13 Thirteen II.docx

Thirteen II Due to the high cost of new vehicles, the average car is financed for six years or 72 months, which is twice as long as the 36-month warranty on most cars. That’s why it is so important to make sure you are able to pay the auto loan and make any out-of-warranty repairs if you purchase a...

Thirteen II Due to the high cost of new vehicles, the average car is financed for six years or 72 months, which is twice as long as the 36-month warranty on most cars. That’s why it is so important to make sure you are able to pay the auto loan and make any out-of-warranty repairs if you purchase a vehicle with only a three-year, 36,000 miles warranty. There are vehicles with a five-year, 60,000-mile warranty and longer power-train warranties as I mentioned earlier. This will ensure you don’t have any out-of-pocket additional costs while paying the car loan. There are four manufacturers who have increased their new vehicle bumper to pumper warranties by 72% longer for mileage and time. And their powertrains have a 67% longer warranty by mileage and years. One school of thought is that if these manufacturers are warrantying their vehicles longer and are willing to take the risk of repairing any failures over a longer period of time. The conclusion is, there is a very high probability these vehicles have been built better than those with shorter warranties terms. Please do your own evaluations for your monthly, daily, and hourly costs to own your vehicle. It’s guaranteed you will be very surprised what the cost actually is when you see the numbers. If you are comfortable with these numbers? Great, if you own a business, you get a business vehicle expenses write-off, therefore these costs won’t affect your personal income. Remember, “every dollar that you spend unnecessarily today, is a dollar that you won’t have to spend on something in the future you may have a real need to purchase’. So, take the emotional component out of your vehicle’s decision–making process and use your best financial decision thought process and always purchase the vehicle you need. It is recommended either lease or finance the purchase of a vehicle especially when your credit is very good to excellent. If your credit score is not a very good plus, financing a vehicle can be an excellent way to build and maintain your credit score by making your payments on time. In this situation consider financing the least expensive and reliable vehicle that meets your needs to ensure you are able to easily make the payments. Don’t bite off a payment more than your budget can handle. Please listen to the numbers because the numbers don’t ever lie. Your credit score is affected by how your creditors report your timely monthly loan payment activities to the credit bureau. Thirty-day late payments negatively impact your credit history therefore lowering your credit score even further and requiring you to pay higher interest rates in the future. This is why it is very important and stressed over again, not to purchase or lease a luxury vehicle unless you have done your research and homework regarding the reliability, maintenance, and repair cost and your budget indicates you can afford it with no problem. The question is, do you have a better use for the additional $200 - $400 per month the luxury vehicle will cost you? The answer is always yes. Are all your current credit cards and loans paid off? Do you have healthy savings, retirement accounts, and adequate life insurance? Will you need this extra $200 – $400 a month ($12,000 to $24,000) you are committing to this car for the next 60 – months anytime in the future? The answers to these questions will tell you if you should be purchasing a luxury vehicle at this time in your life. Have Patience! One other point when leasing a vehicle, it has been determined that leasing can be much less expensive when driving about 12,000 miles per year, even over nine years. The savings were about $3,800 plus versus owning a vehicle for nine years and paying for maintenance, services, wear and tear replacement parts, and out-of-warranty issues. For those of you who may drive more than 12,000 miles per year over the three leases, this $3,800 will easily pay for an additional 2,800 miles per year at about $0.15 cents per mile overages for each lease or 15,000 miles per year. Here’s the math for lease mileage overage at $0.15, take the $3,800 divided by $0.15 equals 25,333 total miles divided by 9 years equals 2,814 miles per year. When you crunch the numbers, it will always make sense, guiding you to make the best financial decisions. You will recall your primary goals are to protect and shield yourself from all out-of-pocket wear and tear repairs and out-of-warranty repairs by driving a vehicle under the manufacturers’ warranty at all times. Just a reminder, if you purchase a vehicle whenever replacing the tires, please purchase the Tire Road Hazzard Warranty. Due to the high cost of tires, balancing and installing them, it saves the cost of having to pay to replace a tire that is accidentally ruined before the useful tread is worn down due to damage from hitting something on the road. Remember, rotate your tires every 8,000 to 10,000 miles to get the maximum mileage to wear out of them. It also allows you to replace four of them at the same time, taking advantage of those ‘Buy Three Tires Get One Free’ sales. One cannot over-emphasize how important it is to do your Internet research on buying or leasing vehicles or everything you are considering purchasing. Set a personal goal to read at least four different articles on several vehicles, their manufacturer warranties, and reliability ratings from an impartial source before you decide on the vehicle you want to purchase. As previously stated, there are at least four manufacturers who offer a 67% longer new vehicle warranty in years and a 72% superior mileage warranty on the entire vehicle and powertrain. Please at least research and consider these vehicles. These are your best vehicle purchase investments when it comes to shielding you against future out-of-pocket repairs during the many times needed 60 - 84-month loans to pay for the vehicle. These longer-period warranties can be a lifesaver. If you lease them for 36 – 48 months, they make excellent vehicles to consider purchasing at the end of the lease at the residual value. These vehicles will also make excellent CPO, Certified Pre-Owned vehicles to purchase when shopping for a pre-owned vehicle. In both cases, you will receive the balance of the manufacturer’s warranty. A huge bonus when it comes to shielding you against out-of-warranty repairs passed the standard 3-year or 36,000 miles for most vehicles in their class. A Certified Pre-Owned vehicle can be an excellent and safe option for a brand-new vehicle purchase. There is an abundance of information just waiting for you to research that will increase your knowledge of these vehicles from reliability, warranties, and maintenance to negotiating techniques for purchasing a vehicle. One expense related to vehicle ownership not budgeted for and often neglected is the price of gasoline. If you use as little as three gallons of gas per day or twenty-one gallons of gas per week that equates to eighty-four gallons of gasoline per month. If the cost of gas is $3.50 per gallon, in a month gasoline is costing you 84 x $3.50 or $292 per month. Premium gasoline is usually at least 12%-24% more or $0.50 more per gallon, making that $292 increase to about $362 per month. You should calculate and budget the cost of fuel in your vehicle budget. These are the kind of unexpected costs for necessary items that can destroy your monthly budget. Therefore, you must have some knowledge of what you are spending on this commodity and have the flexibility to make changes. Gasoline prices on the West Coast average at least $1 more per gallon than prices on the East Coast. There are people that are driving 124 miles per day or more for a trip to and from work, that’s a total of 620 miles per week or if you are working 22 days a month about 2,728 miles. Taking traffic into consideration their vehicles are averaging 22 miles per gallon requiring you to purchase 124 gallons of gasoline per month just to get to and from work. The price of gas is $3.50 per gallon times 124 gallons equal $434 with additional gas for shopping and errands your fuel bill could easily be $475 -$500 per month. These numbers have an annual gasoline expense of over $5,700 in after-taxed dollars. Remember, gas purchases are made with after-tax dollars, which means the pre-taxed cost is about $7,125. Your monthly gasoline cost can be more expensive than the cost of your vehicle. That’s why it is critical that you should know the gas mileage and type of gas required before you make your vehicle purchase. As quiet as it kept, gasoline is not a hidden cost of owning a vehicle. It’s only a hidden cost if you didn’t research and plan for it. For those of you who purchase a vehicle requiring premium fuel, the cost of gas can be up to $0.60 per gallon or 24% more. That’s $4.10 per gallon times 62 gallons to get to work for a total of about $254 to $300 per month with running errands. That’s why researching the vehicles you are purchasing can be invaluable when it comes to the required grade of gas and the miles per gallon. Having this information before you purchase keeps your vehicle costs from getting out of control and will keep you happier. There are times of global unrest when the U.S. and NATO nations place sanctions on oil-producing countries. The price of crude oil on the global market spikes to well over $100 per barrel and the price of gasoline and diesel fuel goes up to over $4.50 to 5.50 per gallon. That means that every ten gallons of fuel you use will cost $45 and a twenty-gallon fill-up with the cost you $90. How do these prices work with your current financial situation? For most people, this is extremely financially painful and stressful. This is a prime example of how budgeting and savings for rainy days ahead can be a ‘saving’ grace for you. One cannot over-emphasize the importance of having a nice savings fund when times are bad. You will have to start planning your trips when running personal errands. Plan to make all your stops when you are in a certain area, for instance, if you are going north of your home to the supermarket, plan to make all the necessary stops in that area such as the cleaners and Post Office. When you travel west of your home to the bank, the mall, the salon/barber shop, and so forth, try to reduce your monthly driving by 10% - 20%, to save you 10% - 20% on your fuel expenses. Once your vehicle is purchased, it starts to depreciate immediately, faster than you are able to pay it off, therefore leaving you with negative equity on the loan. That means you owe more on the vehicle loan than the vehicle is worth. Most people can’t afford to trade in their vehicle for a more efficient vehicle to get better fuel mileage or because the cost of maintenance and repairs is higher, or it requires premium fuel, and you drive 1,500 miles a month. That’s 1,500 miles at 18 miles per gallon equals about 84 gallons times the $0.80 more for premium gas or an additional $67 - $70 per month over a vehicle that takes regular gas. These are examples of how many times consumers’ monthly fuel costs can quickly get out of control. So, please avoid vehicle purchases without research, purchase wisely. Knowledge is power, so empower yourselves to make better purchases. Having the knowledge from research, this information may allow you to evaluate if you should consider moving closer to your job, seeking employment closer to your home, or considering the purchase of an electric vehicle. Many times, you may overlook how much you’re spending on fuel because gasoline is purchased a tankful at a time and it’s easy to lose track of the total amount you are spending. Again, one can’t over-emphasize the importance of knowing where and what all your money is being spent on. Once you have this information, your ability to make any needed financial adjustments and tweaks will be much easier. If you make a mistake with this vehicle purchase learn from it, grit your teeth and ride it out. If possible, wait until you can change your vehicle without incurring a lot of unnecessary added expenses. Sometimes you must do things that seem a bit costly to reduce or mitigate your total losses for making emotional decisions. Remember, every vehicle breaks down eventually and there are always repair costs associated with breakdowns. This vehicle is not or will not be the last vehicle you will purchase in your lifetime. The huge mystery is what this repair is going to cost you. Here’s an interesting article regarding the Total Cost of Ownership. Here are some of the estimated costs for expensive vehicle parts to help determine if and when the needed repairs are too costly to fix. A better option might be to start considering if replacing your vehicle is a better long-term option. That’s why you have been saving all that money you’ve learned to save. Article: The Cost of Car Ownership Over Time Expenses can skyrocket when warranty and free-maintenance periods are over . . . for some brands. Car ownership costs go far beyond what you pay for a car. A key question is whether you can afford the drip, drip of maintenance and repairs for as long as you own it. To better understand how costs increase over time and how they differ by brand, we asked members in our 2019 Annual Auto Surveys to tell us how much they paid out of pocket for the total maintenance (oil changes, etc.) and repairs during the previous 12 months. We found that there are significant differences in cost between 3-, 5-, and 10-year-old models, underscoring how cars need more maintenance and repair over time. 3-year-old (2017 model): $83  5-year-old (2015 model): $200 10-year-old (2010 model): $458 The three-year cost is kept low because of a number of brands, ranging from manufacturers that include free maintenance periods on new cars. And usually, cars need very little work in the first couple of years beyond an oil change and tire rotation. Nearly all new car warranties last at least three years, and repairs, if needed, are covered. By: Jeff S. Bartlett Source: Consumer Reports These annual repair and maintenance costs will continue to rise the older your vehicle gets because of the mileage and just due to that fact some rubber hoses and components will fail and dry rot over time. These numbers also give you an indication of what additional costs you will have if financing the purchase of an older used vehicle. Purchasing an older vehicle can become a financial nightmare. Here's the list of average repair costs for out-of-warranty breakdowns: Article: Source: CarBrain Data researched on the Internet Fuel Injectors Price - Average cost: $500. A/C Compressor or Brake Line Repair - Average Cost: $1,000 Timing Belt Cost - Average cost: $500 Fuel Pump Repair Cost - Average cost $700 - $2000 Catalytic Converter Price - Average cost: $1500 Camshaft or Head Gasket Repair - Average Cost: $1,500 - $2000 Engine Control Unit - Average: $3000 Air Bags or Transmission or Suspension Average cost: $2500 - $4000 Wheel Bearings per wheel – Average cost: $350 - $900 Front or Rear Axles or CV Boots per axle – Average cost: $150 - $800 This point needs to be reiterated and taken very seriously, when selecting a vehicle to purchase pleaasseee, do your research as to what type of transmission the vehicle comes with and the length of the manufacturer’s warranty. Research states that CVT transmissions, Continuous Variable Transmission, have a much higher failure rate than standard six to ten-speed automatic transmissions. Some have been known to fail within the first 10,000 miles, of course, it’s still covered by the new car warranty. Just ask yourself, is this expense something you want to be exposed to after the warranty ends? Especially, if you are purchasing a pre-owned vehicle. FYI, these CVT transmissions are not cost-effective to repair, therefore they usually need to be replaced at a cost of $3,000 to $5,000 plus. You will save money when you do the necessary research and avoid known risk potential. Try this Search Engine simple question, ‘What is the truth about CVT transmissions? If you own a luxury vehicle the cost of the above prices can be 40% - 60% more than those prices posted above. If you decide to keep your vehicle for over eight years, just be prepared to pay for some of these types of repairs when they fail. Please do your research to know exactly what fluid systems actually need to be flushed if at all such as those dealer-recommended Brake, Transmission, and Power Steering flushing services which can average $130 to $180 each. Many times, the service writers will try to encourage you to do them since you are already there. The dealers and service centers have third–party financing companies for repairs and services you can finance. They usually offer 0% interest if the balance is paid off in thirty days. If you default on the terms of the loan interest rates can go as high as 35.99%, depending on your state. Please only use your credit cards for necessary services you came in to have done. You can wait to have anything extra done after researching if it truly needs to be done. You can easily get behind with your car loan payments because of those unknown and unplanned expenses you never realized existed like high gas prices and the out-of-warranty cost of repairs. Please do your research to find the highest-rated reliability vehicles, the length of the warranty, and the cost of those out-of-warranty repairs. This knowledge is critical for you to maintain your vehicle’s good operational condition and your budget. If you neglect to do your research, here’s what might happen if you get behind on your vehicle loan payments. Article: As soon as you miss your car payment due date, your lender could consider your account delinquent. The lender will usually charge you a late fee and will try to collect the missing payment. You might have a short grace period, such as 10 or 15 days, during which time you can bring your account current without facing a late fee or other consequences. After 30 days, your lender will report the delinquent payment to the major consumer credit bureaus (Experian, TransUnion, and Equifax), which add them to your credit reports. The next step after delinquency is the default. Each lender has their own timeline for declaring your loan in default; some may do it the first time you miss a payment, while others wait 90 days or longer. When you default, the lender ramps up their collection efforts, turning your account over to their in-house collection team or to a third-party collection agency that tries to recoup the money. Defaulting on a car loan can have serious consequences for your finances that can last for years. Ultimately, defaulting can make it harder to get approved for credit, such as mortgage loans or credit cards. A late payment can negatively affect your credit score. Because payment history is the biggest factor in credit scoring, accounting for 35% of your FICO® Score☉  (the most commonly used credit score among lenders), a single missed car payment can have a serious negative effect on your credit score. A delinquency on your loan payments will stay on your credit report for seven years. Your car could be repossessed. When you get an auto loan, the car serves as collateral for the loan, meaning the lender can take the car if you're delinquent. Depending on your state's laws and the terms of your loan agreement, a lender may be able to repossess your car as soon as you miss one loan payment, and they may not have to give you any warning. More commonly, though, lenders will contact you seeking the missed payments before they take the drastic step of repossessing the car. By: Karen Axelton Source: Experian If you are considering purchasing a pre-owned vehicle that is not a CPO (Certified Pro-Owned), please find out before you purchase the vehicle what an extended warranty for the major component would cost so you are covered under a warranty for at least the term of your auto loan. Depending on the make, year and mileage of the used car and a good extended warranty covering all major components from a reputable Better Business Bureau-approved extended warranty company could cost an average of $125 per month. FYI, that $125 monthly warranty payment at an interest rate of 2.49% APR for 72 months represents about $7,000 worth of additional loan principal. If you add in the cost of an extended warranty to cover all the major components for at least the term of the loan. This way you won’t have to make expense repairs while you are trying to make the vehicle loan payments. The cost of the pre-owned vehicle and the extended warranty and add the cost of the used vehicle payments and the extended warranty monthly payments, it may be much more than you anticipated. Crunch the numbers you could use that $7,000 to add toward the purchase price of a new vehicle or a CPO rather than getting a used vehicle. Certified Pre-Owned vehicles can only be sold by the manufacturer’s dealerships of that vehicle. Everything discussed thus far in ‘Soaring Toward Financial Freedom’ has been strategically presented to provide you with the knowledge, life skill tools and wisdom to avoid these types of financial mistakes as well as many others. This chapter was extremely long only because there was a lot that needed to be covered to give you adequate information to make the best financial decision when making a vehicle purchase. Many people have made financial mistakes when attempting to buy or lease a vehicle. It is usually the first major purchase a young person will attempt to make. Whether they have saved all their money or are able to get a loan this can be the first huge financial mistake they make that could start to ruin their credit rating before their credit score is high enough to handle a drop in points. Please, if you are purchasing a vehicle with all your hard-earned cash savings, never consider a vehicle sold “As Is”. This is a recipe and the perfect storm for the makings of a financial nightmare. You may end up spending a very large portion of their earnings on repairs trying to keep the car running, causing you to end up neglecting and falling behind on the other bills. This will lower their credit score even further and cause you major problems with their credit history. If you bought the vehicle from one of those ‘Buy Here-Pay Here’ places you also run the risk of a vehicle repossession causing you to default on the loan. It can’t be reiterated more clearly. Do all the necessary research and avoid these ‘As Is’ purchase mistakes. It could save you tremendous amounts of headaches, grief, vehicle downtime and money throughout your ownership of the vehicle. ‘As Is’ vehicles come without any type of warranty, even if the seller says to you, “if something happens come back to me and I’ll take care of it”. Their verbal guarantee absolutely nothing unless they put it in writing and sign it. They are under no legal obligation to do anything for you. So, ‘Buyer Beware’ as the saying goes. You are on your own to check out the vehicle before purchase. The Courts will have no sympathy for you if you take the seller to court complaining. Please, research this term, ‘As Is’ to better understand how it can be used deceptively to sell anyone a totally worthless vehicle. Only purchase an ‘As Is’ vehicle, if you have intentions on restoring it to perfect running condition, otherwise avoid them like the plague. Just make sure your vehicle’s choice best fits your needs and more importantly your budget. Let’s make sure this vehicle purchase ends up being a manageable, pleasant, and enjoyable experience which serves its purpose as a reliable means of transportation rather than a financial nightmare. Just one more important bit of advice from a safety perspective, when you leave your vehicle for any kind of service with anybody, only give them the vehicle keys. Please take an extra minute or two to remove your vehicle key from your key ring. Never leave all of your all keys with anybody, especially your house keys. It only takes a minute or two to ensure your future safety.