13 Thirteen.docx

Thirteen Buying a car is one of the largest purchases you will ever make, and one that you will probably have to make over, and over again. The ownership of motor vehicles is Americans’ statement of success. However, they can end up being one of the most rewarding or most costly purchases consumers...

Thirteen Buying a car is one of the largest purchases you will ever make, and one that you will probably have to make over, and over again. The ownership of motor vehicles is Americans’ statement of success. However, they can end up being one of the most rewarding or most costly purchases consumers can make today. Vehicle ownership gives you the freedom to come and go as you please and gives you the ability to go wherever and whenever you want. All these freedoms come at a hefty price; in essence, most of you are willing to grant yourselves this freedom by acquiring that infamous financial leash, a.k.a. an auto loan. One of the first steps you should consider when buying or leasing a new or used vehicle is to figure out how much you should be able to afford and spend on the car. Not how much you ‘can’ spend on a car, afford’ is the key word here it covers all the costs. There’s a big difference between the two because what you ‘should or afford’ to spend on a vehicle is that amount that allows you to still ‘live within your means’ and maintain your budget. Whether vehicles are new or pre-owned, they are expensive to purchase, maintain and operate and they’re only getting more costly each year. On top of that, as interest rates slowly creep up, it will make the cost of auto loans and leasing more expensive. Then there are those ancillary costs you must be able to afford which are insurance, gasoline, basic maintenance, and the replacement of worn items. These are the most critical variable expenses in the operation of the vehicle, and you have absolutely no control over their cost. Article: Average used car prices topped $20,000 in late 2018, according to Edmunds, while the average new car transaction price was higher than $37,000 in January 2019, according to Kelley Blue Book. Along with higher car prices, car loan balances and average loan lengths have grown to more than five and a half years, with a growing number of cars now financed for seven or eight years. It is important to remember that buying a car is not an investment. It is a massive expense for a rapidly depreciating asset. You can expect a new vehicle to lose as much as a third of its value in the first year of ownership. Most buyers finance the purchase of a vehicle with a car loan, which is a legally binding contract that you can't just walk away from without tremendous damage to your credit score. By John M. Vincent March 06, 2019, Source: U.S. News Keep in mind what your vehicle ‘needs’ are and just remember this will not be the last car you purchase in your lifetime, so purchase wisely. Focus on purchasing a vehicle that meets your needs, you will enjoy, and is comfortably affordable. You must also plan for the cost of those ancillary reoccurring wear and tear expenses such as tires, brakes, and necessary fluid changes such as oil, transmission, and coolant fluids the vehicle must have when needed to operate properly. Always purchase the tire Road Hazard warranty whenever you replace the tires. Please read the vehicle manual and do Internet research to learn what experts say are the minimum maintenance requirements so you don’t over-service the vehicle. Seek the experts’ knowledge and opinions who are not profit-driven differ on the necessary oil changes, tire rotation intervals, and filter replacements necessary to keep your vehicle running properly. This will teach you the basics about vehicles regarding what maintenance is really necessary. Many people tend to over-service their vehicles, wasting money and breaking their budgets on services that are not really needed. Many of your vehicle questions can be answered from online info articles sources and video searches. Research the requirements for cabin filter, and drive belt replacement, and if engine/transmission cleaning services, brake fluid changes, and fuel system cleaners are ever needed at all. Many times, vehicles are very emotional purchases because of their ability to supply that ‘feel good’ factor. Consumers love the way the car looks, the sound system, the color, and/or the personal image they believe their vehicle will provide for them. Put the cool factor on the back shelf or back seat. Rather you should focus more on the practical perspective like the vehicle’s functionality and reliability. These are the people who tend to get their vehicles washed weekly to keep their vehicles looking great on the outside. They can spend up to $720 per year on car washes plus two full vehicle detailing services at $325 each, for a total of $1,370, just to keep up their image. Why? And they wonder why they don’t have money for what their vehicle really needs like new brakes and tires. Many consumers neglect to do their research on the vehicles’ warranties, reliability, expected longevity, rate of deprecation, recalls, and reported existing problems. They seldom do evaluations of two or more vehicle comparisons. These things don’t seem to matter initially before their purchases. However, afterward these un-researched vehicle issues can come back to be a real costly headache or pain in the neck during the entire ownership of the vehicles. There are many unknown ancillary costs associated with vehicle owners that need to be given much more thought, which most purchasers never consider before beginning their vehicle searches. Therefore, we’ll spend a lot of time on this chapter and repeat several precautions previously mentioned. It may be the second most important chapter in this book after credit, simply because you do have control over your decision as to which vehicle you purchase. This is why, your research is so very important, it decreases your chances of selecting a vehicle with a known history of problems. So, please do all the necessary upfront vehicle research and comparisons to best prepare you to make an informed choice in your vehicle selection. Those unresearched vehicle purchases have the potential to wreak havoc on your financial future. The objective of your research process, there goes that ‘R-word again, is to avoid having your vehicle purchase become a major drain on your limited financial resources and a major contributor to future financial stresses. There are many research sources you can use, which many people find helpful such as Kelly Blue Book, Edmunds, Consumers Reports, TrueCar, and Carfax very informative. This was the purpose for the creation of the ‘New Vehicle Lemon Law’ back in 1975, to protect consumers from habitual and reoccurring manufacturer vehicle defects. If you would like more information on ‘The Lemon Law ‘ in your state, please research it. For most people, having a vehicle isn’t a choice or a luxury, it’s a necessity. It’s required for you to get to and from work, to take your children to and from after-school events, and to go to the grocery store due to limited public transit- systems service, especially in the suburbs. So how much of your monthly income should you spend on a car? That is a very challenging question. Determine what dollar amount or percentage of your monthly income you can afford to budget before you go vehicle shopping. Have a target dollar amount range with a maximum dollar amount limit you can afford and don’t go over it. Start your search with vehicles that may be 25% below your maximum budget amount. Remember your pledge to plan for your purchases and sacrifice now for your commitment to your future greater goals by not going over your budget. This is a great time to put into practice some of the suggested strategies and calculations you’ve read about. A wise man once said, “you should never work for a car, a car should always work for you. A vehicle is just a tool, like a hammer”. If your friends and neighbors drive luxury vehicles but all you can comfortably afford is a basic functional vehicle, then you should buy a basic vehicle. A vehicle is just a ‘Vehicle’ to get you from point A to point B. This is what ‘living within your means’, actually translates into; don’t overextend yourself for a ‘tool’ to project an image of yourself just to feel good. As stated earlier, sometimes the problem isn’t that you don’t earn enough money, sometimes it’s that you’re not spending your money wisely. Plus, the fact that like most people are actually in their vehicle less than two hours a day, which means your vehicle sits for twenty-two hours per day or 92% of the time. You all have heard any of your friends or family members say, “it’s the 15th of the month already, I got to pay my car note, again! Every time I turn around it’s time to pay that ‘darn’ car note? I’ll be so glad when this loan is paid off. I only have two more years left”. Then there are those folks who say, “every time I take my vehicle in for maintenance or service, it’s at least $500 to $600”. These folks will be even more shocked when they have to replace normal wear and tear items such as brakes and tires. But you seldom hear them say, “I should have never brought that vehicle, it’s too expensive, I can’t afford this vehicle.” The cost of a luxury vehicle can become a ‘money pit’, which is the truth. They’re working to pay for the vehicles rather than their vehicles working for them. They purchased a vehicle that consumes a much higher percentage of their net income than they can actually afford. This is how a vehicle can become a huge financial burden, a nightmare, and is no longer enjoyable to them. The conclusion is, they can’t afford the vehicle they elected to purchase and probably owe more on the car loan than the vehicle is now worth. To put it more directly, they are behind the eight-ball, also known as, upside down on their vehicle loan and basically stuck with it. This is how a ‘want’ becomes a bad financial decision. This is why following the recommended strategies, pre-plan and budget for your major purchases eliminates these unnecessary financial stresses in your life. In the planning and research stages of vehicles, you should investigate to find out what a set of tires and brakes cost, you can call or go to the dealerships’ service departments to find out the hourly service rate and prices for the many services. Your research will determine that a set of run-flat tires can cost as much as 40% to 100% more than standard tires and cannot be patched or repaired. Run flat tires and low-profile tires are usually installed on luxury cars and sports cars. If you don’t know what run-flat tires are, it’s time for you to do some research. Google and read about run-flat tires, then check the prices for the luxury vehicles or sports cars you are considering purchasing. Today most cars except SUVs don’t come with spare tires. This is something you can research as well. Make sure you have an Emergency Road or Roadside-Assistance service on the vehicle which includes towing battery, and tire changes for emergencies. A single event out-of-pocket tow charge can be more than a whole year of coverage service. Even one vehicle towed from of your illegally parked car in a No Parking Zone can cost over $300 with storage fees putting a huge ‘hole’ in your budget. You should also become familiar with the required service and maintenance costs, not the ‘Recommended’ service schedule by mileage or months for your vehicle over the next 50,000 miles or four years. Knowledge of the cost of these additional expenses may also have you revisit your vehicle choices. Your research equals, no expensive maintenance or repair cost surprises. However, the only thing expensive luxury vehicles can do for you a moderate price vehicle can’t do for you is cost you more money to maintain and repair over the time you own it. Please search and read: “Confessions the Dealership Service Department”. Gives a better understanding of why you should have basic automotive knowledge. The vehicles are not investment purchases, no matter what you think or how well you take care of them, your vehicle will depreciate and need repairs. On average vehicles depreciate at a rate of 10% per year, some models much faster than others. That’s an average loss in value of 50% of the Manufacturer’s Suggested Retail Price (MSRP) in the first 5 years. And yes, if your vehicle has higher mileage than average, it will accelerate your vehicle’s depreciation rate. Some vehicles can depreciate up to 25% in the first year alone. Here comes that ‘R-word again. So do the research on all the vehicles you’ve considered with respect to how much you should pay and how long you should finance it based on its depreciation history. In the event your vehicle is totaled or stolen, the insurance company will only pay you the depreciated Kelly Blue Book value of the vehicle. Some people tend to spend a lot of money on additional unneeded accessories to give their vehicle a unique personalized customized appearance, like rims only the owner appreciates. Remember, you will not recover the cost of these lavish accessories at the time of the trade, resale, steal, or if totaled in an accident. The lack of knowledge of your vehicle’s true value, for those people who like to change their vehicles often, is one way many people get ‘Underwater’ or ‘Upside Down’ in their auto loans. This means they owe more on their auto loan than the vehicle is worth. Please do not make this mistake, avoid it like the ‘plague’, an underwater auto loan can take you many, many years to recover from along with additional fees and unnecessary interest paid on the ‘gap’ over-inflated value. Set a time frame for how long you want to keep your vehicle in mileage or years, for example, eight years or 140,000 miles. Knowing your vehicle’s current trade-in value will also help tremendously when it needs a very expensive necessary repair such as a; transmission, axles, head gasket, oil leaks, or oil burning issues. You can then determine if the cost of repairing the vehicle is 30% - 40% of the value of your vehicle, you may not want to repair it. This will keep you from going down the ‘road’ of making endless expensive repairs on an older vehicle or high mileage vehicle. So, you end up spending more on repairs than the vehicle is worth making it a money pit. After spending all that money trying to save ‘old Betsy’ you still end up having to purchase a newer vehicle anyway. Then you may have to purchase another older vehicle because you spent a lot of money trying to save your older vehicle. Here we go again, buying an older car with the potential to need many costly repairs. This keeps you in a cycle of wasting money on older cars that need expensive repairs. Before you start making expensive repairs on an older vehicle, take time to make an executive decision to replace it with a new or newer vehicle that fits in your budget. If you have been implementing the expense reduction and savings growth strategies recommended throughout the book, replacing your older vehicle won’t be a financial problem at all. All the savings techniques should have allowed you to maintain an excellent credit score and perhaps qualify for a 0% APR financing new car. At the least, you would qualify for a low-interest loan on a new or pre-owned vehicle that fits in your budget. Congratulations, this is what ‘Soaring Toward Financial Freedom’ allows you to do, benefit from following the ‘Process’. Article: If you’re looking to put a brand new $40,000 car in your driveway, we’ve got some expert advice: Buy a vehicle with a sticker price closer to $45,000. That’s one way to look at depreciation. Our data shows that cars can lose more than 10 percent of their value during the first month after you drive off the lot. The amount your car is worth will just keep falling, too. According to the vehicle depreciation rates, the value of a new vehicle can drop by more than 20 percent after the first 12 months of ownership. Then, for the next four years, you can expect your car to lose roughly 10 percent of its value annually. This means that a new car can be worth as little as 40 percent of its original purchase price after five years. Of course, you may not be concerned about the “average car,” so we’re ready with information about how specific factors can affect vehicle depreciation. By Charles Krome|, Source: CARFAX |Car Buying So, let’s focus on purchasing only those vehicles which meet your current needs for the next 3 – 5 years and are within your budget. Remember, this is not the last vehicle you will purchase in your lifetime. This vehicle purchase should be what you need, it doesn’t have to be a luxury higher priced vehicle you ‘want’. Another option for securing a vehicle is through leasing. If your credit score is very good to excellent, leasing the vehicle may work better for your budget over the next 36 months. But make sure the terms of the lease work best for your intended use of the vehicle. Each lease can have different terms between 24 to 42 months. They will have mileage limits to use during the term of the lease, exceeding these limits will result in mileage overage charges, which can be manageable. Leasing can be the solution you need to get into a brand new fully warrantee vehicle and remain within your budget with respect to your vehicle’s monthly payments. Let’s look at a comparison between leasing and purchasing a vehicle with a 36-month or 36,000-mile warranty. Sometimes the only way most people can afford a new vehicle is to acquire one through leasing. The monthly payments of a leased vehicle can be significantly less than buying a vehicle. The monthly loan payment for buying a $25,000 MSRP vehicle with a $3,000 down payment, means you are financing $22,000 at 3.5% interest for 5 years, your payment would be about $400 per month for 60 months. The total loan payments would be $24,000 (400 x 60) plus the $3,000 down payment for a cost of $27,000. This total cost consists of a $3,000 down payment + $22,000 financed + $2,000 paid in interest. This low-interest rate was earned as a result of your very good credit score. After six years with average mileage use, the vehicle may have about a $7,000 trade-in value. So, the cost to own the vehicle over six years is $27,000 - $7,000 trade-in for a net total of $20,000. The cost of leasing the same vehicle would be about $200 per month with a $2,500 down payment for 36 months with 12,000 miles per year included. The total payments are $7,200 ($200 x 36) plus the down payment of $2,500 for a total cost of $9,700 over the three-year lease. When this lease is over, let’s lease another new vehicle of the same make and model for another three years. We’re to assume the next lease went up a little bit, the lease payments are now $236 per month with a $2,500 down payment. The lease payments are $8,500 ($236 x 36) plus the down payment of $2,500 for the total lease payments of $11,000. The cost of the two leases over six years is $9,700 for the first year plus $11,000 for the second year for a total of $20,700. Owning the purchased vehicle over six years costs you $20,000, not including any out-of-warranty repairs and normal wear and tear parts such as brakes, tires, and fluid changes. If you had to replace the brakes once and purchase a set of tires you would have spent at least $1,400 or a total of 21,400 plus any other out-of-warranty repairs. The two leased vehicles over six years cost you only $20,700 to lease, that’s $700 less and the vehicle was always under the manufacturer’s warranty. During these 3-year, 36,000-mile leases, there was never any need or expense to replace the tires or brakes and no exposure to out-of-warranty repairs. This shows leasing vehicles can be cost-effective and has the potential to be less costly than owning a vehicle because, during the full term of each lease, the vehicle was under the manufacturer’s bumper-to-bumper warranty. Here’s where it will begin to make even more sense. If you repeated this same lease for the same make and model for another 3 years or a 36-month lease. The vehicle’s MSRP has increased by 6% over the last lease, making the lease payments about $278 per month. The Lessee’s down payment is still about $2,500 and it includes 12,000 miles per year or 36,000 miles over the term of the lease. The vehicle still has a 3-year or 36,000-mile warranty, like the previous new vehicles. The total cost of the lease payments is $10,008 ($278 x 360) plus the down payment of $2,500. The total cost of the lease is $12,508. The cost of the three leases which included a total of 108,000 miles over 9 years would be Lease #1 for $9,700, Lease #2 for $11,000 and Lease #3 for $12,508. Added together the 9-year total is $33,208 ($9,700 + $11,000 + $12,508). If you divide the $33,208 by the 108 months (36 months x 3) you would get an average of $307 per month. Remember over the nine-year period and the 108,000 mile your vehicles were always under the manufacturer’s warranties. You never were exposed to having to pay out of pocket for any vehicle breakdown repairs or the replacement of brakes or tires during each lease period. If you used all 36,000 miles provided over each lease you would have driven a total of 108,000 miles. Now, if we look at the purchase option again, of a $27,000 vehicle with a $5,000 down payment you’ll need to get a $22,000 auto loan. By maintaining a very good credit score, the $22,000 loan will be at a 4.11% APR interest rate or less which has a monthly payment of $302 for 84 months (recall the three, 3-year leases’ average cost is only $307 per month). The total interest paid on this $22,000 auto loan is $3,368 over 84 months. The cost of buying this vehicle would be the loan amount of $22,000 plus $3,368 of interest plus a $5,000 down payment for a total cost of $30,368. The new vehicle warranty of 36 months or 36,000 miles whichever comes first. In this scenario, you’ll still be paying for the vehicle 4 years after the manufacturer’s warranty expires and are exposed to all repairs. Let’s assume you keep the vehicle for two more years for a total of nine years. After nine years your vehicle’s trade-in value with 108,000 miles is only $2,500. Just like in the leased example you are driving 12,000 miles per year which would be 108,000 miles over nine years. Driving these many miles, you would have needed to replace several worn-out parts. The vehicle would have required at least two sets of front and rear brakes at $600 x 2 equal $1,200, and two sets of tires at $700 x 2 equal $1,400. There would also be the cost of at least two batteries at $300, a total of $2,900 in wear and tear replacement parts alone. Then there are maintenance costs for fluid changes and other services due to the vehicle’s age of about $5,200 over the nine years of the ownership of the vehicle. That would equate to about $8,100 of out-of-pocket expenses, remember the 3 years or 36,000 miles vehicle warranty ended over five years or 72,000 miles ago. These numbers don’t include your exposure to any electrical or check engine light system failures such as ABS, sensors back up camera, etc. These issues could cost thousands of dollars in repairs. Then there are the breakdown repairs such as burned-out headlights and taillights, catalytic converter, brake rotors, wheel bearings, front axle boots or check engine light issues etc. These out-of-warranty repairs have an average cost of $1,500 to $2,500 per repair. If you add the $8,100 in wear and tear cost to the $30,368 purchase price of the vehicle you get $38,468 less the trade-in value of $2,500 or $35,968. The $35,968 is assuming there are no system malfunctions or mechanical breakdowns repairs mentioned in the previous sentence. You can probably count on having a minimum of two system failure repairs totaling $4,000 over nine years. At the end of this chapter, there will be a list of the average repair costs for system failures and breakdowns. By leasing three vehicles over nine years your cost would be $33,368 versus $35,968 for keeping a vehicle for nine years. Those possible two system failure repairs would add $4,000 to the total cost of ownership. The vehicle leases cost a minimum of $1,800 less than vehicle ownership. If there are two system failures this additional $4,000 is an out-of-pocket expense to you over nine years. Here is a list of possible breakdown repairs you would be exposed to such as wheel bearings, shocks, CV Boots, front axles, electronic safety system failures, etc. You may be quite familiar with the high cost of constant unexpected repairs to your current or previously owned vehicle that was out of warranty. The leased vehicles are always under the manufacturer’s warranty, protecting you from the exposure of a huge number or plethora of expenses for out-of-warranty repairs. Today’s vehicles have an abundance of new electronic Driver’s Assistance Technology Systems that are very costly to repair. An out-of-warranty electronic system failure could cost you an average of $2,500 plus per event. These out-of-warranty system failures are realistic concerns for money pit costly repairs. Another great Leasing benefit is that you drive a new car every three years. There are at least four foreign vehicle manufacturers who have taken the new vehicle warranty to the next level. Their aggressive warranty approach leads the auto industry to increase new vehicles with 5 years or 60,000 miles, whichever comes first, and a 10-year or 100,000-mile powertrain warranty. This is a huge financial benefit to consumers by limiting their exposure to expensive repairs. These warranties offer the original owner an additional 2 years and 24,000 miles of protection from out-of-pocket repairs for system failures after most standard new car warranties. These warranties are transferable to the subsequent owners who purchase these vehicles as used cars. The powertrain warranty is reduced to 6 years or 60,000 miles for used car purchasers. Remember these vehicles are much better built by the manufacturer to last for 10 years or 100,000 miles, so this appears to be a safer bet to purchase as a new or pre-owned vehicle. At today’s vehicle prices, a 5-year Bumper to Bumper or 60,000-mile vehicle warranty should be the automobile industry minimum standard for all new vehicle warranties. This would boost the confidence of the purchasing public that manufacturers are building the best, most reliable products possible. This keeps the risk of expensive out-of-pocket repairs for these new Technology Driver’s Assistance Systems as the responsibility of the vehicle manufacturers rather than the consumers. Hopefully, all other vehicle manufacturers will soon follow their lead and increase their new car warranties as well, making 5-year bumper-to-bumper or 60,000-mile or ten-year powertrain warranty the industry standard. This will encourage vehicle manufacturers to build the best vehicle using the most reliable parts available to shield ‘themselves’ from having to repair the vehicle during the warranty. This would give consumers confidence that all new vehicles are manufactured to the highest quality standards possible. These significant warranty changes would transfer all the risks of breakdowns back to the manufacturer where it belongs so consumers can purchase a pre-owned vehicle with more confidence and less risk. Out-of-warranty repairs are the primary cause for late vehicle loan payments. This was the main purpose of the creation of the ‘New Vehicle Lemon Law’ back in 1975 to protect consumers from habitual reoccurring manufacturers’ vehicle defects. The Law transfers the defective vehicle failure liabilities from consumers back to the manufacturers and flags the vehicles as defective. This was a huge win for consumers who must finance any vehicle without the fear of having to pay for reoccurring out-of-warranty defects and malfunction repairs at the same time. The main benefits of these exercises are to stress the importance and the need for you to do your research, plan a budget for your vehicle acquisition and stick to your plan. When doing your cost analyses for a vehicle purchase and lease find what dollar amount that best fits your budget and does it ‘the right way’. Here’s another important reason to keep a very high credit rating besides getting the lowest interest rates. In order to lease a vehicle, the leasing company requires that you have a higher credit score than the lenders require for financing vehicles. The leasing companies are usually only the actual vehicle manufacturers’ finance departments, there are no third-party leasing companies. They can customize your vehicle lease terms and or miles to better fit your driving needs and budget. Now let’s look at the financing cost of a vehicle at different interest rates over 6- years or 72 months. Here’s an example of the challenges many consumers will face when they need a reliable vehicle. The below chart shows the payments with an above 720, Tier #1, for an excellent credit score down through low sub-prime credit scores that could command interest loan rates of 15% APR to 22% APR. The interest rates consumer ends up paying for auto loans are strictly determined by their credit scores and credit history. Here again, is where you are rewarded financially for earnings, managing, and maintaining an ‘excellent score’. Please note in the following example, the differences between the monthly payments, the total interest paid, and total payments with interest over the loan terms. These are the real true cost of borrowing or financing $30,000 for the vehicle. As you will notice in the chart below there are huge differences between the total monthly payment amounts. In Option #1 at 0% interest APR interest through Option #6 at 12% interest APR, which could be the beginning of the sub-prime interest rates. Option #7 at 15% interest APR through Option #10 at 22% interest APR may represent the lowest sub–prime credit score for loan approval. This shows you the true value and financial benefits of maintaining a very good to excellent credit score when financing major purchases. The average person may purchase eight to twelve vehicles over fifty years, some people even more. Of course, these savings would be available for each vehicle you purchase. It also represents another large amount of money available for you to recover in your life’s ‘Treasure Hunt’ for all your hidden Lottery Winnings. Total Cost of Financing A Vehicle for 6 Years Loan Rate Monthly Payment Total Total Options Amount Months % Payment Difference Interest Payments 1 30,000 72 0 416 0 0 30000 2 30,000 72 2 442 26 1872 31861 3 30,000 72 4 469 53 3816 33794 4 30,000 72 6 497 81 5332 35797 5 30,000 72 8 525 110 7280 37872 6 30,000 72 10 556 140 10080 40016 7 30,000 72 12 586 170 12240 42228 8 30,000 72 15 634 218 15696 45973 9 30,000 72 18 684 268 19296 49265 10 30,000 72 20 719 303 21816 51738 11 30,000 72 22 752 338 24336 54272 The difference in total interest paid between 0% APR and 22% APR interest is listed in column #7. The interest payments at 0% = $0, 2% = $1872, 4% = $3616, 6% = $5336, 8% = $7820, 10% = $10,080, 12% = 12,240, 15% = $15,696, 18% = $19,296, 20% = $21,816 and at 22% you paid a whopping $24,336 in interest. You could purchase a $ 24,336-second vehicle for the additional interest you paid, just because you had a much lower-than-average credit score. These are examples of how you leave your lottery winnings and future wealth behind throughout life. For example, the monthly payment for Option #1 is $416 per month, and the monthly payment for Option #10 is $754 per month. The difference in the payment is $338 per month which means the borrower at Option #10 is paying 45% more monthly or $24,272 more for the vehicle. That’s almost double the total price cost for those who qualify for Option #1’s interest rate pays for the exact same vehicle. Another example is the additional interest payments at the 18% APR rate versus the 10% APR rate loan over a 72-month period would be $9,216 more. Therefore, any amount of money you are able to save by practicing many of the ‘Food for Thought’ suggestions of this book is invaluable for making larger purchases. This money saved could be used for a particle down payment for a house, future vehicle repairs, life insurance premiums, college funds, student loans, or savings. If your credit score is very good to excellent, these savings represent the amounts of money you will be saving in interest finances payments on each of your vehicle purchases. If your credit score is average to poor, these amounts represent your missed savings opportunities and the amount of money it will cost you in additional interest finance payments on your vehicle purchase. It’s as simple as that, your credit is one of the things you must always control. This is why this is so important that you don’t make the mistake of ruining your credit score and rating early in your life. If your credit score isn’t at least good, you will definitely pay a hefty price throughout your life for those few poor loan ‘screw-ups’ indiscretions in your past. Another point is, if you don’t qualify for the 0% interest APR financing promotion, you will have to negotiate and fight very hard for an additional dollar off of the vehicle’s MSRP selling price to make it fit and work within your planned budget limits. A lower negotiated price for the vehicle will result in less interest paid over the term of the loan. Remember, you are not going to exceed your pre-planned budgeted limit for a vehicle under any sales pressure or circumstances. Sometimes you just have to walk away from this dealership and try to secure that same or similar vehicle at another dealership. The following chart shows the different interest rates for new and used vehicle purchases based on your credit scores. This is why it is so important for you to keep your credit score as close to ‘Excellent’ as possible because falling into the subprime rating categories will be very costly. The higher interest payments will only make your ability to repay the loan that much more difficult, and your ability to maintain a good payment and credit history more difficult because of your much higher monthly payments. Do you see how this can become a vicious cycle of higher interest debts making it so difficult to raise your credit score? The interest rate difference you will pay can range up to 20 percentage points higher. The table below shows the average interest rate for new and used-car loans based on credit scores, according to Experian data from the first quarter of 2020. New & Pre-Owner Vehicle Interest Rates   Deep subprime (300–500) Subprime (500–600) Nonprime (600–660) Prime (661–780) Super prime (781–850) New 14.39% 11.92% 7.65% 4.68% 3.65% Used 20.45% 17.74% 11.26% 6.04% 4.29% From the chart above. New Car: The difference between a Super Prime credit score and a Deep Sub-Prime credit score interest rate for a new vehicle is 10.74 interest rate percentage points. This means you can pay up to 3.9 times more in interest than the best rates available for the exact same vehicle dependent on your credit score. Used Car: The difference between a Super Prime credit score and a Deep Sub-Prime credit score interest rate for a Used vehicle is 16.18 interest rate percentage points. You can pay up to 4.8 times more in interest than the best rates available for the exact same vehicle depending on your credit score. Why are you paying so much more in interest payments? Because you didn’t maintain a very good to excellent credit score? One would hope your low subprime credit score wasn’t because you were irresponsible with managing your money and finances. Perhaps because you had a lay-off, illness, or family emergency and now you are working on getting back to the solution processes suggested in the book. So, please take managing your credit score seriously. This point is very important so it will be repeated again, higher interest payments make it even more difficult to make the monthly vehicle payments on time, as well as all your other monthly overhead expenses. Not to mention the additional money it’s costing you, which could be used for other things, savings, and building future wealth. Then you have those vehicle manufacturers who have very aggressive sales promotions several times a year when they offer ‘Highly Qualified Consumers’ 0% financing for 72 months. These 0% finance promotion offers are totally different than the furniture and appliance ‘Conditional 0%’ finance retail promotional offer which was discussed in previous chapters. Due to the high cost of new vehicles, the average car are 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?