Flip the Script: 5 Car Buying Tips that Put the Power in Your Hands

BY: - 4 Jan '17 | Money

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I find it amazing how we pay attention to saving nickels and dimes on small purchases, but we’re almost completely oblivious when it comes to the big purchases in our lives. Let’s face it, you won’t win the financial game by saving a few dollars on a loaf of bread or buying your favorite outfit on sale. The money game is won by playing it smart with the major purchases in our lives.

But too few of us do.

Take automobiles for instance. According to Edmunds, the typical average monthly payment for a new vehicle loan reached an all-time high of $503 a month, with the average new vehicle loan hitting a record $30,032.

The money game is won by playing it smart with the major purchases in our lives.

A record 32% of used car shoppers and 25% of new car shoppers had negative equity on their trade-ins, meaning they owed more on the car they were trading in than that car was worth.

Clearly, automobiles are decimating our finances. But if we’re smart, we can make sure our automobile dreams don’t run over our chances for financial independence.

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1. Always consider a used car.

I doubt that I’ll ever buy a new car for the rest of my life. That’s because the depreciation hit is too much for me to stomach. The typical mid-size sedan selling for $27,660 loses a whopping $7419 of it’s value in the first year of ownership. Smart buyers know that they can save a ton of money by purchasing a car that is one or two years old.

2. Know the value of the car you’re about to purchase.

We get into trouble when we pay $30,000 for a car that’s only worth $25,000. We lose money right from the start. That’s why when I purchased my last car I used websites like CarGurus.com. By entering the VIN number of the used car I was interested in, I was able to find out a realistic estimate of how much the car was worth. Car Gurus then told me what prices constituted a good, fair, or bad deal on the vehicle. When you come to the dealership with this type of information, you’re less likely to get taken for a ride.

3. Shop for your loan before you shop for your car.

Did you know that the dealership is that last place you should consider when obtaining a car loan Auto dealers receive a “kick-back” from the the bank or finance company when they find a loan for you. Let’s say, for example, that your credit history qualifies you for a 3% interest rate. Your friendly finance manager is allowed to add as much as 2% to the loan cost. You get a 5% interest rate, when in reality you could have paid only 3%. The dealer pockets the difference.

That’s why it pays to shop for an auto loan at your credit union or bank before setting one foot in a dealer’s showroom. Online lenders like CapitalOne are also great places to find good deals on auto loans.

4. Look for the safest, most reliable car possible.

Your best money move is to purchase a car and keep for at least 7 to 10 years. But, you have to make sure that you buy a reliable model so that repair costs later in the car’s life won’t eat you alive. A great resource is Consumer Reports Car Buying Guide which lists the reliability records of hundreds of cars. Purchase a car with a great reliability record and save money for years.

5. Understand the additional costs that come with car ownership.

Too often we simply pay attention to the purchase price of our vehicle without considering other expenses. If your new car only takes premium gas, for instance, you could be paying 20% more in gas for as long as you own your car. Make sure to check with your insurance company to see how your new car’s insurance premiums compare to the average as well. In addition, find out the average repair costs for the vehicle you intend to purchase.

By being smarter when making your large purchases – home, education, automobiles – you’ll set yourself up over the long haul to win the money game.

BMWK, what advice do you have for saving money when making major purchases in life?

About the author

Alonzo Peters wrote 278 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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7 Things African Americans, Specifically, Must Do Before Buying a Home

BY: - 9 Jan '17 | Money

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Home ownership is a brutal two edged sword. Play your cards right and you’ll create a home and generate memories that’ll last a lifetime. At the same time you’ll build durable wealth. But, fail to do your homework and your homeownership dreams could morph into a financial nightmare. This is the brutal lesson too many African-Americans learned during the last great recession.

According to a report by the Institute on Assets and Social Policy,

Overall, half the collective wealth of African-American families was stripped away during the Great Recession due to the dominant role of home equity in their wealth portfolios and the prevalence of predatory high-risk loans in communities of color.

That’s why it’s more important than ever to treat the home buying process seriously. It will be the most important financial transaction you ever make.

Here are a few tips to make sure your next home purchase becomes a financial blessing instead of turning into a financial curse. This is information every person in the African American community needs to know before buying a home.

1. Examine Your Credit

Never before has a three digit number held so much financial significance. Simply put, the better your credit score… the lower the mortgage interest rate you’ll qualify for, potentially saving you tens of thousands of dollars over the life of your mortgage.

Ideally, you should examine your credit score at least a year before you start shopping for your home. Obtain your free credit reports from the government sanctioned website AnnualCreditReport.com to see if there are any errors on your credit reports which could adversely affect your credit score. In addition, attempt to pay down any credit card debt, continue to pay your bills on time, and avoid opening new lines of credit like personal loans or new car loans.

2. Shop Hard for Your Mortgage

You must shop around for the absolute best mortgage. In fact, you should spend just as much time shopping for a mortgage as you do searching for your new home. Small differences in interest rates could result in large differences in your monthly mortgage payments.

Consider a $300,000 home loan. A 30 year mortgage with a 20% downpayment at 3.5% interest would result in a monthly payment of $1078. The same mortgage at a 4.5% interest rate would cost you $1216 a month, or $49,680 more over the life of your loan.

3. Get Pre-approved For Your Mortgage

Pre-approval let’s you know exactly how much home you can purchase. Furthermore, it provides you with a competitive advantage in a sellers’ market, especially when several buyers are bidding on the same home.

4. Don’t Buy More Home Than You Can Afford

Just because your bank pre-approves you for a $300,000 mortgage, doesn’t mean you can afford a $300,000 home. To keep your home from turning into a financial nightmare, you must run the numbers.

Generally your mortgage related costs – mortgage payments, property taxes, and insurance – should not surpass 28% of your pretax income. The crucial mistake people make is failing to investigate how much they’ll pay in property taxes. In many cases taxes can total nearly a third of your monthly mortgage payment.
Click Here to Download a FREE Copy of the BMWK Generational Wealth Pledge for Black Families!

5. Don’t Forget To Budget In Other Costs As Well.

Consider pest control, utilities, lawn care, snow removal and maintenance. The general rule of thumb is that maintenance itself will cost you 1% of your home’s value every year. Owners of a $300,000 home, for instance, would expect to spend, on average, $250 a month in repairs and home maintenance.

6. Save For A Significant Downpayment

Having a significant down payment for your home will go a long way to making sure your home becomes a safe investment. A larger down payment provides you with more equity in your home, allows you to secure a better interest rate for your mortgage, and ensures you’ll pay less in total interest over the life of your loan.

While you should secure a minimum 10% down payment, experts suggest you shoot for a 20% down payment. A 20% down payment allows you to avoid private mortgage insurance (PMI). PMI is an insurance premium you’re required to pay that protects lenders in case you default on your loan. It usually costs from .3% to 1.5% of the balance of your loan value every year. It is essentially a hidden tax for those without enough money for a significant down payment.

7. Research The Neighborhood

You’re not just buying a home, you’re buying into a neighborhood. In fact, your neighborhood is one of the biggest factors in determining how much your home will appreciate. Could you see yourself living in the area for the next 5, 10, 15 or 20 years? Will your new home afford a decent commute to work? Are supermarkets, restaurants, and department stores located within reasonable distance to your home? Most importantly, is your neighborhood located in a quality school district?

8. Get A Home Inspection

There’s nothing worse than purchasing a new home only to discover a few months later you need $4000 for a new roof or $7000 to replace your HVAC system. That’s why it’s critical to make sure you get a home inspection before purchasing any property.

You can ask the seller to replace anything that is in disrepair or negotiate a price discount on the home if it appears you’ll have to make significant repairs in the near future. In most cases, it even pays to get specialized inspections of the foundation, heating/air condition, and plumbing. A little money spent up front for inspections could save you a world of hurt down the road.

Home ownership can be an emotional and financial blessing. But, if you don’t do your homework, your new home could turn into a lead weight that sinks you financially.

BWMK, have you bought a home? What advice would you give others looking to purchase their first home?

About the author

Alonzo Peters wrote 278 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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