June 18, 2012

4 Rules for Vehicle Loans


Although it is ideal to pay cash for a gently used car that is rated highly by Consumer Reports, most vehicle buyers take out a loan. Note that getting a modest car loan and repaying on time will boost your credit score for young people with slim to no credit history.  One of my favorite quotes is from a team of bankruptcy researchers (Sullivan, Warren, & Westbrook): “cars depreciate faster than they toll downhill.” So keep that loan to a modest amount and be realistic about what you really “need’ in a vehicle.
1.      Know your credit situation. Go to annualcreditreport.com to review your free credit report.
2.      Shop around for a loan. NEVER get your financing from the dealer.
3.      Don’t be upsold.  Decide before you go what you can afford and stick to your plan. Skip the rust proofing (no longer needed on new cars), extended warranties, etc. Dealers push they add-ons hard because their profit margins on the vehicles themselves are slender as consumer shop on the internet.
4.      Avoid the Yo-Yo trap of conditional financing. Arrange your loan ahead of time from your credit union or bank.

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