Intro to Auto Loans

First Time Auto Buyer

Presented by

Brad Clegg

What do you need to get a loan?

◼

Credit is the most influential factor in a lender’s

decision to grant a loan.

What is Credit?

◼

Credit is your financial reputation.

Multiple Choice

The maximum amount of time over which an individual agrees to repay an auto loan. Typically ranges from 36 to 84 months.

• Loan

• Loan terms

• Down payment

• Annual percentage rate (APR)

Multiple Choice

A fixed amount of money, percentage of the selling price or item of value that is traded in to reduce the cost of purchasing a vehicle.

• Credit history

• Loan terms

• Down payment

• Annual percentage rate (APR)

Multiple Choice

A formal and extensive record of how good an individual is at maintaining their credit and paying their current and past debts in a timely manner.

• Credit score

• Loan terms

• Lender

• Credit history

Multiple Choice

Made by a bank or other lender to an individual so that person can purchase a new or used vehicle, using the vehicle as collateral for the loan.

• Auto loan

• Loan terms

• Lender

• Annual percentage rate (APR)

FICO Score

◼

FICO

–

Named for the score’s

developer, Fair Isaac Corporation.

◼

FICO score ranges from 350 to 850.

◼

Scores between 675

–

850 are

considered good credit.

◼

Scores less than 600 are considered

poor credit.

FICO Score

◼

You can buy your score from one of the three

major credit reporting companies:

◼

Equifax

◼

Experian

◼

TransUnion

How To Improve Your Score

◼

Establish credit by obtaining some form of loan.

◼

Be punctual and

CONSISTANT!

◼

Check credit report often.

◼

Keep debt in check.

◼

Avoid excessive inquiries.

◼

Keep accounts open.

◼

Keep a healthy mix (mortgage, credit card, a car loan,

and perhaps a retail card)

Multiple Choice

When making an automobile purchase decision, you always attempt to find the vehicle that provides the _____ price and the _____ quality.

• lowest; lowest

• highest; highest

• lowest; highest

• highest; lowest

Multiple Choice

When searching for a vehicle to purchase, which of the following variables is an important factor in the purchase decision-making process?

• reliability

• safety

• cost efficiency

• all of the choices are correct

How Mistakes Affect Your Score

Four C’s of Credit

◼

Capacity

–

annual income?

◼

Character

–

will you repay the loan?

◼

Collateral

–

do you have assets?

◼

Capital

–

what are you worth?

Advantages of Pre

-

Approval

◼

Gives you confidence and the upper

-

hand when

negotiating a price at the dealership.

◼

Ensures that you don’t buy more than you can

afford.

◼

Provides an opportunity to find the best interest

rate available

–

rather than relying on dealers who

have may have a hidden agenda.

RESOURCE 3: COMPARE - AUTO LOANS

Perhaps you think it will be easy to make
responsible decisions regarding auto loans in your
future. But, decision making can be tricky when
you’re considering your dream car. On the next
slide, follow the directions on the sheet to
complete the activity.

Multiple Choice

Why is it important to “haggle” when negotiating to buy a car?

• Good hagglers save themselves an average of 10-15% on the price of the car.

• Science proves that hagglers are more successful people in all aspects of life.

• The video does not support haggling.

Buying a Car

Things to avoid while shopping for a car:

1. Do not show enthusiasm! Dealers take advantage.

2. Never buy a car in a hurry!

3. Do not give the salesman collateral.

4. Avoid being switched to a lease without doing your

homework.

5. Do not trade in your car without knowing its value

in advance.

6. Avoid financing automatically at a dealership.

Consider Buying a Used Car

Benefits of Used Cars

◼

Used cars do not depreciate as rapidly compared to

new cars.

◼

One year old vehicles are about 20

-

30% cheaper than

new ones.

◼

Used vehicles are sometimes still covered by extended

warranties.

◼

You can trace the history of the car using the Vehicle

Identification Number (VIN).

◼

Some CU’s offer new car rates on used vehicles.

Buying Used

◼

Have an independent mechanic check out a used car

before you buy it.

◼

Ask questions

–

pay attention to road noise, handling,

brakes, seating comfort, etc.

◼

Order report on used vehicle from carfax.com

Using the Web

◼

Web sites make car shopping a little easier. Do

your homework on sites such as

KellyBlueBook.com.

◼

Check online customer satisfaction and safety

ratings.

◼

Web sites are good for researching, but not

necessarily for car buying. Be careful, and only

deal with people you can trust.

Auto Dealer Extras

◼

Extended Warranties

◼

Fabric and Paint Protection

◼

Rustproofing

◼

Maintenance Plans

◼

Ding Protection

◼

GAP Insurance

Everything is Negotiable

Consider asking for all these “Extras” for free…

You Can Always Buy “Extras”

Somewhere Else

◼

Extras at a car dealership are like extras at a

movie theater…they are WAY OVERPRICED!

Remember: You can always purchase extras

from your bank, credit union, or insurance agent

at about half the cost!

Beware of “Bait and Switch” Tactics

It’s not unusual for dealerships to use “bait and switch” tactics to

get consumers in the door, only to find that what they thought

was true, isn’t.

Things to watch for:

◼

0% Financing

◼

Manufacturer Rebate

◼

Outstanding prices

If it sounds too good to be true, it most likely is…

Insurance

First time auto buyers usually overlook the cost

of insurance when purchasing a vehicle. It can

be very expensive.

Sometimes your monthly

insurance payment can equal your car payment.

Remember the following coverages when
shopping for a new car…

Does not equal

Multiple Choice

Of the four parts of auto insurance coverage, which part will pay for repairing your car?

• Liability
• Comprehensive
• Collision
• Medical Payments/Bodily Injury

Multiple Choice

Of the four parts of auto insurance coverage, which part protects your from acts of God?

• Comprehensive
• Liability
• Collision
• Medical Payments/Bodily Injury

Multiple Choice

The amount of money you have to pay out of your own pocket before the insurance pays is called the _____________

• Premium
• Estimate
• Deductible
• Co-Pay

Insurance Coverages

◼

Liability

(Required)

–

covers bodily injury, and damage to property

of others that you are found liable for in an accident. Make sure

you carry adequate limits. The minimum coverage required by the

state is often too low.

You are responsible for whatever your

insurance company does not pay.

◼

Collision

(may be required by your lender)

–

covers damage to

your vehicle, minus your deductible.

◼

Comprehensive

(may be required by your lender)

–

covers

miscellaneous damage to your vehicle, minus your deductible. For

example, if you hit a deer or if your car is stolen.

Cost of Insurance

Here are a few factors that affect the cost of

insurance:

◼

Gender (males cost more to insure)

◼

Residence (some cities have more accidents)

◼

Grades (you can get a good student discount)

◼

Type of vehicle (sporty models cost

a lot

more)

◼

Insurance coverage and limits

◼

Driving record

How to Decrease the Cost

◼

Shop around.

◼

Consider a higher deductible.

◼

Drop collision and/or comprehensive coverage

on vehicles worth $1,000 or less (check with

your lender first).

◼

Buy a low profile car.

◼

Take advantage of discounts (low mileage, auto

seat belts, airbags, multi

-

vehicle, no accidents,

driver training, good student, anti

-

lock brakes).

Monthly Car Budget

You should consider the following factors when

planning a monthly budget for your vehicle:

◼

Gas

◼

Oil changes

◼

Maintenance

◼

Insurance

◼

Car payment

Depreciation

Depreciation is the invisible cost of ownership.

In the first year of ownership, your vehicle may

lose 20% of its original value due to

depreciation. By the end of the fifth year, your

vehicle’s value drops by an average of 35%.

Multiple Choice

A unique number assigned by the automobile industry and used to identify an individual auto.

• vehicle identification number (VIN)

• manufacturer's suggested retail price (MSRP)

• Buyers Guide sticker

• sticker price

Multiple Choice

Placed on the window of a used car to explain the car's warranty coverage or lack of it.

• vehicle identification number (VIN)

• manufacturer's suggested retail price (MSRP)

• Buyers Guide sticker

• sticker price

Multiple Choice

Before buying a car, it is wise to ___________________ the car to see how well it handles in traffic, on the open road, and when starting, stopping, turning, and parking.

• inspect

• test-drive

• read reviews

• ask someone who owns that car

Multiple Choice

Which of the following is an expense that is not actually paid, but can represent a sizeable amount of money?

• fuel

• depreciation

• registration

• maintenance

Match

Match the following

• The ___________ of a loan is the amount of money borrowed.

• A preapproved maximum amount that an individual can borrow is called a(n) _________.

• __________ generally cost less to buy and insure.

• For a used car to be ___________, it must have gone through a thorough mechanical and appearance inspection along with necessary repairs and replacements

• The annual cost of credit a lender charges for extending credit is the ___________.

principal

line of credit

used

certified

annual percentage rate (APR)

• principal

• line of credit

• used

• certified

• annual percentage rate (APR)