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Actual Car Loan Interest Rate

The annual interest percentage rate (APR) you pay on a car loan can be deceiving.  Because of the way in which loan payments are calculated, the actual interest rate, as a percentage of the loan amount, is higher for loans longer than 12 months. The exact rate depends on the APR and the length of the loan, but does not depend on the loan amount. See for yourself with this calculator.

For example, say you have a car loan for 60 months at 12% APR, which might be the case if you have poor credit.  You can see from the calculator that the actual amount of interest you pay is about a third of your loan amount.

This means that for every three dollars you pay on your car loan, you pay another dollar for interest.  This is money you never get back.

To minimize the total interest you pay on a car loan, do the following:

  1. Borrow as little as possible
  2. Make as large a down payment as possible
  3. Choose the shortest loan term as possible
  4. Lower your APR interest rate by improving your credit and shopping for better rates online and at local banks and credit unions

Car Payment Widget

How many miles are too much for a used car?

Should I buy a car with high mileage? How many miles are too much?

high mileage carsWe frequently hear these questions from people looking for used cars for sale.

Generally, 15,000 miles a year is considered an “average” number of miles per year. So a car that is 5 years old would have about 75,000 miles to be considered “average.” Anything significantly more, and a car is considered to be “high mileage.” Anything significantly less, and it’s a “low mileage” car.

What does it mean if a car has high mileage?

Does it mean you should avoid cars with “high” mileage? Or that low mileage is always better?

Are cars with high mileage a bigger risk? Will they break down sooner?

Not necessarily, to all these questions.

In the last decade or so cars have become much more reliable than years ago when a car was looked at as junk when it reached 100,000 miles. Not so anymore.

Many modern cars with 100K-150K miles are in great condition and will easily go another 100K.

However, if a car has not been maintained properly and has been driven hard or previously wrecked, it can be junk with only 30K miles on the odometer.

Continue reading How many miles are too much for a used car?

Five Biggest Mistakes When Buying a Car

Used Car Buying Mistakes

Buying a car is not like buying a toaster at Walmart. It’s much more complicated with lots of opportunities to make mistakes, not to mention that a large amount of money at stake.

Five Mistakes Made Buying a Used Car

1. Not Doing Enough Research

To many people, buying a car is nothing more than an emotional decision based on color, styling, image, or initial impressions — much like buying a pair of shoes.

However, this can be a mistake when buying a car. Doing proper pre-purchase research is essential. Use Consumer Reports magazine/website to review reliability, safety, and performance ratings.  Get a vehicle history report from Carfax on the car you are interested in. Visit online car forums to get owner opinions and experiences.  Talk to service shop personnel for opinions.

2. Not Test-Driving the Car

A good long test drive is essential to discovering critical problems and issues with a car — and avoiding a big mistake. This should be more than simply driving around the block. It should involve low speed and stop-and-go on city streets, and higher speed on highways.

This is also the chance to check to see that all equipment works — A/C, heater, sound system, lights, and to check for tire wear, body damage, and low fluid levels. Look underneath for signs of leaks.

3. Not Having the Car Inspected by a Mechanic

Never take the word of a used car seller or dealer that his car “runs great” or “has no problems.”  He could be less than honest, or he might simply not be aware of hidden problems.

A professional mechanic’s detailed inspection and problem report can cost $75-$150 but is the only way you can know the real condition of a car you are considering to buy. It could prevent you from making a huge mistake.

4. Paying Too Much

Used car sellers and dealers always set an “asking” price that is higher than the price they are willing to sell for. If you don’t negotiate a lower price, you will probably pay more than the car is worth.  Generally, a 10% discount is reasonable.

However, even with a discount, you could still be making a mistake by paying too much. Use vehicle value guides such as those from Kelley Blue Book and NADA Guides to get a ball-park estimate of the value of the car you want to buy.

5. Ignoring the Car’s Title

Many buyers make the mistake of not examining a seller’s car title before buying.  If it’s an individual seller, the name on the title should be the same as the seller’s name. The VIN on the title should match the VIN of the car. There should be no indication of a lien or salvage/rebuilt status.

If buying from a used car dealer, he might not have the title if he recently bought the car at auction. He’ll send you the title later, and the name on it will be the previous owner, not the dealer’s name — which is not a problem.

Summary

Don’t make common mistakes when buying a car. Investing a little time and effort in the process will reward you with a successful purchase.

Buying a Used Car – Pros and Cons

Most people know that buying a used car is smarter than buying a brand new car.

But is that always true?

A used car can certainly save money, but at higher risk.

Most cars depreciate rapidly in the first 3-5 years, losing 50% or more of their original value, even those in near perfect condition.  Furthermore, car manufacturers only make major style changes every 4-5 years.

This means you can pick up a relatively new used car for about half the cost of a brand new model and still get essentially the same styling.

It’s also possible to find used cars that are 10 years old or older that are in excellent condition, and make excellent buys.

Sounds great but what’s the catch?

A used car is — well — used, previously owned and driven.  Those other owners may have driven the car sensibly, or not. They may have taken good care of it and maintained it as recommended by the manufacturer, or not. They may have damaged it and had it repaired by professionals, or not.  They may have driven excessive miles, or not.

A car is a mechanical machine and all mechanical machines suffer wear and tear with use.  They can have problems, some serious, some not.

Some makes and models tend to have more problems than others. Consumer Reports magazine, in the annual Auto Issue, publishes the results of a survey of thousands of car owners. It rates and ranks each model according to number and type of reported problems.

Furthermore, every used car is different. No two are alike. One can be a jewel that has low mileage, has been driven and maintained properly, and never wrecked. Another of the same make, model, and year can be junk with hidden problems, excessive wear, and poorly repaired damages.

What does this mean to a used car buyer?

Of all the possible issues that might prevent one from buying a used car, only a few are obvious to an average buyer.

It’s not obvious how a car has been driven or maintained by a previous owner — or owners. It’s not obvious that it might have been wrecked. It’s not obvious that it might have had reliability problems in the past, and will continue to do so. It’s not obvious why the previous owner is getting rid of his car. It’s not obvious that there might still be an outstanding lien.

The two major things that most buyers first focus on are 1) appearance condition, and 2) mileage.

First, appearance can be deceiving. There can be hidden problems not apparent to the eye.  Second, mileage is not a good indicator of a car’s condition.  A car with high mileage can be a good car, just as one with low miles can be terrible.

Many buyers look at Carfax or AutoCheck vehicle history reports as a way of researching a used car purchase. However, these reports are often inaccurate and incomplete, and don’t say anything about a car’s all important current condition.

What to do?

Although it’s possible to make some determination of a used car’s condition by asking the owner or dealer questions, test driving, and doing a cursory inspection; this is generally not sufficient.

The best way to know the actual mechanical condition and future reliability of a used car is to have it inspected by your own professional mechanic before you buy.

He can give you a detailed problem report that you can use to make a decision about buying. It can cost $75-$150 but is worth it if it prevents you from making a big mistake.

Let’s sum it up.

Buying a used car is much different from buying a brand new car that has never been driven, has no problems (usually), has never been wrecked, and has full warranty protection from the manufacturer.

There is more risk when buying used, which means a buyer must take more care and expend more time and effort in making a good decision. If done correctly, it can result in getting a great car for a great price.

Can I Refinance My Car Loan? Answers

Is it possible to refinance and lower my car payments?

refinancing a carMaybe.

Let’s explain.

It is natural to consider refinancing a car loan as a way to reduce monthly payments but it may not always be possible

Under the right conditions, you can lower your payments as well as reduce your total finance charges.

Under other conditions, refinancing may not make sense.

In some cases it might not even be possible.

Let’s explain.

Continue reading Can I Refinance My Car Loan? Answers

Can I trade my car for a cheaper car?

Can I lower my car payments by trading for a less expensive car?

trade for cheapere carYes — maybe.

But whether it’s a good thing to do will depend on your particular circumstances. Let’s take a look.

If you want to trade your car for a cheaper car, it probably means you are finding it difficult to afford payments on the car you now have. Or you simply want to trade down to have a little extra money each month by lowering your payments.

Let’s look at the two different possible situations, one of which will probably match your own situation.

Situation #1

You are “upside down” on your current loan. That is, you currently owe more on your loan than your car is worth as a trade-in vehicle. You can determine how upside down you are by first asking your bank or loan company to give you your loan payoff balance. Then compare that amount to the actual trade-in value of your car (see www.kbb.com and www.nadaguides.com). The difference in the two amounts will tell you how much you are behind in your loan (“negative equity”).

Continue reading Can I trade my car for a cheaper car?

What to Ask When Buying a Car

Car buying questionsWe’ve heard the question asked hundreds of times: “I’m buying a car. What questions should I ask?”

The answer is different depending on where you intend to buy your car — used car from an individual seller, used car from a dealer, or new car from a dealer.

Let’s look at each situation.

Questions when buying a used car from an individual

Important questions to ask when buying a car from a private seller:

  1. What is the car’s make, model, year, and mileage?
  2. Are you the original owner?
  3. Has the car ever been wrecked or seriously damaged?
  4. What problems does the car have now?
  5. Have you made recent repairs? For what?
  6. How does it drive?
  7. Are you the owner of the vehicle?
  8. Do you have the title?
  9. Is yours the name on the title?
  10. May I see the title?
  11. May I test drive the car?
  12. May I have my own mechanic check it out?

Continue reading What to Ask When Buying a Car

Car Seller Scam Explained

Car Seller Advertises a Car Online – You Buy – Your Money Disappears and You Get No Car

[ If you are selling a used car and suspect a scam by a potential buyer, see our article, Car Buyer Scam ]

How the car selling scam works

car seller scamIt’s a common scam. Here’s how it works.

You find a car being advertised online on Craigslist, Autotrader, or other online classified ad web site. You like the car. You want it. The picture of the car is beautiful, the description is wonderful, and the price is unbelievably low.

You contact the “seller” who emails you details about the car and why it’s being sold so cheap.

By the way, the “seller” often has a woman’s name, which is intended to make him seem more trustworthy.

The seller (scammer) goes to great length to tell the story of his/her personal situation, a spouse’s death, a military deployment,  or other reason why he/she is selling. they explain how they are in a remote location (often military) with no phone, why the car is being sold at such a low price, how it will be “shipped” to you at no cost, and how your money will be “protected” by eBay, PayPal, or Amazon while you inspect the car, and that you can return it at no cost if you don’t like it.

Continue reading Car Seller Scam Explained

Used Car Advisor – Real Car Tips and Advice

A Guide to Buying Cars — Tips, Tricks, & Expert Advice — For Smart Buyers

used car advisorBuying a pre-owned used car can be tricky, especially if you are not a “car person” or don’t have a wealth of past experience.

It’s different from buying a brand new car from a new-car dealer in that used cars can come from individual sellers, small independent dealers, large national dealers, public auto auctions, government auctions, repossession sales, and even from scammers.

Since new cars depreciate in value so quickly, buying a used car will allow you to take the advantage and buy cheaper, after much of the depreciation has already taken place.

However, since used cars have been previously owned, there are potential problems and risks that depend on a vehicle’s age, mileage, condition, and accident history.

There are steps that should be taken to help avoid these kinds of problems when buying a used car.

  • How and where to find reliable used cars
  • How to know what to pay for a used car
  • How to find and negotiate the best used car deals
  • Warnings about used car scams
  • Used cars to avoid
  • How to finance and pay for a used car purchase
  • How to trade a used car if you still have a loan
  • What happens after a used car purchase

We answer all these questions and more on this website.

We’ll help you choose the right car, show you how to avoid problems, find and negotiate the best deals, steer clear of common car scams and dealer tricks. We’ll also tell you how to find cheap insurance, buy extended warranties, and the best way to finance your purchase. We also provide a handy easy-to-use online car loan calculator.

And much more ….