Automobile Financing

Shop harder for loans for gas-sipping used cars

by Broderick Perkins

(5/27/2011) ERATE Exclusive - Don't forget what you learned about shopping around for auto loans.

And get busy shopping if you are planning to buy a used car soon.

Some used car prices are appreciating faster than homes did during the housing boom.

In a single month the National Automobile Dealers Association (NADA) is forecasting trade-in values on popular gas-sipping models could rise by as much as 17 percent.

In a single month.

That means what you pay at the dealer could rise even more, given dealers know there's a demand for high-mileage vehicles and will be looking to drive hard bargains.

Obviously, gasoline prices hanging around the $4 mark is the culprit. Even though gas prices have begun to fall and are expected to continue to ease through Memorial Day, the die is cast.

Also, anyone who has felt the pinch and has a gasoline squeezer isn't about to trade it in right now.

What's more, Japan's dual quake-tsunami disaster has stemmed the flow of new high-mileage models.

"Strong consumer demand for small used cars is driving up prices," says Jonathan Banks, senior analyst with the NADA Used Car Guide.

"The NADA Guide increase in trade-in values for June should come as no surprise because it reflects a shortage of both new and used cars entering the market," he added.

Overall, through the first six months of 2011, trade-in values for small cars are projected to rise an average 18 percent compared to the same time period last year, NADA forecasts.

Expect the greatest markups on Kia Rios and the Hyundai Accent Hatchback GS, which will see a one month jump in trade-in value at 17 percent each.

For actual dollars, the "stealth" (because you can hardly hear the hybrid coming)Toyota Prius will increase in value by almost $2,000. The Honda Civic Coupe DX will garner a $1,775 boost in trade-in value, NADA says.

"Fewer new cars have been produced as a result of the crisis in Japan, which has shifted consumer demand to the used car market," said Banks, almost vocalizing the twinkle in his eyes.

May vs. June 2011 Trade-In Values of Some Popular Small Cars

Model Year	Make \| Model	May '11 Value	June '11 Value	June '11 Increase	Increase %
2009	Kia Rio	$6,400	$7,500	$1,100	17%
2007	Hyundai Accent Hatchback GS	$5,125	$6,000	$875	17%
2007	Toyota Prius	$13,400	$15,350	$1,950	15%
2009	Ford Focus S	$9,375	$10,700	$1,325	14%
2005	Subaru Impreza RS	$6,650	$7,575	$925	14%
2010	Honda Civic Coupe DX	$12,300	$14,075	$1,775	14%
2009	Chevy Cobalt	$7,450	$8,550	$1,100	15%
2009	Chrysler PT Cruiser	$9,225	$10,350	$1,125	12%

Source: National Automobile Dealers Associatio

Tips to help you drive a hard bargain

• Check your credit first. You need to know and correct, if necessary, your credit report before the lender takes a gander. There's only one federally sanctioned place to accomplish that for free: AnnualCreditReport.

• Get a loan, then buy a car. A guaranteed auto loan in your pocket helps you avoid a common sales tactic -- mixing vehicle price and financing negotiations. Mixing allows the dealership to give you a favorable figure in one area, while inflating a figure in another area. Shop around.

• Test drive, but don't shop. Know what type of car you want and your price range, before you shop around for financing. If you do, there's a greater chance you can get pre-approved.

• Watch out for rate mark ups. The car dealer may initiate the loan, but later attempt to sell the loan to a third-party lender, at your expense. Be prepared to walk if the dealer doesn't offer you a rate for which you know you qualify.

• Shop online. The Internet can help you shop around for sticker prices on the car, financing, insurance and any other related products.

• Avoid add-ons. Vehicle service contracts, guaranteed auto protection insurance, credit life and disability insurance, and a host of other add-ons typically are overpriced and unnecessary.

• Watch for tricks and traps.

In the "yo-yo" the dealer will offer you a low-low rate, let you drive a new car home and later tell you the financing fell through, hoping you'll fall in love with the car and accept a higher interest rate once you bring the car back.

"Buy Here-Pay Here" dealers finance used auto loans in-house to borrowers with no or poor credit. The loans have much higher interest rates than banks or credit unions, are often unsustainable and more likely to result in defaults and repossessions.

Ignore dealers who attempt to mask the true cost of the loan by focusing on the monthly payment. Shorter terms loans are cheaper over the life of the loan. Compare the total cost of all the loans you've compared and choose the one that's cheapest over the full term of the loan.