Uncle Festus Or Aunt
There's no shame in a little family help
now and then. And lots of people need to be making $10,000 yearly
gifts to tax-shield their estates a bit.
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In Your Life Insurance
If you're one of the few remaining people
with whole-life insurance, you can borrow that cash value for a charge
generally less than half of that from any other source. Your insurance
will stay in effect, too. Ask your agent for a statement of cash value.
If you choose to finance by this method, make arrangements to pay
monthly sums back into your policy.
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A Home Equity
Line Of Credit
If you are a responsible borrower, a home
equity loan may have certain advantages, particularly from a tax point
of view. But don't use this method to finance a car into the 22nd
century-keep the loan as short as you can stand. You may want to check
with your tax accountant to see if this option makes sense for you.
Recommended sources: Many credit unions and
most banks offer home equity loans. If you have a relationship with
a bank or a credit union, go to them first.
What about online or TV-advertised home equity
mortgages? In my opinion, forget it. Forget it twice if you are interested
because you're worried about your credit or because you already have
a high debt-to-value rating on your home or condo (if you owe over
75% of your property's value). Many of these online home equity services
are very dangerous. Likewise, the TV hucksters. These companies usually
charge dramatically higher rates and fees than conventional banks,
and they give you virtually no grace periods before they seize your
home. Some of these online companies will issue you a credit card
tied directly to your home equity loan. Cut it up. Why?
Read the fine print on that credit
card. One lender states, "You may lose your home if you miss
any of these payments." How would
you like to lose your home because you were late on a credit card
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With all their faults, credit unions are
perhaps the best place to be and if you don't belong, you probably
NOTE: Because I have consulted extensively
with credit unions around the country, please hold what I say about
the value of credit unions to the highest scrutiny.
I think you will find that in this age of
high technology, nanosecond cons and Internet glitz, many credit unions
are your cheapest and certainly least deceptive source for a loan.
Good credit unions often give you high-quality, unbiased consumer
The drawback with some credit unions
Unfortunately, a number of credit unions
are hurting their members by teaming up with dealership to offer
"indirect lending" as they try to compete.
- How do you know it's an indirect loan?
You don't have to go to the credit
union to get your loan. You do all the credit union paperwork right
there at the dealership.
- Why should you mistrust indirect loans?
Your credit union--which is supposed to be saving you money--is
probably paying the dealership a fat commission for processing your
loan: sometimes up to a thousand dollars. Would you drive to the
credit union to save a thousand? Or even a paltry two hundred?
- Protect yourself by first calling
your credit union and asking if the dealer fee is paid by you or
paid by the credit union. If it's paid by you, do the paperwork
directly at your credit union. And while you're there, why not find
your credit union manager and ask him or her why the credit union
had not disclosed their extra charge to you for filling out paperwork
at the dealership?
The pros for most credit unions
- Credit unions are non-profit and member
owned. Because credit unions are member-owned cooperatives,
the credit union has a vested interest in its members financial
health. They don't want to see you overextend yourself.
- Credit unions will generally finance
persons with little or no credit. If you are a first-time borrower
or have very little established credit, most credit unions will
make you a car loan. If you've had problems with your credit, but
can explain them ("I was run over by a car dealer and missed work."),
they will probably work with you. And unlike subprime lenders, credit
unions won't take you to the cleaners.
- Credit unions generally have no selling
bias. Credit unions couldn't care less if you buy a Ford or
a Honda. Their advice, therefore, is generally much more impartial.
- Credit union total loan costs generally
beat bank and dealership loan costs even during dealership "rate
sales." The key phrase here is "total loan cost," which includes
interest, rebates, and fees. And it is only the total loan cost
that matters to you. Click on "How
10% Can Beat 0%" to see how.
- Credit unions generally make used car
loans at the same rate as new car loans. That alone could
save you thousands. Other lending sources often charge ridiculously
higher interest rates on used vehicle loans. Many states have no
limit on used-car interest rates. What the traffic will bear is
the favorite rate. (Maximum Used-Vehicle Interest Rates, State by
State ) If you plan to finance a used vehicle, always check a credit
union's rate against your other loan sources.
- Credit unions generally charge much
less for life insurance and disability insurance, and for service
agreements, too. Seventy-two percent of all credit unions provide
life insurance at no cost. Compared to dealerships and Web sellers,
most credit unions charge about half for disability insurance. Most
credit unions offer service agreements for under $500 dollars, while
many dealerships and Web sellers charge you up to $1900 for virtually
the same agreement.
- Credit unions loan money on a simple
interest basis. Some dealerships, Web sellers and other lenders
still charge interest in a way that loads the interest on the front
of the loan which penalizes you if you play the loan off early.
- Many Credit unions really offer credit
counseling. And they build your credit, too. Some dealerships,
many Web sites, and lots of manufacturers like to pretend they give
sound financial advice, but their main goal is profit.
Finding A Credit Union If You Don't Have
Ask at work. If your company doesn't actually
have its own credit union, it may have a relationship with one that
allows you to join. If your company has no credit union, the Credit
Union National Association has two Web pages allow you to track
down a credit union for which you may be eligible. Go to http://www.cuna.org/data/consumer/whatis/join/sixways.html
or to http://www.cuna.org/data/consumer/culinks/cu_locator.html.
Credit Unions On The Web
If you already belong to a credit union,
it probably has a Web site and, if so, definitely will have an auto
section online. If you belong to a larger credit union, you can
probably get a pre-approved loan online. Find that credit union
newsletter you've been meaning to read and look for the credit union
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BRAND NAME PRIME
A straightforward bank loan can be your best
choice-particularly if you already have a physical relationship with
a bank (actually have a branch you deal with), if you have good credit,
and if you are dealing directly with the bank-not dealing "indirectly"
with the bank through a dealership or online service. Remember "direct"
means you go into the bank to arrange the loan. Indirect loans almost
always mean the bank is paying the arranger a fee and it is customary
in the auto business to pass all fees and expenses on to you, the
How bank rates compare to "captive" rates.
If you are financing directly, a bank is
generally cheaper than the "captive" houses used by dealerships
(such as GMAC, Toyota Credit, or Ford Motor Credit). That's generally
true, even if the captive source is offering 2.9% financing. See
"How 10% Can Beat 0%." Bank used-car loan rates are generally much
cheaper than "captive" rates.
How banks determine your interest rate.
Your credit is a factor, and the number
of months you plan to finance is a factor, too. But many banks also
give lower rates to customers who already have checking or savings
accounts with them. Banks also negotiate. Don't be shy
Credit life and disability insurance is
generally cheaper than that offered by dealerships and more expensive
than insurance purchased through credit unions.
Surfing Your Bank On-Line.
Virtually every big bank has a Web site
and promotes its auto loans on that site, check your monthly statement
for the URL or use your search engine and your bank's name to find
it. Use the site for rate comparisons, but remember that the site
can't bargain on the rate. Your local loan officer might.
Many brand name prime banks, either directly or through subsidiaries,
are getting deeply involved in subprime lending,
which charges very rates to people who have or
think they have no, little or impaired credit. Avoid such loans.
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ON-LINE LOAN COMPANIES
Hundreds of online services offer to help
you get an automotive loan. Just enter "car loans" in your browser
and see how many sites you find. They range from "affinity sites"
that get their money from fowarding your click to potential lenders
to comparison sites to banks and other institutions that actually
make the loan. Because the interrelationship of online lending serivces
is so complex, your strategy is to go slow and sign and certify nothing
until you've done some homework. The average profit per loan of many
on-line lending services is often dramatically higher than the profit
you would pay at a walk-up source because those on-line pages lull
you in complacency rather than stir you to high alert. Shopping rates
online can lower your credit. To get an iron-clad interest rate commitment
on-line, you will be required to actually apply for a loan. "Estimates"
or simple "rate quotes" are meaningless. Each lender that receives
your loan application has the right to pull a credit report on you.
Unfortunately, excessive credit report inquiries can lower your credit
rating from prime to subprime. Some companies will deliberately "shotgun"
your loan application so that every single potential lender has to
pull its own credit report, your credit rating is lowered, and they
get your loan. Responsible companies pull one credit report on you
and send that credit report to their lending sources. Those are the
only companies to deal with. How to protect yourself from on-line
shotgun credit inquiries. Before you fill out any credit application
on-line-whatever the site, including one run by the Almighty-send
an e-mail enquiry which asks this question: "Does your site pull
one credit report and send that credit report to potential lenders,
or do your potential lenders each pull a credit report on me?"
If you don't receive a direct answer, or if the source says its sources
all pull credit reports, don't use them. If you receive an answer,
download it or print it and keep it on file.
The "Captive" Sources
Captive sources include manufacturer-related
companies such as GMAC and FMCC, their relationship with their dealers,
and dealership financing itself. The dealership financing sources
themselves are as good or as bad as any. Many times, if you know how
to ask, and if you have the toughness of an armadillo's shell plus
the tenacity of a pit bull, a dealership may actually give you the
cheapest as well as best overall loan rather than lose you as a customer.
But don't expect the dealership's "captive" dealership financing sources
such as Ford Motor Credit, Toyota Motor Credit and GMAC to help you
in shopping captive rates on the Web. The sites sound straightforward
but must send you to a dealership for the actual loan. No captive
finance company such as GMAC can legally make direct loans to customers
Dealership Finance Gimmicks On The Web.
- Meaningless but enticingly low rate quotes.
Many dealer Web sites will quote you an very low rate just to get
you to come into the store where they can work you.
- Even when you're dealing with many of
the "non-dealer-type" Web sellers such as Greenlight.com, you're
generally dueling with dealership finance salespersons.
- The dealer's objective when you visit
their Web site is to make you "sticky"-keep you on the site long
enough to "tie you down," get a deposit. Don't give a deposit at
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Subprime Loan Operations
Ever seen those Buy Here-Pay Here automotive
sales operations? Loan sources from new car dealerships to prime banks
to independent buy here-pay here used car lots are rejoicing in the
huge profits to be made in subprime loans. Subprime loans are very
high interest loans targeted at poor people and other people who have
or think they have poor credit or no credit. These are always a bad
Subprime and BH-PH on the Web
Smiling, oddly spooky cartoons! Guaranteed
E-Z Approval! Free $295.00 credit Repair Kits! As seen on TV! Print
Everything that makes the sub-prime business
greasy and slick is on the Web, only magnified in its potential
to do harm. The slime-balls who use the Internet to hawk these loans
know you're embarrassed, know you'd rather keep yourself hidden
behind your computer's screen. But don't fall for that. If you have
real credit problems, stay away from the Web financers. Go to a
credit counselor at a credit union, or go to legitimate non-profit
credit counseling Web site for information on a legitimate credit
counseling service near you.
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Title Loan Operations
These are nothing but pawn operations. If
you think you'll get a second vehicle by getting a "title loan" on
your present car, I have a bridge I'd like to sell you. The interest
rates at these places aren't too high, either, only 264% or so.
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So you're paying cash, what can these operations
do to hurt you. First, you'll have to fight to be a cash buyer, particularly
with dealership, and particularly if you don't have a trade. Financing
provides bigger profits than the sale of the vehicles. Sellers will
therefore do everything they can to convert you to finance. Expect
fancy computer-driven programs which clearly demonstrate that cash
buyers are fools or worse.
A smart negotiating tip: Don't
tell any seller you're a cash buyer up front.
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Web Sites Reviewed [coming soon]
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