Did you pay cash for your last new car?
According to recent surveys, more
buyers are showing up at dealerships with cash
in hand to make the purchase. A survey by CNW
Marketing research says that nearly 12 percent
of all new car buyers are paying cash, up from
about 8 percent in previous years.
And that 12-percent figure does not include buyers
who go to the dealer with money they have already
arranged from credit unions, online sources and
home equity loans. When you take them into account,
the 12 percent figure rises to about 26 percent.
Just as the Internet has made some buyers smarter
about the value of new and used cars, it has also opened a portal for buyers to
get their financing ahead of dealer negotiations. "The
trend has been consistently growing,'' says Stephen Schooff, a spokesman for Capital
One Auto Finance, which offers car loans online. "The Internet has been the
great equalizer.'' Capital One, along with other online lenders,
typically rates a customer's credit worthiness and then authorizes a maximum loan
amount. A buyer takes essentially a blank loan check to a dealer and fills in
the sales amount. "It's really an empowerment tool for
the consumer,'' Schooff says. While the trend toward cash and
prearranged financing is significant, historically even higher numbers of buyers
used to pay cash. In the 1950s more than a third of buyers paid cash. But in the
1990s, as factory-subsidized leases became common, cash buyers all but disappeared. Today's
cash buyer tends to fall into two segments of the market -- those buying inexpensive
economy cars and those buying big-dollar luxury and sports cars. There are
more than 30 models with sticker prices less than $15,000 and more than 60 priced
above $60,000. Whether buyers come through the door with stacks
of dollar bills or prearranged financing, the trend is further cutting into the
profits at many dealers. When a customer gets financing through a dealer, the
dealer gets a commission on the arrangement, which in some cases can amount to
more than the profit on the sale of the car itself. What that
means to the consumer is that dealers are bargaining harder on sale prices and
may still try to talk the buyer into using the dealer's financing instead of cash
or a loan arranged elsewhere. "The dealers are finding
they have to offer the best prices on financing to buyers,'' says Schooff, whose
company also offers traditional financing through 18,000 dealers. Ultimately,
consumers should not go car shopping until they have their financial house in
order. Get a copy of your credit report and, if possible, your credit score from
one of several services that offer it, usually at a nominal price. If
possible, paying cash is always the best route. Arranging low-cost financing through
a credit union, bank or online service ahead of time is a smart move. Home equity
lines of credit can be used, but it's a risky move in the long term. You're eating
into an appreciating asset, your home, to pay for a depreciating asset, a car. Decide
what you can afford and don't go over that, no matter how alluring the more expensive
vehicle may be. Then bargain hard with the dealer, without
revealing up front how you're going to pay. After negotiations are concluded,
tell the dealer how you're going to pay. If you have prearranged
financing, challenge the dealer to beat the terms -- sometimes they can. But make
sure the terms of the dealer's offer -- total amount financed and the length of
the loan -- equal the terms of the prearranged financing so you can make an informed
decision. The bottom line: cash rules, but for the majority
who finance there are good options.
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