Car Shopping Under The Cash for Clunkers Program

On July 24th, the federal government finally released the guidelines for the “Cash for Clunkers” program.  The much anticipated program can provide consumers with as much as a $4500 rebate when they trade in older vehicles for newer more fuel efficient models from participating dealers.  Until now, dealers have been reluctant to sign up until the rules were announced.   The National Automotive Dealer Association (NADA) reports such a rush for dealers to register that government servers were overwhelmed resulting in as much as a two-hour wait.

In addition, Edmunds.com reported that car shopping traffic to their site has reached record levels over the past couple of weeks.  The law that introduced the “Cash for Clunkers” program has set aside $1-billion dollars for consumer rebates.  It is estimated that this program alone will generate 250,000 new car sales between now and November 1.  Registered dealers are also jumping on the bandwagon by offering additional rebate incentives. The 100-page document outlining the guidelines has been described as “fiendishly complicated” for both the consumer as well as the dealer.  If you are considering shopping for a new car under the “Cash for Clunkers” program, get your questions answered here to avoid frustration associated with the tight restrictions of the program.  Some used car dealers may buy your used car for cash and you could receive even more money that is allotted on the cash for clunkers program.

How do I know if my trade-in will qualify?

The guidelines state vehicles must be less than 25 years old which means a car must have been manufactured in 1984. The operative word here is “manufactured”. Check inside the door for the manufacturer’s sticker that provides the build date. Some 1984 models were actually built the previous year.  Since the program was designed to get less fuel efficient vehicles off the road your trade-in must have a combined city-highway fuel economy rating of 18 miles per gallon or less. To determine this, go to fueleconomy.gov and remember it’s not what MPG your car currently gets rather what rating the government suggests.

Another qualifier is you must demonstrate that your car runs and can be driven under its own power. This would eliminate any old clunkers sitting around not registered.  This rule was designed to deter individuals from buying wrecks from junkyards to be used as trade-ins. More of the fine print dictates that you must demonstrate the car has been continuously insured and registered to the same owner for at least a year before you attempt to trade it in.

Also keep in mind that it may not make sense to use the “Cash for Clunkers” credit if your trade-in is worth more. With the explicit guidelines for how dealers must administer this program, don’t be surprised if you find dealers convincing you that your trade does not qualify or even showing you a trade allowance for greater than the maximum voucher of $4500. This is the perfect opportunity to utilize the “bait and switch” dealership game so beware.

What will happen to my trade-in? Can it be resold?

The guidelines are clear in stating these cars can never be resold and must be disabled immediately. Dealers must take extreme measures to be compliant in order to receive their rebate. One technique is to drain the engine of essential fluids, add sand and run until the engines siege. Dealers must then contact a wrecking company to remove the unit from the premises. Once removed the wrecking company must crush or shred the car then provide a certificate of destruction to the participating dealer. All this must happen before the dealer is reimbursed.

A word to the wise: DO NOT trade your car under this program if you have NOT signed the contract and requisite paperwork. Many dealers will allow you to take the new car home while they “shop” your loan which means they do not have any loan approvals. It is possible your trade could be disabled even if the dealer can’t secure acceptable financing.

What new cars are eligible to purchase under this program?

Any domestic or import car is eligible under this program providing it meets the following fuel economy guidelines and is priced under $45,000. Cars must have a combined fuel economy rating of 22 MPG; SUVs, minivans, and small pickups must rate 18 MPG; and large van and truck must rate 15 MPG.

You are entitled to the $3500 rebate if the improvement if fuel economy rating is at least 4 MPG for cars, 2 MPG for SUVs and 1 MPG for large trucks. The $4500 rebate kicks in if the rating improves by 10 MPG, 5 MPG and 2 MPG respectively. How many “clunkers” can I trade-in?

Unfortunately there is a limit of one trade-in per owner with the credit applying to either a purchase or lease. Remember, the trade-in must show the registered owner which would eliminate using a car titled in a child’s name, for example. This may also present some problems with financing a unit with a spouse or significant other with credit challenges.

How long will the program last?

The program will only last until November 1st or until the $1-billion dollars runs out. If you are car shopping, beware. This is a rebate program that is designed to encourage you to expedite your car shopping and buying experience.

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Poor Credit Used Car Loans – 3 Tips For Getting Approved

used cars with bad creditGetting a used car loan with bad credit is as easy as getting approved for a loan with good credit. Because automobile loans are collateral-based, many auto loan lenders approve loans to persons with bad credit.

There are pros and cons to obtaining financing with bad credit. A primary disadvantage involves higher interest rates. However, there are ways to avoid paying more for a used vehicle financing. Here are a few tips to help you get approved.

Consider Using a Co-Signer

Getting approved for an auto loan with bad credit or no credit history is not difficult. In fact, auto loan companies regularly offer financing to persons with low credit scores. Loan interest rates are primarily based on credit score. Obviously, those with excellent credit qualify for very low rates. On the other hand, if you recently filed bankruptcy, have a previous repossession, or bad credit, low rates would be a miracle.

Fortunately, there is an easy way to obtain a low rate auto financing with bad credit. This involves applying for the auto loan with a co-signer or co-borrower. Co-borrowers are beneficial for several reasons. To qualify as a co-borrower, the person chosen must have a strong credit history. Because they become responsible for the car loan if the primary borrower is unable to make payments, using a co-borrower will help buyers acquire a lower rate.

Apply for the Auto Loan with a Down Payment

Another approach for obtaining a lower rate on an auto loan entails applying with a down payment. Down payment amounts vary. A good down payment generally consists of 10%. Still, individuals with extreme credit problems may be unable to obtain a low rate. In this case, having a down payment will lower the amount financed, which could create a more affordable monthly payment.

Gradually Improve Credit Score

Although credit scores will not improve overnight, little things may add a few points. For example, paying bills on time will increase your credit score each month. Furthermore, paying down credit cards will also add a few points. Settling past due and collection accounts is another way to quickly add points to your credit score. If considering financing a used car with bad credit, attempt the previous suggestions. This could make the difference in acquiring an auto rate of 12 percent and 9 percent.

Sell Your Trade In Private Party

 

If you have a trade in, consider selling it on your own or having a used car buyer give you cash for your car and then apply that money as your down payment.  You’ll get a whole lot more money than trading it into the dealership, who has to make a profit on your car after they recondition it.

New vs used cars – Car Buying Tips

Last week I worked with a client who was trying to decide between a new or used Nissan Altima. He had done quite a bit of research before he called me, and it appeared that he could a brand new one with leather, Bose and more for over $5500 off the sticker price. That triggered my “too good to be true” sensor, as I knew the cost of the Altima he wanted and its rebates and incentives. It took a bit more digging, but I finally figured out what was going on.

Sure enough, the dealer was quoting him all of the Altima rebates Nissan offered—not just the ones that would actually apply based on if he paid cash, leased, or financed with Nissan, meaning that the deal wasn’t really available. Sadly, I see this quite often, and it makes people angry when they find out the truth. Dealers will group together rebates or incentives which are actually either/or, just to give a price that looks unbeatable and get the customer in the door.

This falls under the category of what we in the business refer to as putting someone “on the bubble.” The idea being that the potential customer wont be able to find a deal that looks better, and the dealer will only “pop” the bubble when the client is finally there in front of them, and the chance of closing the deal is better than online or over the phone.

My first step to help was to get him a “real” price on the car, which was just over $4500 off sticker—still a great deal. Then, with his input, I searched the auctions for a comparable used car.  No matter if you go new or used, there’s no reason to spend to much cash for your car, no matter how much you think you’re in love with it.

We found five that met his needs, being basically older versions of the new one he wanted. Those five were narrowed down from 47 that I started out looking at, before eliminating them based on things like previous paintwork or accident damage, condition, mileage and even color—and these searches covered auctions in the entire country; talk about slim pickings! But that’s the current reality in the used car market, as I describe in this post –

He came in and looked at the inspection reports we get from the auction company, where they check each panel for damage, measure the tires’ tread depth, etc. I showed him how a car could have a clean CARFAX report (like some he had seen in local online ads) but still have been painted; this caused something of an “Aha!” moment: you need an expert to check out a used car.

The interesting factors for him though were that with used inventories so low right now, a 2009 model year Altima like he’d want, with about 35,000 miles on it, would be only $3000 less than the brand new one. A record was set for used car prices last year; 2012 is just about as high so far (as data aren’t available for May or June, usually the highest priced months, we wont know for a bit how this year will compare). Regardless, used cars are comparatively very expensive right now.

Studies show that when late-model used car prices get within 60 percent of new ones, people usually buy new. In this case, it was more like 87 percent, making the case stronger for going new. Finally, his buying history shows that he holds onto cars; his truck is eight years old, his wife’s more than a decade.

Understanding the true cost of ownership is critical to getting the right car for your needs, and it is usually figured based on a Cost Per Mile basis. In his case, since he’d have a new car with basically no miles and a full warranty, his CPM would be same or lower on the it, if he kept it for a similar period of time. That’s because he’d be less likely to have as many out-of-pocket repairs (or routine maintenance) over the same time as a used Altima that started with 35,000 miles or more.

We also discussed whether we should wait a couple months for the all-new Altima. It would likely have a higher actual invoice cost, and the chances of it having the same level of incentives and rebates was slim. One of those on the 2012 model was a $500 “holiday” incentive good for around Memorial Day—this goes to my discussions in the ebook on when are the best times of the month, year, and model year to purchase or lease. It was fun to walk through the whole process with one person; meeting my client’s need has been critical to my success as an auto broker. It is also great that I get to share this with others via this blog.