(ARA) - For many Americans, a car is the second largest purchase
they make. Advertisers devote millions of dollars to convince
us that we deserve to own the hottest set of wheels. The same
people who used to yell, "I want my MTV!" are now
shouting, "I want my SUV!"
But step inside a dealership, and confident car shoppers
are like deer in headlights when confronted by aggressive
sales people, confusing financing decisions and a fear of
buying more than they can afford.
IHateFinancialPlanning.com, the Web site for the three out
of four Americans who hate financial planning, can help sort
out the financial aspects of buying and leasing cars. While
you crave an SUV, you may discover that the cost of insuring
it and filling its huge gas tank will blow your budget off
IHFP offers the following tips to make sure you don't get
caught in the headlights:
Get Your Records Straight
One of the first steps in financing a car is to get a grip
on your credit rating. Unless you intend to pay with cash,
you will have no secrets from the car dealership, finance
company or auto insurer. A poor credit history can result
in a higher interest rate or even loan disqualification. Also,
bad marks on your credit could flag you as an insurance risk,
translating into higher premiums.
"There are numerous resources available to help you
understand and manage car financing," says Suzanne Hunstad,
of IHateFinancialPlanning.com. "Armed with knowledge,
you can determine if your loan will be approved, and at what
interest rate, and also catch any glitches that could be making
your credit history look worse than it is." Hunstad suggests
contacting the major credit reporting agencies to obtain your
credit report and taking steps to clean it up if necessary.
Cut Your Premiums Down To Size
Before you buy a car, find out what it will cost to insure
it. Get car insurance quotes and calculate your insurance
needs on the Internet. Each state has different requirements
when it comes to auto insurance, and we'll leave it up to
you to learn what your state requires. But every state has
some sort of financial responsibility law that says you need
to take care of any accidents you might have.
To Buy Or Lease, That Is The Question
When you lease, you're paying to use a car. Your payments
cover the cost of the vehicle's depreciation while you drive
it, rather than its purchase price. If driving a new car is
more important to your lifestyle than owning one, leasing
is definitely for you. However, if you put a lot of miles
on a car every year, it may end up being smarter for you to
buy. Consider your personal expectations and financial situation
when reviewing the pros and cons of each:
A chance to trade in that old clunker.
Ownership and equity in the car.
Control of your wheels. If you want to add eight speakers
or take out the backseat, go ahead.
No penalties if you don't hold up your end of the maintenance
agreement, although you will want to service your car to
enhance both its service to you and your ability to sell
it in the future.
No mileage limits.
Payments based on the value of the car, not its depreciation.
That may mean higher monthly payments than with a lease.
A cost-effective alternative to buying a car every few
An affordable way to drive a car that you may not be able
to afford to buy. Monthly lease payments are generally less
than financing payments.
A maintenance contract that requires you to keep the car
in good shape and not make any alterations to it.
A factory warranty that almost always covers the car for
your entire lease, so major maintenance isn't your financial
Annual mileage limits (about 12,000 to 15,000) with significant
penalties if you put more miles on it than the lease stipulates.
Payments that may be income tax deductible if you're leasing
the car for business. Ask a tax advisor for details.
Penalties if you terminate the lease earlier than agreed.
Financing Is The Next Step
Whether you buy or lease, be prepared to walk away from the
deal if you aren't convinced you're being offered a fair price.
Do some homework before you walk in -- car salespeople are
amateur psychologists who'll get inside your head if you let
them, all in the name of making a buck.
"If they see you drool over a leather interior or if
you don't know the Kelley Blue Book value of your trade, they've
got you right where they want you," Hunstad says. The
Internet is a good resource for your research. Use Edmunds.com
to comparison-shop and find each model's true market value,
i.e. the price of the car in your area. It's usually a different
number than either the invoice price (what the dealer paid)
or the sticker price (what the dealer wants you to pay).
Once you've got those numbers down, try IHateFinancialPlanning.com's
loan calculator to help you compare interest rates, monthly
payments and overall purchase price. Don't get emotionally
attached to your car salesperson or the loan officer at the
car store. Keep this a business decision. Shop for the best
interest rate at your local bank or credit union, or use online
banking to comparison shop.
IHateFinancialPlanning.com is a Web site that's already helped
more than 2.3 million people who hate financial planning make
sense of their personal finances through fun, friendly, easy-to-understand
content and financial planning tools. The Web site was developed
by ReliaStar Financial Corp., a member of the ING Group.
About ING Group
ING Group is a global financial institution active in the
fields of insurance, banking and asset management, with more
than 100,000 employees in 65 countries. ING provides a full
range of integrated financial services for its clients through
a variety of distribution channels. In the United States,
ING's product and service portfolio includes banking, fixed
and variable annuities, investment management, life insurance,
mutual funds, personal finance education seminars, and trust
services. For employers, ING businesses also offer a full
range of retirement and other worksite benefits, including
group insurance products. For more information, visit www.ing-usa.com.
Securities available through PrimeVest Financial Services,
Inc., Member NASD/SIPC. Carmichael Lynch Spong is not affiliated
with PrimeVest Financial Services, INC. and is not a member
of the ING Group.