On a scale of 1 (an emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a car?
I would give it an 8 for two reasons. First, this is the time that dealers are starting to receive next year’s inventory and want to sell the current year models. Second, interest rates are still at historically low levels.
Do you expect auto financing deals to improve/get worse/stay the same over the next 12 months?
Get worse. The overall improvement of economy (despite recent stock market drops) gives dealers less incentive to offer special deals since more people can afford to buy at “full price”. In addition, interest rates might increase making financing more costly. Lower gas prices forecast for the next 12 months also help car sales and help move inventory of larger vehicles (SUVs) where dealers usually make more profit.
What steps can buyers and dealers take to make the car buying process more transparent and hassle free?
I believe the market is already very competitive and efficient for new cars and most used car dealerships. The internet has helped consumers be more informed and able to do some homework before shopping for a car. It is up to us – consumers –to do smart research before buying or securing finance.
Auto financing contracts could be more informative by adopting procedures similar to the Card Act of 2009: clear interest rate/APR (not just monthly payments), total cost of the loan, and details on the ability to prepay or pay it faster. Currently, consumers seem to be too focused on what kind of monthly payment they can afford instead of the actual loan rate.
What tips do you have for individuals with fair or poor credit who are looking for an auto loan?
If possible, wait another year before getting the auto loan and use this year to improve your credit score. First, figure out why your credit score is low: new credit, late payments, high utilization, etc. The next step would be to make all your credit payments on time and to reduce your credit usage/utilization (the ratio of your all credit balance over your available credit limit). Keeping everything in good standing for 12 months may help improve your score by 100 points.
If you cannot wait, another option is to plan to refinance the auto loan in a year or so if your initial rate was too high. This is a bit risky and would not work for new vehicles since the value of the loan would be upside down as soon as you leave the lot – you have to buy a used car. However, in a used car loan with a good down payment, you might be able to refinance to a lower rate in the near future. Make sure there are no pre-pay penalties on your loan!
Buy here, pay here deals are usually very costly and should be used only as a last resort. This type of financing is very expensive since the contract might be full of extra fees and restrictions on your ability to pay earlier/faster.
What are some signs that you may be getting ripped off in the auto financing process?
Pressure to disclose how much you can afford, trade in value, and cash available for down payment might be a bad sign. My advice is to focus on getting the best auto sales price first and then discuss the financing. If you cannot agree on the value of your trade-in, tell your dealer that you will sell it privately and come back later to purchase the vehicle.
Beware of unnecessary add-ons such as GAP insurance, extended warranty, and auto packages such as rust shield. They add to the amount financed and the cost of your loan. Dealers use these to have more leeway on the purchasing price too – you were getting a good deal until all these extras started popping up in the contract!
I would also recommend to stay away from conditional contracts – just tell the dealer you will wait until they (or you, the customer) can secure final finance.