Tag Archive | "finance"

Negotiating Your Best Deal For Your Car

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Before You Go

Make absolutely sure you can afford it.

Don’t get carried away with the euphoria of buying a car. Remember that this is a huge financial responsibility that you’ll have for several years. Gauge your needs and your means, and then narrow down your search to about three models. Remember, after making such a huge purchase, some financial sacrifices will be unavoidable, but you shouldn’t have to skip two of three meals a day to be able afford this car.

Do your homework.

  • Familiarize yourself with every option available on the cars you choose. It’s a lot easier for a salesperson to convince you that you need something if you don’t fully understand what it is or what it does. Then study every other aspect of the car, from the engine to the finish. Become conversant in the technical terms.
  • Look up the invoice price (what the dealer paid for the car, usually inflated by 3% or so) and the manufacturer’s suggested retail price (MSRP) — your offer, the fair price, lies between the two. Keep in mind that dealers are accustomed to buyers’ first offers being below the invoice price. Avoid this crucial mistake, and you’ll show that you’re an educated customer ready to make a reasonable offer. The single best source for invoices and MSRPs is edmunds.com’s “True Market Value” calculator.

Choose a dealer wisely.

You can get each dealership’s Customer Service Index (CSI) from the car manufacturer. Choose accordingly. The right dealer can make all the difference in the world, and ultimately save you money and frustration in the long run. While all dealerships pay the same price for their cars, those with high CSIs may get bonuses from the manufacturer that may enable them to cut you a better deal.

At the Dealership

Choose your salesperson.

Ask to see the fleet manager first. If that fails, ask for the sales manager, and if that fails, pick from one of the salespeople. If you don’t like the salesperson, or get the distinct impression that this person will be unwilling to make a deal, leave and look elsewhere. Remember, if it walks like a shyster and talks like a shyster…

Take a test drive.

Inspect every aspect of the car before getting in. Look at the drunk, slam the doors, hell, kick the tires. Look at the finish, the shape. Can you see yourself in this car? Get in and give it a good beating on the roads. Try it out on residential streets and highways alike. Ask the salesman to stay quiet so you can concentrate, but ask any questions freely. It never hurts to seem apprehensive.

Don’t gush.

You don’t want to come across as though you need this car, even if you do. Make it seem as though you could gladly take it or leave it, then walk into the dealership and start negotiating.

Make a deal.

  • First off, avoid any questions about how you intend to finance the car. Say you’re paying in cash, even if you’re not. Financing can be a big moneymaker for the dealership if the buyer isn’t informed. Stick to the price of the car and deal with financing later, if you haven’t already made an arrangement with a bank or lending institution. The only exception — do your research ahead of time to determine if the dealership is giving you a competitive rate.
  • Make your informed offer, and be prepared for the ‘ol thrust-and-parry. The salesperson will try to get you to go higher, to gush over the car. He may perhaps consult his manager (several times) to “try” to get the best deal for you. The best way to combat these tactics is to seem doubtful or disinterested. Make him work for the sale by removing any sense of urgency.
  • Ask to see the invoice. If he doesn’t want to show it to you, you’re probably about to get screwed.
  • Never let them forget that you’ll gladly go elsewhere if you are displeased with the treatment or deal you’re receiving.

As long as you’ve come prepared, you should get the deal you want. And if you don’t, simply try another dealership. Remember, this is a huge investment, every dime saved helps, and every slip-up can be pretty costly.

Financing Your Dream Car

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If you’re looking to purchase a new car, most finance experts will simply tell you: “don’t.” No matter how you look at it, a car is not a profitable investment. Your newly purchased vehicle starts to depreciate the moment you drive it off the dealership’s lot.

But, from a quality of life perspective, a new car can often be a sound buy, especially if you’re wise about paying for it. First, determine if you can realistically budget a new car (along with all the added expenditures – insurance, gas, maintenance – that go along with it). Then, make sure you arrange a payment schedule that won’t be a crippling economic burden. This is where financing comes in. Your financing plan should correlate directly with your budget. Remember that you will be paying for the total price of your car (minus any rebates), associated taxes, and the interest rate on your loan.

Go into the financing process with this in mind: If you’ve negotiated a great deal, and gotten a decent price for your trade-in, why would you want to give back a good portion of it in high interest rates?

Most dealerships can arrange financing for you, but you’re often likely to get a better deal if you walk into the dealership to make your final arrangements with a financing plan already in hand.Even if the dealership offers you a killer price — and some do — you’ll only know that if you’ve done your homework ahead of time.

Sources of Financing

There are several ways to fund your vehicular purchase:

  • Banks.

    Banks tend to offer lower interest rates than car dealers, particularly if you are already a customer. Typically, the more money you put down, the better your financing rate will be. This is because the bank will generally use the down payment as a “hedge” against the depreciation of the car. The necessary down payment can be anywhere from 10-20%.

  • Credit Unions.

    Because credit unions have lower overhead costs than banks, they are more likely to be able to provide a lower financing rate, which is often at least a full percentage point lower than that of a bank.

  • Home Equity Loans.

    This is an increasingly popular way of financing a car purchase (provided, of course, you actually own a home). In essence, you use your home as collateral on the car loan. If you have enough equity — based on the net worth of your home (how much it’s worth minus how much you owe on it) — then it’s an entirely feasible method through which to finance your dream vehicle. Even better, the interest on a home equity loan is tax-deductible — a rarity among loans. The important thing to remember here is that you’re using your home as collateral. So make sure you can afford that car payment, or you may be sleeping on a park bench.

  • The Internet.

    What comprehensive search would be complete without Asking Jeeves to conduct all that pesky research for you? Actually, online applications usually offer a quick turn-around, providing you with various willing lenders sometimes within hours of your request. Some of the more reliable online sites are: Eloan, LendingTree.com, and CapitalOne Auto Finance.

  • The Dealership.

    The rate at the dealership will often be higher than other available rates simply because financing makes up a considerable portion of the profit for the business. That being said, it’s not impossible to get a good deal if you go through the car manufacturer’s own finance company. Some car companies offer special deals, around the 2.9% rate for example, generally towards the end of the model year. The real advantage of dealership financing is convenience — but only if you’ve done your homework ahead of time.

The Final Steps

After you finish all that exhausting research, you should end up with about three financing options from which to choose from. They should all be plans you can live with for at least the next four to six years. Compare the rates and check them against the current national average — which in early 2001 was about 8.85% — and narrow down your search by finding the one that best suits your needs and your budget. If you’re in good credit standing and you’ve done your homework, you won’t have to barter off any of your relatives to find a financing option you can live with.

Banking Basics

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In college, you evaluated your needs (sweatshirt or Tupperware?), made your decision and opened an account with the respective bank. After graduation, the process of choosing a bank remains the same; the impact of your decision, however, is greater because the prospect of actually earning money means you need to closely and effectively manage it.

I can almost guarantee that at some point in your first year or two out of school, you will overdraft your account. It happens to the best of us. But you can reduce the chances of mismanaging your money or racking up big service fees if you put the effort in up front.

But you don’t have to take it from me. According to the American Bankers Association (ABA), the first thing to do when evaluating banks is to identify your “banking personality.” The following questions will help assess your motives for choosing a new bank, weigh your financial needs and prepare for a rewarding relationship with your bank.

  • What is your goal in establishing a banking relationship?
    Perhaps all you need is a checking or savings account. Maybe you anticipate you’ll need a loan in the next year or two. Examine your financial goals to determine what you want and expect from your bank.
  • How much money can you keep on deposit each month and how many checks will you write? This will help you determine if you need a simple or more complex account structure. Most new grads can get by with a “no frills” account that offers a minimum of service at an extra-low price. If the only checks you write each month are to your landlord and to Visa, this is probably the way to go. Keep in mind that many banks limit the number of checks you can write during a calendar month and charge a set fee for each cashed check over the specified limit, so read the fine print.
    For those with more sophisticated needs, consider “packaged” or “multi-service” accounts that offer a variety of services for one fee. Other accounts are designed cafeteria-style with a “pay-as-you-go” service structure.
  • Is there a minimum balance requirement?
    This is a key question to ask your bank. The student account you had in college probably didn’t require a minimum balance. Now, it will be harder to find accounts that don’t force you to keep a few thousand dollars in the bank at all times – and you probably won’t be able to do this for awhile.

    • Does the bank provide overdraft protection?
      As we said, you may find yourself in need of this service. Typically, banks will link your accounts so funds will automatically transfer from savings to checking if you write a check that’s bigger than your balance. Many will also cover an overdraft up to a certain credit limit. Avoid this situation – but if it does happen, make sure you pay back the bank quickly to avoid hefty financing charges.
    • Will you be buying a home or car or making another large purchase in the near future?
      If so, you’ll want to find out about the variety of loan products offered and the qualifications necessary to secure them. Do you need to have a certain amount in the bank to qualify? How do their interest rates compare with other loan providers?
    • Do you want to start saving for the future?
      Many banks now offer uninsured investments, such as mutual funds, as well as the more traditional insured deposit accounts. Even if you’re not ready to start socking away for the future, you may be able to get a better interest rate on your savings by opening a money market account or a CD.
    • Do you like the convenience of automated teller machines and other types of electronic services – like banking through your PC – or do you prefer to deal directly with bank personnel?
      Answering this question will help you determine if you’d be happier at a bank with an extensive branch network emphasizing regular, evening or weekend hours, or one that focuses more on electronic services like ATMs and PC banking. To cut back on personnel costs, some banks now charge for transactions conducted through bank representatives. If you don’t desire the human touch or prefer to pay your bills online, you may want to consider one of several online banks, which typically have the lowest fees of all.
  • That being said, many banks do offer a basic checking or savings account with no minimum balance – for a monthly fee. However, this fee typically is waived or significantly reduced if you opt for direct deposit of your paycheck (check with your employer to make sure they offer this option). If you absolutely can’t find an account without a required balance, make sure you can handle any fees the bank charges for dipping below the minimum.

Once you’ve identified your “banking personality,” begin calling, visiting or researching banks via the Internet. Yahoo Inc. provides a comprehensive online banking center that lets users get information from nearly 200 banks around the nation. Remember to compare fees and service charges as well as interest rates on loans and deposit accounts. What does each bank charge for services like cashiers checks, safe deposit box rental and ATM use?

Be sure to clarify the exact terms of the account before committing yourself to it; Tupperware is not adequate compensation for low interest rates and high banking fees.

Getting Personal About Your Finances

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It’s time to put the phrase “personal finance” in your vocabulary.

If the phrase “personal finance” makes you think of long, boring discussions about stocks, bonds and interest rates, well, your impression is partially correct – all those subjects do have their place in the vast world of money and finance. In most ways, however, the emphasis on personal finance is on the first word, “personal,” which means it’s all about what you do with your money. And what could be more interesting than that?

Exactly What Is Personal Finance?

Simply put, “personal finance” is every aspect of your life that deals with money – everything from buying a ticket to the movies, to finding an affordable apartment, to leasing that new Beetle you’ve had your eye on, to putting money into a retirement plan. Your personal finances affect your relationships, your lifestyle and, very possibly, your perception of yourself. Eventually, it will influence where your kids will go to school and the quality of your retirement.

Understanding Personal Finance

On the surface, personal finance sounds complicated. It sounds scary. It sounds like something we’d rather not have to deal with. So we let our hard-earned money lie in a bank account, making little or no interest, while we go about tackling the finer aspects of, say, parasailing.

It’s not that we can’t learn about personal finance and managing our money. We don’t learn about them because we think personal finance – taxes, insurance, investment and interest – is only for people who have a lot of money. In reality, it’s just common sense.

As you move through different stages and situations in your life, you’ll need to know different things concerning personal finances. So let’s take you, for example. You’ve just landed your first job, and maybe the salary isn’t as much as you had hoped. In fact, you’re trying to figure out how you’ll get enough money together for a security deposit on that apartment you’ve been looking at. You need to worry about budgeting your income to meet all your expenses, finding some transportation to and from work and paying off college debt.

Personal Finance Is Not Just for Your Parents

Who needs to think about personal finance? Anyone with any money at all should be concerned about where it’s going and whether it’s being managed to its best advantage. Sure, that includes your parents, but it also includes you.

The decision to not save or the lack of a decision to save occurs for various reasons, including the following:

  • You’re too busy having a great time spending the first real money you’ve ever made to worry about saving any of it.
  • You figure you’ll have plenty of time to worry about saving later (like after you get married).
  • You’ve got an apartment, a car and plenty of spending money; what else could anyone want?

You can take shortcuts when it comes to your personal finances, or just ignore them altogether and things will be OK, for a while. After you’ve rounded up the security deposit, you probably can get by just paying what you owe and stashing any leftovers in a savings account.

However, these carpe diem attitudes offer no security or comfort for later in your life. In the back of your mind, you probably know you should be saving some money. But you’re not too worried about it, as you’ve got steady income and no responsibilities. You figure you’ll probably be married in five or 10 years and then you’ll have to get serious about many things, money included.

Even if you can’t save a lot, you should be saving something in your 20s and 30s. No one’s saying you have to save half of each paycheck. Small savings do add up.

Money’s Not a Dirty Word

Although sex has become an acceptable conversation topic, talk about money is still somewhat taboo. Studies have shown that parents are more likely to talk with their kids about sex than money (and you know how reluctant most parents are to talk about sex). Money is seen as a “private” matter, best left to intimate (or angry) discussions between partners, spouses, or financial consultants and clients.

OK, it’s reasonable to think you don’t want the guy living two doors down the hall to know the amount of your weekly paycheck or the balance of your savings account. But what could be wrong with a little 401(k) discussion among friends? Or an intelligent talk about leasing your next vehicle instead of buying it?

So, next time you get together for a drink with some friends, test the waters. If they all move away from you or pointedly change the topic of conversation, you’ll know they’re not yet ready for money talk. But who knows? You may start a lively and interesting conversation and add a new dimension to bar talk. You might even learn something.

Top Financial Surprises

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Taxes

As salaries increase, so do tax brackets (rates). This can be an especially severe surprise for young grads since they have few deductible expenses such as mortgage interest and children to recoup money from taxes.

Health Insurance

You’ll need this. Most companies offer fairly decent plans, at a price. Make sure you understand your options so you can choose a plan that fits your budget and medical needs. And if you’re laid off and want continuous coverage, consider temporary health care such as COBRA (www.cobrahealth.com) or www.GradMed.com.

Dental Insurance

Your employer for a nominal fee should provide coverage. Otherwise it may be cheaper to pay for bi-yearly cleanings than dental premiums.

Life Insurance

If you’re single, you don’t need life insurance. However if you are married or have a family, do some investigating now – the younger and healthier you are, the cheaper it is to obtain.

Renter’s Insurance

Since this is not covered in your lease, it makes sense to pay a couple of hundred dollars to protect yourself from theft, flooding and fire.

Student Loan Repayments

Many graduates find student loans a significant financial burden. Remember to include repayments in your budget as they will begin within six months of graduation. Most grads are consolidating their loans in order to reduce their monthly repayments. For more information, visit the Student Loan Consolidation Program web site, www.slcp.com.

Auto Insurance

As a first car buyer – you may be shocked at how much this costs. Premiums are higher in big cities and vary according to what car you drive and your driving record.

Retirement Savings

Investment advisors universally recommend start saving as early as possible and employers often offer beneficial contribution-matching plans. But it is money out of your pocket today. If you can afford it, then sock as much in your 401K as you can.