            lyzes your personal credit information. It
$12,000. In light of this, your down pay-                                                  a good debt. If you owe more on the car
                                            also answers questions such as “What
ment needs to be $3,000.                                                                   than it is wo rth, then, you have a bad debt.
   There might also be a chance that the    happens to my FICO score if I pay off a           This is exactly why it is so important to
financing source is only willing to         credit card or open a new account?”            understand your purchase up front. We
finance $10,000 of this same vehicle. If                                                   offer some suggestions on our website,
such were the case, then, your down pay-    4. Some credit cards give you back             www.SmartEdgeByGMAC.com that


                                                                                            FALL 2005 PRECIOUS TIMES                69
helps make you a more informed con-
sumer. Budgeting, maintaining good
credit, and understanding your options
and choices make your car buying ex p e-
rience a good one.

6. Is there any special way to save
money for a car?
   There is no special way to save money
for a car – we each do it a different way.
Allow me to share mine. I pay myself
first. I open an account with GMAC
Demand Notes and have my employer
deposit a specific amount from each of
my paychecks. The question I ask myself
is how much I want to withhold per pay-
check. If after I complete my budget, I
          ine
d e t e rm that I can afford $250 per
month, then, since I am paid twice a
month, I ask that $125 be withheld from
each check for a total of $250 per month.
   Not only am I saving for the down pay-
ment, but I also can continue to set this
much aside each month, telling me that I
can comfort a bly make the monthly car
payment.
                                                not permitted to have credit in the past)     finance the car.
7. When is a co-signer on a car loan            this means he has no bad credit. He has           Whenever someone checks your credit
necessary? Is a co-signer on a car              maintained a positive savings account         r e p o rt (called an external inquiry), this
loan okay according to scripture?               balance with this bank for the last 10        may indeed affect your credit score. If
   First, let me say that scripture and         years. In addition, he works part time and    you decide to finance the car and ask the
many financial planners discourage co-          his income more than supports the             dealer to check your credit report, make
signing. Howeve r, a co-signer may be           amount of the loan request. Next, I told      sure he uses the “automotive code” since
requested for a number of reasons, such         them that the $1200 loan would purchase       credit requests for auto loans within a 14-
as, the borr ower has insufficient credit,      a 12-month Certificate of Deposit with        day period are considered one inquiry.
insufficient income, limited work ex p e r i-   the bank, and they could use this CD as
ence, some deroga t o ry credit, and/or a       security for the loan. We would set up        9.What is the difference between bank-
host of other reasons. Even if a co-signer      automatic loan payments from his check-       financed and in-house or dealer-
is requested, the borr ower should deter-       ing account so all car payments would be      financed? How can you lower the interest
mine whom the co-signer should be (a            made on time. After consideration, the        rates without paying additional down
lender cannot request a specific person to      loan was approved, without a co-signer        payments?
co-sign). The important thing is that the       and a 7 percent interest rate – not bad for      An individual can go to a bank, credit
co-signer understands that s/he is guaran-      his first loan. He is on his way to estab-    union or other financing source and
teeing the loan, should the main borrow-        lishing good credit on his own. Good
                                                                                              request a loan; this is considered direct
er default for any reason.                      credit is indeed your power to negotiate,
                                                                                              financing. The proceeds of this loan pay
   My son recently turned 18 and gr a d u-      and understanding credit can help you
                                                build wealth.                                 the car dealer.
ated from high school; he is going to col-                                                       For dealership financing, which is
lege in the fall. I took him to the local                                                     most common, the bu yer arranges
bank to open a checking account and to          8. Should you allow a dealer to check
                                                your credit when you are looking for          financing with the car dealer. The dealer
help establish his credit. He requested a
                                                a car or when you have made your              then usually sells the contract to a bank,
$1200 loan for 12 months. Almost imme-
diately, we were asked if he had any cred-      decision to purchase the car? Is there        credit union or finance company.
it – which he did not. With that, we were                                                        To lower the interest rate without paying
                                                any affect on your FICO score of hav-
told that it might be difficult to get the                                                    additional down payments, one could look
                                                ing your credit checked?
loan approve d, unless I was willing to co-       You should not allow the dealer to          for special finance rates, like the special 0
sign for him. Armed with some prior             check your credit until you have made the     percent GMAC finance rate of the recent
credit experience and some of the               decision on which car you want to pur-        past. As mentioned earlier, one of the best
tips outlined in our seminar                    chase. Buying a car and financing a car       ways to lower your rate is simply to neg o-
(www.SmartEdgeByGMAC.com),                 I    are two separate transactions; make sure      tiate with your dealer or bank. Remember,
carefully explained to the manager that         you negotiate on the price of the car and     the better your credit, the better your
because my son just turned 18 (he was           on the finance rate, if you decide to         chances are for lowering your rate.

70        PRECIOUS TIMES       FALL 2005

								
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