Buying Your Next Car: You Hold The Keys
By Chris Stinebert and Andy Koblenz
Fall 2007
You have a lot on your mind. Perhaps you have just returned from a lengthy overseas deployment and are working to acclimate back to “normal” life. Maybe you’re about to be deployed and are worried about your family finances at home. Or maybe you need a new car, and you must sort through the many options available to finance it.
With all the pressures of military life, it would be understandable if properly managing personal finances and making sound financial decisions were at the bottom of military families’ to-do lists. Research has shown, however, that this is simply not the case, particularly when it comes to auto financing decisions. In fact, civilians could stand to learn a few lessons from members of the military.
Vehicle financing is a way of life in
More Prepared Than Most
The survey, conducted by Americans Well-informed on Automobile Retailing Economics (AWARE), a non-profit auto financing education group, found that people in the military are more likely than the average consumer to understand the process of buying and financing a vehicle, and to spend time researching their options.
This is especially true when it comes to researching financing for a vehicle. Nearly four in 10 (37 percent) military respondents completed three or more hours of research for vehicle financing prior to their last purchase. This is significantly better than the general public, where only about one quarter (26 percent) completed three-plus hours of research.
Military respondents also indicated a higher level of comfort with the vehicle financing process than the general public. Three-quarters (75 percent) of the military feel informed about vehicle financing – and there is intensity to that feeling, with 52 percent feeling “very” informed. This is stronger than American consumers in general, 58 percent of whom felt informed with the process (36 percent felt “very” informed).
While these statistics may seem surprising to some outside the military, this is not “new news” to educators on military installations involved in the “financial readiness” movement.For example, Linda Sapp, community readiness consultant for the Airman and Family Readiness Center at Cannon Air Force Base in New Mexico, told AWARE that she was “not at all surprised” by this data. She attributes the high level of comfort and understanding of the vehicle financing process to the extensive personal finance education programs like hers that are occurring throughout the military.
Sapp’s job is not complete, she further explained: “We still see Airmen who have made unfortunate financial decisions and are suffering the consequences of those decisions. Financial education is a never-ending process. We want to give them the tools to make informed decisions throughout their financial lives.”
The Airman and
Savvy Young Buyers
The AWARE survey also found that, contrary to conventional wisdom about “the young and the reckless,” younger military respondents are likely to be better prepared in terms of their perceived level of knowledge and comfort than their older counterparts in the military or the general public. For example:
- Younger military respondents (under age 30) are more likely than their older counterparts (age 30 and above) in the military to have shopped around for financing for their last car or truck purchase (49 percent vs. 29 percent). They’re also more likely to have checked their credit score before shopping (47 percent vs. 26 percent).
- Younger military respondents intend to do even better next time around, saying that they are much more likely than their older counterparts to plan to check their credit score for their next purchase (78 percent vs. 54 percent), and displaying more conviction than older military personnel in their intent to negotiate financing for their next vehicle purchase (86 percent vs. 72 percent).
- These younger military respondents also seem more open to receiving information and education on the subject. Eighty-two percent indicate interest in learning more about auto financing from the auto financing industry (compared to 63 percent interest among older military respondents).
Lessons Learned From The Military
Vehicle ownership – particularly for military spouses – can improve both earning potential through the opportunity to commute to better paying jobs and in quality time spent with family. But economic challenges, such as debt troubles or living on a fixed income, make it essential to conduct the homework required to make sound vehicle financing decisions. The financial education programs in the military, offered through the Department of Defense as well as civilian resources, appear to be making a positive impact on the likely first- or second-largest purchase in an individual’s life – purchasing a vehicle.
As in so many aspects of their lives, military members are setting a fine example that other Americans would be wise to follow.
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Chris Stinebert is Chairman of AWARE, and President and CEO of the American Financial Services Association (AFSA). Andy Koblenz is Vice Chairman of AWARE, and Vice President of Legal and Regulatory Affairs and General Counsel of the National Automobile Dealers Association (NADA). AWARE (Americans Well-informed on Automobile Retailing Economics) is a national non-profit organization specializing in auto financing education. This national campaign was launched by NADA, AFSA and other major players in the vehicle financing industry to enhance understanding of the vehicle financing process. For more information, visit AWARE at www.AutoFinancing101.org.
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Auto Buying Road Trip
With new 2008 car and truck models rolling onto dealer lots soon, millions of Americans will be looking to acquire a new or used vehicle this fall. Americans Well-informed on Automobile Retailing Economics (AWARE) offers these tips to help consumers navigate the vehicle financing process:
Before visiting the dealership…
Know what you can afford – and resolve to stay within your limit. Decide what type of car you really need, and set a price range that fits your budget. Budget worksheets and a list of auto financing calculators can be found at www.AutoFinancing101.org/LearningSuite.
Do your homework. Gather all the information you can find – using the Internet, buying guides and consumer publications – to learn about vehicles on your short list.
Know the terminology. Become familiar with common terms you’re likely to hear or read – such as down payment, APR and trade-in allowance – when you’re financing a car or truck. You can find the definitions of many such terms at www.AutoFinancing101.org/Resources/Glossary.asp.
Review your credit report. You should know what creditors will know – plus you can correct any errors you find. All consumers are entitled to a free copy of their credit report once a year from each of the three nationwide credit reporting companies. Request your free annual credit reports by visiting www.annualcreditreport.com, calling 1-877-322-8228 toll-free or mailing a request to Annual Credit Report Request Service,
Comparison shop. Compare the annual percentage rates (APR) and other financing terms offered by several different sources, such as banks, credit unions, finance companies and dealerships.
Understand the difference between buying and leasing. You can download a free government publication, “Keys to Vehicle Leasing,” at www.federalreserve.gov/pubs/leasing.
While shopping for an auto at the dealership…
Stick with your plan. Stay within the price range you can afford – the number you determined before walking into the dealership.
Negotiate. Take your time negotiating the car’s price as well as the financing rate you are offered.
Understand the value and price of optional services. Examples include credit insurance, guaranteed auto protection and extended service contracts. If you do not want such services, do not sign for them.
Read any contract carefully before signing it. Ask questions about anything you do not understand.
After completing the auto purchase or lease…
Make your payments on time. Late or missed payments incur late fees and may even cause your vehicle to be repossessed, permanently. And a bad payment record will show up on your credit report, damaging your ability to get credit in the future. If you have difficulty making your payments, work out a repayment plan with your financial institution. If necessary, seek the services of a reputable non-profit credit counseling agency.
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Dealer Financing
One of the most common types of vehicle financing today is “dealer financing,” where a buyer and a dealership enter into a contract where the buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. The dealership may retain the contract but usually sells it to a bank, finance company or credit union, which services the account and collects the payment. Last year alone, more than 40 million auto financing transactions were arranged through dealerships.
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