Comparing auto loans

The Consumer Financial Protection Bureau (CFPB Has a helpful worksheet for persons shopping for a vehicle loan. See: https://files.consumerfinance.gov/f/documents/201606_cfpb_auto-loan-worksheet.pdf

Learn what questions to ask about vehicle financing:  https://www.consumerfinance.gov/consumer-tools/auto-loans/

If you are having trouble paying your bills during this period of high inflation, watch the video Prioritizing Bills: https://www.consumerfinance.gov/about-us/blog/tools-to-help-pay-bills/

The CFPB is a government agency with an abundance of practical financial information and advice. Check out: https://www.consumerfinance.gov/

 

Just say no to Extended Warranties for Cars

Extended Warranties for Cars Are ‘Fraught With Peril for Consumers’

"While reputable options exist, the robocalls are almost certainly scams, an industry group warns. And for consumers who feel they have been ripped off, there is no guarantee anyone will help" writes Christopher Jensen for The New York Times.

"vehicle service contracts — are “fraught with peril for consumers, especially economically vulnerable people who can’t afford to have their car break down,” said Rosemary Shahan, the president of Consumers for Auto Reliability and Safety."

'In the worst case, telemarketers are just collecting money. “There is no warranty, it is just a flat-out scam,” said Chad M. Canfield, an official with the Michigan attorney general’s office.'

'Policies can cost thousands of dollars, and consumers believe they are getting bumper-to-bumper coverage when they hear claims such as “100 percent of covered repairs are paid.”  But that is "misleading because many things are not covered."

Just say NO! to extended vehicle warranties. If buying a used vehicle, get it checked out first by a trusted mechanic. Instead of buying the warranty, put the money into your emergency savings.

Mounting car debt traps more drivers

Look at all those huge shiny new pick up trucks and SUVs on the roads these days! Are Americans really that affluent? Not really.

How could it make sense to buy a $27,000 vehicle with a $45,000 loan? No I did not mix up the numbers as reported by AnnaMaria Andriotis & Ben Eisen on the front page of the November 11 Wall Street Journal. "Consumers, salespeople and lenders are treating cars a lot like houses during the latest financial crisis: by piling on debt to such a degree that it often exceeds a car's value"

Forget about envying your neighbors driving expensive new vehicles; it may be all debt and more! One-third of new vehicle buyers who traded in a car during first 9 months of 2019 had negative equity. On average these borrowers owed about $5,000 on their trade-in before taking on new debt.

"Easy lending standards are perpetuating the cycle, with lenders routinely making car loans with low or no down payments that can lst seven years or longer." Don't get sucked in! 

Did no one learn any lessons from the Great Recession? 

The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Its Cars

Do you wonder how your neighbor affords a new vehicle every few years? The truth is often ugly!

Ben Eisen and Adrienne Roberts explain in The Wall Street Journal: "Approximately one-third of loans on new vehicles agreed upon in the first half of 2019 were for more than six years,compared with less than 10% a decade ago, according to Experian. With increases in vehicle prices outstripping income growth, the trend is seen as an indication many households struggle to finance their lifestyle."

"For many Americans, the availability of loans with longer terms has created an illusion of affordability. It has helped fuel car purchases that would have been out of reach with three-, five- or even six-year loans."

If you've ever tried to buy a vehicle with cash you likely experienced the hard sell to finance it instead. A buyer can feel like they are being held captive by the dealership if they want to make a cash purchase. That's because "dealers now make more money on the loans their customers take than on the cars they sell."

"The average loan stretches for roughly 69 months, a record. Some last much longer. In the first half of the year, 1.5% of auto loans for new vehicles had terms of 85 months or longer, according to Experian. Five years ago, these eight- and nine-year loans were practically nonexistent."

"As a result, a growing share of car buyers won’t pay off the debt before they trade in their cars for new ones, either because the car is in need of repairs or because they want a newer model. A third of new-car buyers who trade in their cars roll debt from old vehicles into their new loans, according to car-shopping site Edmunds."

And people wonder why so few Americans are financially prepared for retirement!

42% of vehicle loans are for 6 years or longer!

One of my favorite quotes: "Cars depreciate faster they they roll downhill" comes from bankruptcy research by Sullivan, Warren, & Westbrook.
What are buyers thinking if they sign up for a 6 year car loan? The Consumer Financial Protection Bureau (that Republicans want to eliminate) reports that a rapidly growing number of vehicle loans are for terms of 6 years.
It never makes sense to borrow for more than a 2-3 year term to finance a vehicle. While it is best to pay cash for a depreciating asset, it can make sense to borrow a modest amount for a couple of years to build up one's credit record. Showing you can pay off a loan on a regular basis with no missed payments can be a good way for a young adult to build their credit history.

Selling your vehicle privately: Great advice

While you can get more for your vehicle by selling yourself rather than trading it in, it takes more time and effort. And their are potential problems to avoid. Read more at:

6 Steps to Limit Risk When Selling Your Car Privately

https://www.driveo.com/blog/6-steps-limit-risk-selling-your-car-privately/

Vehicle Smog Ratings & Idling

Did you know that your car has a “smog rating”? This number (1-10) reflects vehicle tailpipe emissions that contribute to local and regional air pollution.
A smog rating of 10 is the cleanest. You can find a vehicle’s smog rating on the window sticker of new cars or on fueleconomy.gov. Once you’ve decided on the type of car you want to purchase, you can compare models based on smog ratings and choose the cleanest model that fits your family’s needs. this website also has plenty of information on how to improve the fuel economy of your current vehicle and 10 Top misconceptions about Fuel Economy: http://fueleconomy.gov/feg/topten.jsp?action=Myths
Among the top myths: it's more fuel efficient to let your vehicle idle than to turn it off and on again. WRONG!  Don't idle! It wastes fuel and money and causes air pollution.

What to do BEFORE you get hit by an uninsured motorist

My assistant blogger had the unfortunate experience of being hit by an uninsured motorist. Learn from her experience.

It's not unusual to get in a fender bender in the winter, and most motorists know what to do if this happens. Exchange insurance information, document it, etc. But, what happens if you're hit by an uninsured motorist?

First be proactive. BEFORE you get hit by an uninsured motorist check and make sure your insurance covers this. Likely it does, even if you only have liability insurance. Check the coverage limits and make sure to add this protection if you don't already have it.

Our insurance, for example, had a $250 deductible with a $3500 maximum for uninsured motorist property damage. So, if we were driving a car worth more than $3500, it might be worth it to increase the maximum property damage amount.

*Note that our insurance had no deductible for bodily damage caused by an uninsured motorist. The maximum insurance would pay for bodily damage was $100k per person up to $300k per accident. To put it another way, bodily and property damage can have two different maximum pay out amounts and different deductibles as well. Check your coverage and make sure you're comfortable with the amounts covered and the deductible.

With an uninsured motorist, it's very important to document, document, document! Make sure to get the other driver's contact information, driver's license, and vehicle information, etc. use your cell phone to take photos of vehicles, license plate, their driver license. If the damages are more than your deductible, consider filing a claim with your insurance company, but only if the damage exceeds your deductible by a substantial amount. That’s up to you to decide, keeping in mind that insurance claims often result in higher premiums for years. Will the compensation from your insurance justify potentially higher rates for years to come?

Also, note that one should call the police even for a minor fender bender. Driving without insurance is illegal and most uninsured drivers risk having their car impounded after an accident. Assuming you're the one hit by an uninsured motorist, the more documentation you have the better for you and your insurance company.

It is possible and legal to settle without using insurance. However, a driver without car insurance is unlikely to have the money to pay for damages so make sure you're covered before you get in an accident!

Financing an Automobile

Taking out a loan to purchase an automobile can be a significant part of consumers’ financial lives. And it is a complicated process.  The decision to obtain auto financing includes many factors, including the source of financing, features of the loan, and issues related to down payment, trade-in, and add-ons. To help consumers navigate this process and get the best loan for their situation, the CFPB has released a new set of resources called Take Control of Your Auto Loan.

1.  Take Control of Your Auto Loan website

This web page has easy-to-navigate information and tips on planning to shop for an auto loan, learning to explore loan choices, knowing what is negotiable, and understanding how to close the deal. You can access the website here.

2.  Auto Loan Worksheet

Consumers can use this worksheet to compare loan offers, see the total cost, and negotiate the best deal on an auto loan.  You can access the worksheet here.   

3.  Take Control of Your Auto Loan: A step-by-step guide

Consumers can use this printable guide to navigate the auto financing process, including budgeting considerations, understanding the auto finance process, shopping for an auto loan, negotiating and closing the deal. The guide also emphasizes how to avoid common pitfalls. As a financial educator, you can also use this guide to familiarize yourself with the auto finance process, so that you can provide helpful guidance to those you assist. You can access the guide here.

4. Consumer Voices on Automobile Financing

This report describes the findings of consumer focus groups and consumer complaint data about the challenges of navigating the auto financing process.  We found that many consumers reported they did not shop around and negotiate as much for the financing as they did for the vehicle itself.  The complaint data showed that consumers faced challenges in understanding loan features during negotiations on financing. You can learn more about these findings here.

5. Ask CFPB auto loan questions

There are updated questions and answers about auto budgeting and financing in the Ask CFPB database of consumer questions.  The Ask CFPB auto loan questions can be found here.

Buy or Lease a Vehicle?

Leasing a vehicle rarely makes financial sense. 
"A recent report by personal finance site WalletHub discovered that automakers' finance arms charged 1.45% on average for 36-month car loans from July through September versus a 4.58% annual percentage rate for leases. If you have your eye on a Mini, for example, the 0% finance rate for loans turns into a 7.8% APR if you decide to lease. Want a Dodge? A 2.9% finance rate jumps to an industry-high 10% APR for leases."
You  need excellent credit to be able to get a lease. Basically you are always in debt if you lease vehicles. You'll never be out from under a monthly payment and will pay far more over the decades than if you buy a reliable car and keep it for more than five years (definitely keep it longer than the payments).
One of my favorite quotes from bankruptcy researchers Sullivan, Warren, & Westbrook: "Cars depreciate faster than they roll downhill."

Read more at:  https://www.thestreet.com/story/13748972/4/leasing-a-car-beats-buying-in-only-one-instance.html

Buying a New or Used Vehicle?

Check out the April issue of Consumer Reports magazine for in-depth ratings of both new and used vehicles along with great tips on purchasing and insuring vehicles. Don't buy a car or truck without checking CR, available for sale and at most public libraries.