Tag Archive | "Student Loan"

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.

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.