Buying, Financing and Maintaining a Car

1. Buying, Financing and Maintaining a Car Presented by the Delaware Bankruptcy Inn of Court

2. Presentation: • BASIC BUDGETING • BUYING A NEW CAR • BUYING A USED CAR • LEASING • WARRANTIES, SERVICE CONTRACTS & INSURANCE • FINANCING • REPOSSESSION • AUTO REPAIR • FUEL

3. Basic Budgeting

4. Basic Budgeting • THERE ARE THREE WAYS TO CHOOSE A CAR: • Buy a new car  • Most expensive. • Lower maintenance costs. • Longer-term financing with lower interest rate. • Buy a used car  • Less expensive. • May require more maintenance. • Shorter-term financing with higher interest rate. • Lease a car  • Monthly lease payments are generally lower than monthly finance payments on the same vehicle. • Cars are usually new and require minimal maintenance. • Once lease ends, lessee will have nothing. • YOUR CHOICE SHOULD BE BASED ON: • Your personal needs; and • What you can afford.

5. Basic Budgeting • YOUR PERSONAL NEEDS: • Manual / Automatic • Manual cars are less expensive and can get better fuel economy, but can be harder to resell. • Automatic cars may be better for driving in heavy traffic. • All-wheel / Front wheel • All-wheel drive cars handle better in snowy weather. • Front wheel drive cars get better fuel economy. • Space • Smaller cars get better fuel economy and are easier to park. • Larger cars may be better if you have multiple passengers and / or carry cargo in your car. • Pick a car based on your needs, not your wants.

6. Buying a New Car

7. Buying a New Car • KEYS TO BUYING A NEW CAR: • Know what you can afford. • Know what you want in advance. • Do your research. • Negotiate. • Trade-in tips. • Know the language.

8. Buying a New Car • DETERMINE HOW MUCH YOU CAN AFFORD: • Are your current monthly living expenses covered? • Can you afford to take on a new monthly payment? • Consider other financial goals or priorities. • KNOW WHAT YOU WANT IN ADVANCE: • Car model; • Options; • How much would you like to spend?

9. Buying a New Car • DO YOUR RESEARCH: • Check publications / websites that discuss car features and prices. • Examples: Newspapers, Consumer Reports, www.edmunds.com • Compare models and prices in ads and at dealer showrooms. • Contact car-buying services to make comparisons. • NEGOTIATE: • Dealer profit margin is usually 10 – 20%. • Order your car if it is not on the dealer’s lot to avoid paying for extra options. • OR negotiate a good deal on a car that is on the lot if the dealer wants to get rid of inventory.

10. Buying a New Car • TRADING IN YOUR OLD CAR: • First, research the value of your old car. • Second, negotiate the best possible price for your new car. • Third, discuss the possibility of trading in your old car. • Remember: • It may take you longer to sell your old car yourself. • However, you will generally get more money for it than if you trade it in.

11. Buying a New Car • TRADING IN YOUR OLD CAR: • Beware of special promotions advertising high trade-in allowances: • Does the trade-in allowance apply to all cars, regardless of their condition? • Will the cost of the new car go up as the trade-in allowance goes up? • Does the dealer have cars in stock that have no expensive options? • Are the special offers available if you order a car instead of buying one off the lot? • Read the fine print.

12. Buying a New Car • NEW CAR LANGUAGE: • Invoice Price manufacturer’s initial charge to the dealer; generally includes freight. • Base Price cost of the car without options, but includes standard equipment and factory warranty. • Monroney Sticker Price (MSRP) label affixed to car window that shows base price, manufacturer’s installed options with suggested retail price, manufacturer’s transportation charge, and fuel economy (mileage). • Dealer Sticker Price MSRP + suggested retail price of dealer-installed options.

13. Buying a Used Car

14. Buying a Used Car • KEYS TO BUYING A USED CAR: • Follow many of the same steps you would take when buying a new car: • Determine what you can afford. • Know what you want in advance. • Do your research. • Negotiate. • Perform your own inspection and hire an independent mechanic to perform an inspection of the car. • Familiarize yourself with the terms of the Buyer’s Guide.

15. Buying a Used Car • THINGS TO CONSIDER IN YOUR RESEARCH: • What are the crash test ratings? • What do current owners have to say about it? • What is the annual maintenance cost? • What kind of warranty is still available? • What is the cost of yearly insurance?

16. Buying a Used Car • INSPECTION: • Examine the car yourself using an inspection checklist that can be found online. • Test drive the car under varied road conditions. • Ask for the car’s maintenance record. • Talk to the previous owner. • Have the car inspected by a mechanic you hire.

17. Buying a Used Car • WHAT IS THE BUYER’S GUIDE? • Informs buyers of important information about the car. • Becomes part of the sales contract and overrides any contrary provisions. • Must reflect any negotiated changes in warranty coverage. • Dealers who sell 6 or more cars per year are required to post it in every used car they offer for sale.

18. Buying a Used Car • CONTENTS OF THE BUYER’S GUIDE: • What portion of the repair cost will the dealer pay; • What parts and systems are covered by warranty; • What is the warranty length for each covered system; and • Is there a deductible, and if so, how much?

19. Buying a Used Car • PRIVATE, NON-DEALER SALES: • Purchase is usually on an “as is” basis; buyer must pay for any problems that occur after the sale. • Ask seller if you can have vehicle inspected by your mechanic, either at seller’s location or at mechanic’s shop. • Use Buyer’s Guide’s list of car’s major systems as a shopping tool. • Ask to review car’s warranty or service contract. Car may be covered by manufacturer’s warranty or a purchased service contract.

20. Buying a Used Car • DEALER SALES: Types of Cars • Pre-owned cars • Program cars low-mileage, current-model-year vehicles returned from short-term leases or rentals • Demonstrators new cars that have not been owned, leased, or used as rentals, but have been driven by dealer staff

21. Buying a Used Car • DEALER SALES: RESEARCH • Assess the dealer’s reputation with friends and relatives, state Attorney General, Better Business Bureau, and Google searches. • Ask about dealer’s return policy, get it in writing, and read it carefully. • Review Buyer’s Guide posted in every used car.

22. Leasing

23. Leasing • LEASE vs. PURCHASE: • No ownership. • Monthly payments are usually lower. • Annual mileage limits (usually 12,000 – 15,000). • Lease terms are usually 2-4 years. • At lease-end, you may return the car, pay remaining costs, and walk away. • Lessor bears the risk of the car’s future market value. • Auto insurance usually costs more.

24. Leasing • KEYS TO LEASING A CAR: • Shop as if you are buying a car by negotiating all lease terms. • Make sure the manufacturer’s warranty covers the entire lease term. • Ask about extra charges for excessive mileage, wear and tear, and early termination. • Before you sign a lease, take a copy of the contract home and review it carefully away from any dealer pressure. • Obtain lease cost information from the lessor before signing the lease.

25. Leasing • LEASING LANGUAGE: • Closed-end lease return the car at the end of the lease and “walk away.” • Open-end lease pay the difference between the value stated in your contract and the lessor’s appraised value at the end of the lease. • Lease inception fees payments you must make when the lease starts. • Capitalized cost price of the car for leasing purposes plus taxes and extra charges like service contracts and registration fees. • Capitalized cost reduction similar to a down payment; if you are trading in a car, make sure the dealer applies the trade-in value to the price your lease is based on.

26. Leasing • BEGINNING-OF-LEASE COSTS (Lease Inception Fees): • First monthly payment; • Refundable security deposit or your last monthly payment; • Fees for licenses, registration, and title; • Capitalized cost reduction (like a down payment); • Acquisition / processing fee; • Freight or destination charges; and • State or local taxes.

27. Leasing • MONTHLY LEASING COSTS: • Monthly payment; • Additional taxes not included in the payment (sales, use, and personal property taxes); • Insurance premiums; • Ongoing maintenance costs; • Fees for late payments; • Safety and emissions inspections; and • Early termination charges, if applicable.

28. Leasing • END-OF-LEASE COSTS: • If you don’t buy the vehicle, you may have to pay: • Disposition fee; • Charges for excess miles; • Dealers may charge $0.15 to $0.20 for every mile that exceeds the limit. • Charges for excessive wear, such as body damage and worn tires; and • Early termination charges for ending the lease early.

29. Leasing • NEGOTIATING POINTS: • Agreed-upon value of the vehicle; • Up-front payments; • Length of lease; • Monthly lease payment; • End-of-lease fees and charges; • Mileage allowed and per-mile charges for excess; • Option to purchase at lease-end or earlier; and • “Gap” coverage to protect in case of car being totaled or stolen.

30. Leasing • KNOW YOUR RIGHTS: • To use the car for agreed-upon number of months and miles; • To turn in vehicle at lease-end, pay end-of-lease fees and charges, and walk away; • To buy the car if you have a purchase option; and • NOTE: If you buy the car once your lease has expired, it will cost more than if you had bought the car new instead of entering into the lease. • To take advantage of any warranties, recalls, or other services that apply to the car.

31. Warranties, Service Contracts & Insurance

32. Warranties • TYPES OF WARRANTIES: • As-Is No warranty. Buyer is responsible for anything that goes wrong with the car. • Implied Warranties Unspoken, unwritten promises; never expire. • Express (Written) Warranties Full or limited; coverage can be negotiated. • NOTE: Implied warranties are included automatically. • Unexpired Manufacturer’s Warranties  • Ask the dealer for the warranty documents. • Call the manufacturer’s zone office to verify the information.

33. Warranties • IMPLIED WARRANTIES: • Merchantability  Seller promises that the car will do what it is supposed to do. • Applies only to the basic functions of a car. • Breach occurs only if the buyer can prove that a defect existed at the time of sale. • Fitness for a Particular Purpose  Buyer buys car based on dealer’s advice that it is suitable for a particular use. • Example: A dealer who suggests you buy a specific car for hauling a trailer is promising that the car will be suitable for that purpose.

34. Warranties • EXPRESS WARRANTIES: • Full Warranty • Anyone who owns the car during the warranty period is entitled to service. • Service will be provided free of charge, including costs to remove and reinstall a covered system. • You have the choice of a replacement or a full refund if the dealer cannot repair the covered system after a reasonable time. • Limited Warranty • If any of the statements regarding full warranties do not apply, the warranty is limited.

35. Warranties • UNEXPIRED MANUFACTURER’S WARRANTIES: • Must specify the percentage of the repair cost that the dealer will pay; • Lists the specific parts and systems that are covered by the warranty; • Includes the warranty term for each covered system; and • States whether there is a deductible, and if so, how much.

36. Warranties • AVOIDING WARRANTY SCAMS: • If you get mail or phone calls about renewing your warranty, do not take the information at face value. • Take your time. Most legitimate businesses will give you time and written information before asking you to commit to a purchase. • Never give out personal financial or other sensitive information (including your driver’s license number or VIN number) unless you know who you are dealing with. • Be skeptical of any unsolicited sales calls if the call is a recorded message or your phone number is on the Do Not Call Registry.

37. Service Contracts • WARRANTIES v. SERVICE CONTRACTS: • Bothprovide repair and/or maintenance for a specific period. • Warranties are included in the price of the product. • Service contracts, a.k.a. “Extended Warranties,” cost extra, are sold separately, and may be arranged at any time. They provide optional protection on specified mechanical and electrical components of the car available for purchase to supplement any warranty coverage period with the new or used vehicle.

38. Service Contracts • CONSIDER WHETHER A SERVICE CONTRACT IS A GOOD BUY FOR YOU: • Does it duplicate warranty coverage? • Does it extend beyond the time you expect to own the car? • Is it transferable / is a shorter service contract available? • Will the cost of repairs exceed the price of the contract? • What parts and systems are covered? • Is a deductible required? If so, what are the amount and terms of the deductible? • Are there cancellation or transfer fees? • Who backs the service contract, and are they reputable?

39. Insurance • Credit Insurance – Optional insurance that pays the scheduled unpaid balance of your car loan if you die or become disabled. • Guaranteed Auto Protection (GAP) – Optional protection that pays the difference between the amount you owe on your vehicle and the amount you receive from your insurance company if your car is stolen or destroyed before you have satisfied your credit obligation.

40. Financing

41. Financing • FINANCING OVERVIEW: • Financing Tips • Financing Terms • Step-by-Step Guide to Financing • Paying Cash • Obtaining Credit • Direct Lending • Dealership Financing • Car Title Loans

42. Financing Tips • FINANCING TIPS: • Shop before going to the dealer. Get pre-approved by a bank or credit union. • Make the largest down payment possible. • Pay for the tags, title and taxes separately instead of financing them. • Negotiate the best price on the car before applying for a loan at the dealership. • Beware of dealers who ask you how much you can afford to pay each month. Do NOT buy a car based on the amount of monthly payments. • Be aware of penalties for paying off your loan early. • Be wary of ads that promise loans for people with bad credit. These deals often require a higher down payment or have a very high interest rate.

43. Language • FINANCING LANGUAGE: • Annual Percentage Rate (APR) – Cost of credit as a percentage. • Down Payment – Amount paid at purchase to reduce the amount financed. • Amount Financed – $ amount of credit provided to you. • Finance Charge – Total $ amount you pay to use credit. • Fixed Rate Financing – Finance rate remains the same over the life of the contract. • Variable Rate Financing – Finance rate changes over the life of the contract. • Assignee – A bank, finance company, or credit union that purchases the contract from the dealer.

44. Step-by-Step Guide • BEFORE VISITING THE DEALERSHIP: • Evaluate your financial situation to determine how much you can afford to pay each month. • Determine the price range of the car you are thinking of buying. • Understand the value and cost of optional credit insurance if you agree to purchase. • Compare annual percentage rates and financing terms from multiple finance sources. Your credit history may affect the finance rate you are able to negotiate.

45. Step-by-Step Guide • WHEN VISITING THE DEALERSHIP: • Stick to what you can afford in terms of car price and optional products. • Negotiate your finance arrangements and terms. • Read the contract carefully before you sign. • NOTE: There is NO 3-day right to rescind a car purchase in Delaware!

46. Step-by-Step Guide • WHAT HAPPENS WHEN YOU APPLY FOR FINANCING: • Fill out a credit application. • The dealership will obtain a copy of your credit report and sell your contract to a bank, finance company or credit union. • The dealer may still be able to offer manufacturer incentives, such as reduced finance rates or cash back on certain models. • If no special financing offers are available, negotiate the APR and terms of payment with the dealership.

47. Step-by-Step Guide • AFTER COMPLETING THE CAR PURCHASE OR LEASE: • Be aware that if you financed the car, the lender holds a lien on the car’s title until you have paid the contract in full. • Make your payments on time. Late or missed payments incur late fees, appear on your credit report, and impact your ability to get credit in the future.

48. Paying Cash • PAYING CASH: • If money is tight, pay cash for a less expensive car to avoid these problems: • Sale before loan expiration:The amount received from the sale may be less than the amount needed to pay off the loan. • Car repossessed / totaled:You may need to repay the remainder of the loan after the proceeds from the sale of the car or insurance payment have been deducted.

49. Obtaining Credit • WHAT IT DOES: • Increases total cost of car because of interest and other loan costs. • Consider amount of down payment, loan term, and Annual Percentage Rate (APR). • Rates are usually higher and loan terms shorter for used cars than for new cars. • New car loans last 3 to 7 years. • Used car loans last 2 to 5 years. • Be cautious about ads offering financing to first-time buyers or people with bad credit.

50. Obtaining Credit • FACTORS THAT INFLUENCE YOUR APR: • Credit history • Current finance rates • Competition • Market conditions • Special offers