Whether you are looking at a May graduation or you just don’t think the ’88 Jetta will make it through the summer, many NKU students will be facing the complicated task of buying a car in the near future.
New regulations set forth by the Federal Trade Commission (FTC) have made the process even more difficult. These new laws are important factors that need to be considered when going through the car buying experience.
These new changes can affect the price of the vehicle, the finance charge, the interest rate and the number and amount of payments that you will be required to make. These rules and regulations are discussed in detail on the FTC Web site, which can be found at www.ftc.gov
Deciding to buy a car is not as easy as going to a car lot and picking out the car you want. Decisions like whether to buy new or used, whether to lease or buy the vehicle and whether or not to use a co-signer all must be considered.
Chris Randle, a consultant with MSX Services, a company who provides sales and management training to auto dealerships says these factors affect such things as how much your monthly payment is going to be, what interest rate you get and how much you will have to pay to insure your vehicle.
“Young people need to especially careful when they purchase that first car,” says Randle. “The last thing you want to do is buy a car that you cannot afford. Not being able to make your monthly payment or pay your insurance are things that can wreak havoc on your credit rating.”
A poor credit rating can affect buying your next car, buying your first house and even your chances of working for certain companies.
Another factor that should be considered when buying a car is what interest rate you receive on your loan. Depending on the amount financed, the interest rate can affect your monthly payment by as much as $100 or more.
Interest rates can be as low as zero percent for those with established credit and as high as 22 percent to 24 percent for those with poor credit.
“Interest rates vary widely when buying a car,” says Randle. “An average college student should expect to pay around 6.9 percent on a new car purchase.”
Randle says that students should expect to pay slightly higher interest rates on used vehicle purchases. He says interest rates are usually 10 percent to 12 percent for students with average to good credit.
Some auto manufacturers offer special deals and interest rates that are available only to new college graduates. Companies like GMAC Financing often have special programs with rebates as high as $2000 and interest rates as low as 2.9 percent to entice new graduates as potential buyers.
Randle suggests two options for purchasing your first vehicle. The first is to purchase a new vehicle after graduating from a lender who offers a new grad rebate or special interest rate. GMAC Financing and Ford Motor Credit often solicit students as their graduation date grows near. “Lenders often send letters to recent college graduates or college seniors. They are usually very generous in their savings because they are attempting to gain new customers who will remain loyal to their product line,” says Randle.
Randle says the next best option is to purchase a used car that is only two or three years old. He says even though the interest rate might be slightly higher on the used vehicle, it can still be financed over five years. This can lower your monthly payment. Used cars that are older than three years old cannot be financed over five years. These loans are only available for 36 or 48 months, depending on how old the vehicle is. This can make the monthly payment as much or more than a new car, which makes this kind of purchase less appealing. Randle does not suggest leasing a vehicle to young buyers. “Young people often go over on the allowed mileage or turn vehicles in with minor damage to the body, paint or interior,” he says.
This can result in large fines from the lender when you turn the leased vehicle in at the end of the lease. Some lenders charge as much as 25 cents for each mile over the allowed amount, which can rack up hefty penalties and a large out-of-pocket expense when the lease turns the vehicle over. Some students disagree with the notion that leasing is not a good option for young people. Many see it as a way of driving a car that they could not afford if they had to purchase the vehicle. Others say that they plan on having a car payment for a very long time, so why not drive something nice?
Lease payments are usually less than the payment would be if you chose to buy the vehicle. This is because after the lease is over, you no longer own the car. Most lenders do however, offer to sell the vehicle to you for a fair price after your lease. “My payment would have been over $100 a month more if I would have bought my truck,” says Nathan Mattox, a sophomore criminal justice major. “There is no way I could have afforded it.”
Other students have found alternative ways to save money when purchasing their vehicles. Some of these include year-end closeouts and tent sales. Tent sales offer a large selection of new and used vehicles from several dealerships at the same location. Even NKU holds one of these yearly tent sales.
“I got a great deal on a ’97 Mazda 626 at tent sale here at NKU last year. It was practically new and my payments are only $160,” says Molly Frost, a senior accounting major. Other students have less positive thoughts about ever being able to afford buying a new car. “I can barely put gas in my car,” says Paul Wahoff, an undeclared freshman. “I don’t think I will ever be able to buy a new car.”