In General

            --How much can you afford?

            --Why to apply for a loan before you buy the car

            --How to decide on the type of vehicle

About Used Cars

            --Where to find used cars

            --How to price used cars

            --What to do when you find the used car

            --How to inspect a used car yourself

            --How to get the seller to agree to let a mechanic

inspect the car. 

            --How to negotiate the price of a used car

About New Cars

            --How to walk away from a dealer

            --How to price new cars

            --How to shop for new cars by phone

            --How to negotiate the price of a new car

            --How to handle trade-ins

            --About auto brokers

            --Leasing vs. borrowing vs. paying cash

            --How a shy, introverted person bought a new car for $100 over dealer i

nvoice (and could have paid less).

I. HOW MUCH CAN YOU AFFORD; OTHER FACTORS TO CONSIDER

            Loan Payment:  If you borrow money for part of the purchase of your

car, you'll want to ensure that you can truly afford the monthly payment. 

Otherwise, you could hurt your credit rating and, worse yet, risk losing your car.

            Consider your average monthly income that you have left after paying

taxes.  If you are employed, this would be your net pay vs. your gross. 

Some financial counselors suggest the following guidelines:  out of every

dollar you earn, spend no more than 35 cents per month on your rent or your

mortgage payment; no more than 15 cents per month on your required (or

minimum) monthly payments on car loans, signature loans, charge accounts

and credit cards.  Add to your savings accounts 5 to 10 cents per month so t

hat you'll have money to keep your payments up to date in case your current

income is interrupted or you have a financial emergency.

            To keep your monthly debts manageable, fill out "Planning Your

Purchases: When to Buy on Credit and When Not To"  (if not enclosed,

contact the CU office).  This worksheet will help you figure out how much

of a monthly payment you can afford on your vehicle.

            Once you know how much of a payment you can afford, call a couple

of prospective lenders and ask, "If I want to keep my loan payment to no

more than $______ per month, how much can I borrow on a 36-month loan? 

A 48-month loan?  A 60-month loan?" and so on.

            Keep in mind how long you think each vehicle will last.  Will a 5-year

loan enable you to buy a car that will last 8 years, giving you 3 years free of

car payments?  Might a 36-month loan give you a vehicle that will last 36

months?  Whatever you do, don't set up a loan with a repayment period longer

than the number of years you think the vehicle will last given the number of

miles you're likely to put on it each year. 

            Monthly auto expenses: To compute average monthly expenses

for a particular vehicle, (including fuel, maintenance, repairs, registration

and insurance) complete "What Are the Costs of Buying a Car?"  (If not

enclosed, let us know.)  Once you've narrowed your choices to 2 or 3 vehicles,

consider repeating the computations for each one you have in mind. Compare

the overall cost of each.  Or, you might consider filling out the worksheet once

 for a new car and once for a used car. 

            As you fill out the worksheet, keep in mind:

            --energy needs based on miles per gallon (or miles per charge for

battery-powered vehicles)

            --the impact of your vehicle on the environment

            --repairs based on how well other vehicles of the same model and

year have fared according to such publications as Consumer Reports and

what you hear from mechanics and friends.

            --registration renewal fees (check with your motor vehicle

department)

            You may find that your auto insurance will be higher on sportier or

newer vehicles; car repairs will normally be higher on used vehicles. 

To see how your car payment and maintenance costs will fit into your

overall budget, use the "Spending Plan" worksheet. (If not enclosed,

contact the CU office.)

            Down payment:  To avoid being "upside down," save for a good-sized

down payment.  You're upside down when the value of your car is lower than the

amount you owe on the car.  If, part way through your loan, you end up needing

or wanting to change the type of car you drive, you'll want to be able to sell the

car for enough money to pay off its loan. Some guidelines:

                        new car:  borrow no more than 80% of the retail value of the car. 

If you buy such non-car items as extended warranties, pay cash for them.

                        used car:  borrow no more than its wholesale value.

            More on how to determine the value of the car later.

II.  APPLY BEFORE YOU BUY – WHY?

       To find out much your lender thinks you can afford. 

            To take advantage of deals on used cars from private parties:

someone else may offer more money but be unable to come up with a loan

fast enough.  If you make an offer on their car over the weekend, they may

want their money by the first of the week.  Don't trade fast loan approval for

a higher lending rate.

            To obtain your best price from a dealer:  dealers usually give you

only 5 days after your purchase to come up with financing.  If you come up

with your own financing, you may be eligible for a rebate.  Find out.  

What about unbelievably low loan rates from dealers?  They may be

available only on certain models with hundreds or thousands of dollars

worth of options you don't want.  Negotiate the price of the car only, without

negotiating over dealer financing or trade-ins. 

            Warning: dealers rarely ask you how much you want to pay for the

total cost of the car.  Rather, they ask you how much of a monthly payment

you can afford.  It's easy to be fooled into buying a more expensive car.  By

filling in worksheets and applying for your loan in advance, you know the

total cost and the monthly payments you can afford. 

            See Car Loan Scams (enclosed) for an illustration of these points. 

III. NARROW YOUR CHOICE OF CAR

What type of car suits your lifestyle?

            Do you drive alone or transport several people?  Need a 2-door,

4-door, wagon, van, pickup?  What kind of legroom and headroom do you

need in the back seat as well as the front?

            Do you transport animals?  Plants?  Bicycles?  Wheelchairs?  Camping

equipment?  Tools for work (or for roadside repairs of your vehicle)?  Sporting

gear?  Trailers?

            Do you need a hidden or locking storage/cargo area?  Sedan , liftback,

or open truck bed?

            Are such things as power steering, brakes, windows, seats, mirrors,

and folding headlights important to you?  Or, is a car that will require fewer

repairs?  (The more electrical gadgets a car has, the greater the number

of things that can go wrong.)

            Even if you don't smoke, do you want a car that has a cigarette lighter

so that you can hook up fans or other appliances to it?

            Do you need or want a car with lots of power?  Good mileage?

            What are the safety records of cars you're considering?

            Will your car fit you?  Can you reach the controls? Pedals? Radio?

Heater? Air conditioner?  Will your head--or the heads of your passengers

--touch the ceiling in the front and back seats?  Will front and back

passengers in the back seat(s) have room for their legs?

            Do you need a vehicle designed for rural roads or city driving? 

Stop-and-go street driving or driving on the freeways?  Hills and mountains

or plains and level roads?

            Make a list of features you need. Make a separate list of features

you'd like to have but could live without.

For in-depth info on economy, safety, features, dimensions, and

reliability, read Consumer Reports.  Every April, Consumer Reports

comes out with one issue devoted entirely to cars.  They give ratings on

new cars and used cars; they list repair records for various vehicles.

They have a list of recommended buys on used cars and a list of used cars

to avoid. If you do not subscribe, you can read it in the credit union office or

go to a public library or ask a friend, relative or co-worker to lend you theirs.

They also have advice on how to buy and negotiate.  Narrow your choices to

2 or 3 vehicles and try not to fall in love with one particular make, model, or

color.  (Even if you do, don't let the dealer or private party know it.) 

            Ask your bookstore or library for recommendations of other car-buying

publications to help you.

            Don't decide too soon whether to buy new or used.  You may

have to change your mind.  For instance, you may see plenty of used vans

on the road, but find that few of them are for sale.  You may think that a new

car will not need repairs but read an article, such as this one, that tells you

that on average, over 20 things will go wrong with a brand new vehicle in the

first year of ownership.

IV. IF YOU DECIDE TO BUY A USED CAR

Where to find them:

            In such publications as the Auto Trader, which includes a photo of each

car that's for sale

            Classified ads

            Auctions (but only if a mobile mechanic accompanies you and inspects

the car on the spot)

            Car rental agency sales (again, only with a mechanic) who has brought

along proper diagnostic equipment and tools)

            If you buy from a dealer, you will normally pay more than if you buy from

a private party.  Consumer Reports recommends that you buy used cars only f

rom dealers that also sell that same make as a new car.  In other words, if you're

buying a used Glidemobile, don't buy from ABC Used Cars; do buy from XYZ

Glidemobiles.  Concerned about their reputation, new car dealers will normally

keep the better used cars and sell the others to ABC Used Cars.

            Bulletin boards

            Lending institutions which have repossessed vehicles (again, take along

that mobile mechanic)

            Mechanics sometimes have vehicles for sale.  It's often because they

got stuck with the vehicle when the owner failed to pay them for their repairs. 

Consider the mechanic's motives when this occurs and have another mechanic,

who is not a friend of the mechanic who is selling the vehicle, check out the vehicle. 

       Ask your friends for other sources.

How to price them:

            Members of our credit union have the use of our Red Book, similar to the

Blue Book, but, as we see it, with lower, more realistic values.  The Red Book

is available by subscription and comes out with a new issue twice a quarter. 

It begins with wholesale and retail values for particular models, then adjusts

them according to the options (such as air conditioning) the car has and the

number of miles.  If you are a CFFCU member, you can stop by our office or

contact us.  We’ll look up the vehicle for you, adjusting the value for options

and mileage. 

            Check the other ads to see what sellers are asking for the same car

with similar equipment.  After a few days, call on some of the ads and find

out what price the seller actually accepted for the car.  Most likely, it will be

lower than the initial asking price.

            If you buy from a private party, before you bother to look at a car,

ask questions:

            How many previous owners did the car have?

            Why is the car being sold?

            What major repairs have been made?  What repairs are still needed? 

Did they keep their receipts?

            What kind of maintenance has been performed?  How often?  Do they

have the receipts to document the maintenance?

            Is the engine the original engine?

            How many miles on the engine?

            If it’s not the original engine, how many miles on the vehicle itself (or,

how many miles on the chassis)?  Has the odometer turned over?  How

many times?

            Where has the car been driven and under what conditions of road

and weather?  Long trips or stop and go driving?  Has it been sitting on the

street, under a car port or in a garage?

            Does it have the options on your "must have" list?  How about your

"would like but could live without" list?

            Does it have license plates from the state in which you'll be registering

the vehicle? 

What to do when you find THE car:

            When people buy from a private party, they sometimes

wonder, "What if it's a stolen car?"  How can you minimize the risk?  Ask

to see the title or registration for the car. [If they have neither, hesitate.] 

Look to see if the person named on the title is the person selling the vehicle. 

If not, they should have a Power of Attorney from the registered owner, and a

plausible explanation as to why.  If they don't, hesitate.  Explain that your credit

union has a policy of making the check payable to the legal owner of the

vehicle.  If the seller balks and asks you to make it out to someone else, you

may want to skip this particular vehicle.  If you find little pieces of broken

glass inside the vehicle, was it broken into the night before?  [We're not trying to frighten you - just want you to be alert.]

            Tell the seller (whether a dealer or private party) that your loan has

been approved already.  This lets them know you are qualified and serious.

            Tell the seller you want to have the car inspected.  If they hesitate,

it may be because they fear you will drive their car off and they'll never see it

again.  You can overcome their anxiety by either asking if they will go with you

to your mechanic's shop or if you can have a mobile mechanic [of your choosing]

come to them. If they refuse to let you have the car inspected under any

circumstances, there may be extensive--and expensive--problems.

Let the car go. 

            If possible, avoid cars with out-of-state plates or registration.  In

California , the Department of Motor Vehicles (DMV) insists on having one of

their employees physically inspect such vehicles before title can be transferred. 

They check the Vehicle ID number on the body and compare it to the Vehicle

ID number on the engine.  [We've heard stories about two cars that were in

separate crashes.  The front of one body was welded onto the back of another.]  You may want to point out the DMV requirement to the seller of an out-of-state vehicle. Assuming that the car is "legit", an out-of-state vehicle may need to have a smog device added to it before it can be registered in your state.

            If money is still owed on the vehicle, the lender may still have the

Ownership Certificate; the lender's name will appear on the registration as

the Legal Owner or Lienholder.  Find out the names of the borrowers, the loan

number, and the name, address and phone number of the lender.  Call the

lender yourself and ask for a payoff good through a particular date.  Do not

accept the borrower's word for how much she/he owes on the vehicle.     If the

seller owes less on the loan than you pay for the car, you (or your lender) will

make out one check to the Lienholder and another to the Registered Owner. 

If the seller owes more than the agreed-upon sales price, you (or your lender)

will want to obtain a cashier's check from the seller (payable to the seller's

lender) for the difference between the sales price and the amount that is

owed on the loan.  Otherwise, the seller's lender won't release the title to

the car.

            Make an appointment to take the car to a mechanic.  Even if you

have a regular mechanic, you may want to go to a diagnostic center. (The

Automobile Club in your area may be able to recommend one.)  Don't go to

the seller's mechanic.  Do not accept the seller's offer to have the vehicle

inspected for you or find a mechanic for you.  You talk to the mechanic and

pay the mechanic; you want the mechanic to be on your side.  If you can't find

a diagnostic center or you've no regular mechanic, ask friends.  Try to find a

mechanic who specializes in your make of car, or at least in cars that come

from the part of the world in which your car is made. As mentioned above, you

may be able to find a mobile mechanic who will come to the car.  If you're

financing your car through this credit union, please note that (1) we do not

require a mechanic's inspection until after your loan has been approved;

(2) please obtain from us our "Inspection Form for Used Cars" for the

mechanic to complete. Even if you won't borrow from our CU to finance

your car, you're welcome to use our form anyway.  If you don't use our form,

be sure your mechanic itemizes for you the estimated cost of needed repairs.

Note: many mechanics will not estimate body work.  The cost of repairing a

dented fender can be incredible.  It may be worth your while to take the car to

a body shop; most of them will give free estimates.

            Note: sellers, especially private parties, almost always ask for

more than they expect to receive.  They expect to bargain.  They may be

selling under time pressure.  Perhaps they're about to move.  Perhaps they

can no longer afford to continue running ads with little response.

            You can make your first offer the wholesale Red Book value of the

car minus needed repairs.  Use the angle that wholesale is all your CU will

lend on the car. (The seller needn't know you have or can afford a down

payment.)

            Most likely the seller will object.  Now's your chance to inquire, "What's

the best offer you've had so far?"  Even if your second offer will be for less

than their best offer, point out that you have a loan behind you.  Tell them how

soon you can give them their check.  You might make your second offer

wholesale Red Book minus a percentage of the cost of the repairs: 80% of the

cost would be the wholesale "value" of the repairs; 50% would mean splitting

the cost of repairs with the seller. 

            For your final offer(s) be prepared to go as high as Red Book retail

minus the cost of repairs.  If they ask for Blue Book, you can tell them that

Blue Book values are inflated; if you had to sell your car part way through a

loan for the Blue Book value, you wouldn't be able to sell it for enough money

to pay off the loan.  Use anything you can think of as a bargaining chip. [When

my mom helped me buy my first car, they wanted $1,100 for a '65 Dodge. 

She told the seller I couldn't have a gearshift on the floor and would need to

have it moved next to the steering wheel.  I kept saying, "But, Mom!"  She

kept shushing me up. She went on to explain that it would probably cost

$200 and that she could give them a check for $900 right away. [They took

it!]  You can say you hate the color and will have to have the car re-painted. 

Will they split the difference?

            Once you agree on price, give them a deposit to show that you

mean business. 

            If they still owe money on the car, make an appointment to meet

them at their lender.  If no money is owed, call your lender.  Find out whether

your lender wants you and the seller to go first to the DMV or first to the

lender's office.  You may be able to handle the down payment, exchange of keys,

Bill of Sale, smog certificate and so forth on neutral territory. 

            If you buy a used car from a dealer, don't buy it if the contract has

on it the phrase "AS IS".  That phrase voids any warranty, express or implied

you might have on the vehicle.  Either, walk away from the deal, without signing

the contract, or ask   the salesperson to cross out the phrase, initial it, and

write or type on the contract the length of time your warranty will cover, e.g. 30

days or 60 days, and what the warranty will--and won't--cover.  Do not rely on

 an oral agreement.  Get it in writing. 

V. ABOUT NEW CARS

            How to Walk Away from a car dealership:  you'll need to go in

person once in order to take a vehicle on a test drive, sit in the front and back

seats, and pick up brochures that will give you details on standard equipment

and colors.  Warning: salespeople nearly always ask you "What can we do to

get you to buy this car today?" or, "How much of a monthly payment can you

swing?"  DO NOT BUY A CAR ON THIS VISIT. 

To keep yourself from falling under their spell:

            Bring a clipboard and notepaper with you.

            Take along a friend who promises that they will physically pull you

away if necessary.

            Take along a copy of a consumer magazine; display it prominently

on top of your clipboard.

            When the salesperson asks what they can do to get you to buy that

vehicle today, don't discuss monthly payments.  Instead, offer them 70% of

the sticker price.  They will usually laugh (or scowl) and walk away.

            How to price new cars:  once you've narrowed your desired

vehicles down to 2 or 3 specific models, look them up in the Automobile

Invoice Service (AIS) book.  This publication is updated 6 times a year.  It

lists the Dealer Invoice and Manufacturer's Suggested Retail Prices (MSRP). 

Prices are itemized for each different model of the vehicle, options, option

packages, destination charges—be sure to add these in--and smog

devices (in California this item is sometimes called "California Emissions").

            Rebates:  Before buying a new car, call information for the phone

number of the manufacturer.  Or, look on the manufacturer’s Web site.  Call

or e-mail them to find out how much of a rebate they are offering on the

particular model of vehicle you plan to buy.   Note:  when a dealership offers

you 0% financing or a rebate, you are usually better off taking the rebate. 

The rebate reduces the cost of the car, the tax, and the registration you will

pay for the entire time that you own the car.  Ask us for details.  We’ll help

you with the computations.

            Objective:  Don’t pay sticker price.  Buy the vehicle for dealer invoice

minus rebate plus $100 - $500.  When dealers tell you that they can’t afford

to sell a vehicle for that price it isn’t true.  They have others ways of making

money on cars, including “factory incentives” and “flooring” and other funds

that are not specific to one car. 

            Call or e-mail Fleet Departments only.  What is the Fleet Department? 

As you can imagine, they normally sell several vehicles to one buyer, a "fleet"

of cars.  Dealers permit the sales people in the Fleet Department to sell cars

for less than regular salespeople can accept.  While you are not in a position

to buy dozens or hundreds of cars, you are eligible to go through the fleet

department if you belong to a credit union.

            Because they normally sell in volume to businesses and government