Auto Financing - The myths, maths, and minutia!

Last week I went over how to find the best deal on a car. If you need a refresher (or just a jump link) its called: Buying a Car in the Digital Age.
This week I'll cover how to purchase the car using someone else money.
But first, a couple of caveats and exclusions. You are looking to finance a car using a Simple Interest Loan (not compounding). The loan amount includes taxes, registration, and any and all doc fees minus your down payment. (These should be disclosed before signing any paperwork... or walk out!) and will typically add another $2,000 to the price of the car.
Are you looking for a $10,000 car OR a $10,000 loan? A $10,000 car will have a loan amount around $12,000. And a $10,000 loan would be for a car around $8,500. So with those items in mind, on to the Myths of financing a car.

Auto Financing Myths:
Myth 1: The interest rate that the bank quotes is the rate I must pay... you can't fight the system.
WRONG
The system is designed to be fought. Its asking for a fight. Bank/Credit Unions are looking to cover their costs.
Strategy: Negotiate for a better rate! Show that you pay bills on time and that your job is secure (if you do pay your bills on time... you do pay your bills on time, right?)
Effectiveness: Low - Most banks pull "credit" information from the same sources. Showing that you pay your cell phone bill on time has already been taken into consideration before they called you back with the rate. But it does show that you are prepared and that you aren't going into this loan half done.

Myth 2: I bank with my bank so I can't get a loan at any other bank.
WRONG
It is true that you will need to set up a checking account with the bank that is providing (servicing) the loan, but most banks/credit unions require $10 dollars or so to set up the account.
Strategy: Shop around for better rates!
Effectiveness: High - Almost every month there will be a bank or credit union that is offering a sell on auto rates. This is one case where you can literally save by shopping.

Myth 3: The terms that they offer are the best I can hope for.
WRONG
Most banks/credit unions have a "table" that they use to determine the number of months that you can finance the car (terms). This table shows that as the loan amount increases the number of months increase. Hence, the more you finance, the longer you can take to pay it off. The longer you take to pay it off, the lower your monthly payment.
Strategy: If needed, ask for a longer term. Your loan amount may be just below the threshold and they may give you an extra year to pay it off just because you asked.
Effectiveness: Maybe - It just depends on how close your finance amount is to the cut-off limit. All they can say is no. CAUTION: I don't recommend extended terms for used cars. Some of their life-span has already been used.

Myth 4: The monthly payment amount the bank quotes me is the amount I must pay for the loan.
WRONG
Here is where the banks make their money. The thing is, a bank loan is simple. However, the banks want to cover their risk as much as possible so they add extras into the loan. These extras benefit the bank, but you pay the fees.
Strategy: In Auto Financing Maths, I outline how to catch the bank in this small little con. But ask for these extras to be removed from the loan. GAP insurance on a brand new car is the only extra that I recommend you pay for. I call this one a "stupid tax" for buying a new car instead of quality used one.
Effectiveness: High - Asking for the life insurance policy and other "extras" to be deleted from the loan will definitely lower the monthly payment. After all just a Quarter a day is $7.75 a month, $93 a year.

Auto Financing Maths:
A Simple Interest Loan means that you have a fixed interest rate and a fixed time period to pay the loan off. Calculating a car loan is... simple. If you have a cell phone calculator you can start saving money on your next auto loan.

Your loan is made up of three parts.

1. The loan amount (Principle)
2. The interest rate (Rate)
3. The number of months that you will pay on the loan (Time)

Mathematically, your auto loan is expressed as:
Payment = Principle X (1+Rate) / Time    OR    I = P X (1 + R) / T

Suppose you were borrowing $9,000 for 36 months at 12% interest.
Pmt = $9,000 X 1.12 / 36
Pmt = $280.00

You will be paying $1,080 in interest PLUS the original $9,000 back over the course of the 36 months for a total of $10,080.00. (9,000 X 1.12)

Auto Financing Minutia:
When the bank calls you back with the loan approval information they are going to supply you with three pieces of information: The interest rate, the term, and the payment.
The thing is... the math wont work.  When you take the loan amount, multiply it by 1 plus the interest rate, then divide it by the months, the answer will be significantly less (like $50 a month less) than the quote from the bank. Why? Math is math. It should be the same, except the bank has added Extras. See Myth 4.

Extra #1, GAP Insurance: Not needed if the value of your car is greater than the depreciated cost of your car. Typically needed on new cars. Not needed on cars where blue book value is significantly greater than the loan amount. If you are confident that the value of the car is greater than the loan ask the bank to delete GAP insurance.

Extra # 2, Life Insurance: The bank want's to take out a life insurance policy on you so if you die the insurance company will pay the bank money. This disturbs me on a personal level. I understand their are exceptions to the scenario that I present, also, in the event of your death the car must be paid for. Lets say that your death come at the hands of an auto accident and that the car is totaled. In this case the auto insurance will issue whoever owns the title (the bank) a check for the blue book value of the car the moment before the accident. The bank would, at this point be paid for the totaled car. So, what point is there in the bank receiving a double payment for your death through the life insurance policy. Call me cynical but it just seems a bit wrong for the bank to make extra money through my death.

Extra #3, Road Side Assistance: Most auto insurance companies add thin into their insurance quote for around $10/ month anyway. So, if you already have Road Side or AAA then you don't need duel or even triple coverage through your loan. Besides, how many people think about their auto loan's roadside assistance when you have a flat tire on the side of the road. Auto Insurance YES... Auto Loan NO.

Extra #4, Dent Insurance: I don't know what to say about this. If its a used car... well then its a USED car. It probably already has a ding or two. Life is life deal with it and move on. Dents are just stories with out word... or something like that. Now, if you bought a new car.... See the above. Its a car. Life Happens. Or... pay yet another "stupid tax" for buying a new car.

If you finance through the Dealer expect to find even more or different extras!
Just remember, you don't need to buy extra's that you don't want. If you feel like you really don't want to buy anything except the car keep telling the financier "NO" until your calculated payment and the banks/credit unions quote match. $15,500 * 1.045 / 60 = $269.96

In the end financing a car is a lot like going to a World Buffet.
There are lots of options; some taste good, some taste bad, but you always have to pay the bill.


 

Buying a Car in the Digital Age

A couple of months ago I found myself in the market for a "new" car. Now, what I bought is not the important part, the important question is "how does a Financial Literacy and Entrepreneurship teacher with an MBA go about finding a car to purchase?"

I feel that this in an important question to be answered because people who need personal transportation should view a car as a tool, a machine, or a function... despite all the marketing to evoke an emotional response. If you need a car, it needs to be safe and reliable transportation from point A to point B.

As I have been updating the Car Purchase Activity curriculum for Financial Literacy, I find myself reflecting on how important this information could be for my Entrepreneurship students as well. Part of boot-strapping any new company includes the thrift as well as the marketability of company vehicles. After all, a company only looks as good as the vehicle's it uses.

How to find the best vehicle "your" money can buy.
If you happen to live in the great state of Utah, you have, at your disposal the KSL classifieds. Mr. Lewis and I are both big fans of the classifieds. Buying items during the "off" season is a great way to save money on things that you don't need right now. Snow Blowers in the Spring, Lawn Mowers in the Fall. The KSL classifieds are so popular in Northern Utah that there is even a separate section just for vehicles.

Step 1:
Once on the Cars section of the classifieds select the body style you want and run the search.

Step 2:
Complete the "Price To" box with the price you are willing to spend. Submit the search


Step 3:
Fill out the "Mileage To" box with the highest mileage you are willing to accept (generally under 100,000 but whatever your comfortable with even up to 150,000 miles). Submit the search.

Step 4:
Scroll down the left hand column to "Title Type" and put a check mark in the option for "Clean Title." The search will automatically update. (Clean Titles means that there are no MAJOR issues with your ability to register and own the car. All the other title classifications mean that the car has been in a major accident or police incident like grand theft auto. Buyer Beware)

Note that we have not filed in the Year section. Instead we are going to sort the list by year.

Step 5:
In the near Top, Right corner there is a sort result by drop down. Select Newest to Oldest Model Year.

The top results are your best buys. These are the newest vehicles with the lowest miles for the cheapest price. You wont find a better deal on the classifieds than your top choice with a few provisos. The top choice will not consider color, specific vehicle options or any other "wants." These results are purely functional.

So drive forward, good shopping and remember, sidewalks are for pedestrians.

Next Post: Auto Financing - The myths, maths, and minutia!

 

Utah Jazz plan to change primary logo

Companies can have lots of logos. Usually, the corporation will have a logo, with each brand (product) that the company sells having a logo of its own as well. This makes a certain amount of sense. Sometimes the company wants to distinguish itself from its products (especially if one of those products isn't selling well).

However, seldom do products have more than one logo. Remember, a logo is the brands identifying feature, its "birthmark" if you will. Seeing a logo should invoke an emotional response toward the product. The logo should make you salivate, thirst, or desire that product, much like seeing the prominent characteristic of someone makes you want to... well, say hi. The point is, having more than one logo is just plain confusing.

Now, that isn't to say that the logo can't have a few variation. Everybody ("thing") likes to dress up for special occasions, and of course styles and tastes change (my poor long lost mullet). But the core elements of the original logo will be found in all of its alternates.

However, the Utah Jazz have two distinct logos. A Primary "mountain" and a secondary "note" logo.  The "mountain" logo has been recolored three times in the past 20 years, trying to find its place in the organization. However, starting in 2010, the Jazz began promoting its "note" secondary logo more than its "mountain" primary one.


Current Primary Logo


Current Secondary Logo

This has lead to some confusion. Have the Jazz changed logos? Did they move? Can I still wear the jersey I purchased last season? But the most confusing question of all is..."why confuse your fans in the first place?"

My dad uses the phrase "follow the money" any time something doesn't seem quite right. And in this case that is exactly the reason for the confusion. The league charges each franchise a logo change fee. Its expensive and time-consuming for the League to change a teams logos. Signage, promotions, jersey's (contracts) all have to be updated. So the NBA has a two tiered "fine" schedule to make each change "hurt." When the Jazz brought back the "note" logo in 2010, they kept the "mountain" logo as their primary one mostly because of the fine they would have to pay to change the entire logo. The league charges a smaller fee for simple color changes.

The result is that the Jazz have been using the logo they want to use, but its not the "official/primary" logo of the team.  With changes to the rules regarding how the team can spend its money (due to the lockout negotiations) the Jazz can now complete its five (plus) year transition back to a logo similar in design to what was used in the 1995/96 season.

Other teams that have secondary logos:
Brooklyn Nets
Golden State Warriors
Houston Rockets
Miami Heat Secondary
New Orleans Pelicans
Phoenix Suns
Washington Wizards

For the full KSL news article with images.

http://www.ksl.com/?sid=35632429&nid=294&fm=home_page&s_cid=toppick1

For a look at the past logos and the research material for the list of secondary logos.
http://www.sportslogos.net/logos/list_by_team/234/Utah_Jazz/

Idealization and the Smartphone

The Smartphone (in any configuration) just may be the most powerful piece of technology every created. With access to the internet, you quite literally have the combined knowledge of the human race in the palm of your hand. But, like even the internet, its only as useful as the information that is put into it.

The other night as I was waiting for sleep I had a rush of ideas for different topics that I thought would be interesting and useful to you. I did my best to try and remember them but ultimately sleep did come and when I awoke only a handful of the ideas remained. The most important of these ideas was this thought. "If only I charged my phone next to my bed. Instead of trying to remember, I could have opened the notes app on my phone and quickly jotted down (or even spoke) the ideas when I had them."

This, of course, leads to one of the biggest problems during the Idealization phase of creating a new business... remembering to take notes! "Inspiration" comes at some of the oddest times and circumstances. Probably the hardest part of taking advantage of these "moments of insight" is to remember to pull out your phone and input the ideas.

Here is my plan for starting this new habit, or in other words my plan for learning to input data.

Step 1: Move your phones charging system (if its not already done) next to your bed. You've got to start taking advantage of those "twilight" times when your brain is open to creative thought.

Step 2: Practice using the notes feature on your phone. Start by remembering to put information such as to do lists, wish lists, or bucket list items into your phone when you think of them.

Step 3: Learn how to organize the information in your note app. Every app is different so I'm not even going to try and explain it here... when in doubt... Google It.

Step 4: Prepare your mind to get creative. Long ago, when I was in a new environment, forced to fall asleep with a bunch strangers in a large room, getting to sleep was not easy. After a few restless nights, I was taught that if I take several deep breaths and then create a landscape in my minds eye and "go there" I would find sleep. While I did find sleep that way, I also found time to get creative and solve small problems. Don't get distracted on "issues" such as finances, grades, or other stresses but instead focus on small problems like how would you build a better comb. With practice, you can use this twilight time to work through the "pain" that your customers have and find creative and unique ways to solve it.

I suppose the greatest asset an entrepreneur has is simply taking note of the ideas as they come. After all, "remembering" can be the hardest part.

Six Tires No Plan

So, I'm in my local Discount Tire store to have the winter tires on my wife's car swapped for summer threads when I see a large poster that reads "Six Tires No Plan." Now, generally speaking, as a Marketer I'm not partial to advertisements in an establishment that tell me the company doesn't have a plan... it makes me just a little bit nervous. However, it, and the illustration of a man in a bowler hat... without a shirt... standing inside a stack of tires, did get my attention and I read the copy on the ad.



Bruce Halle founded Discount Tire by selling the six tires that he had left after a failed partnership. I found it remarkable that he was able to up sell and start a new venture from the ashes of the earlier business. That earlier business was a company that sold tires in addition to auto accessories. "Think" of the combination of an auto-parts stores inventory and a tire shops inventory with no benefits from the combination. Only Wal-Mart has been able to have both in one building and even there selection is minuscule compared to a stand-alone auto parts or tire shop.

Now, I haven't yet read the book, but I love the idea of taking your experiences, a small amount of inventory, and hard-work and turning that into a thriving business. Its called "bootstrapping" and its the under-pinning philosophy of the Entrepreneurship class. Small and nimble businesses that can satisfy customer needs quickly and beyond customer expectations.

Take what you know, what you have/that people need, and leverage that into a small business. No, you won't have employees in the first week, the first month, or maybe even the first year. But with hard work and determination, maybe, just maybe you'll get more than an education out of this course, you may just end up with a company.

For more information about Six Tires No Plan, Buce Halle, the Diane and Bruce Halle Foundation or Discount Tire visit the links.

Business And Marketing (BAM) Memberships

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Invites to NachOrdinary days and Registration Deadlines

Mr. Page and Mr. Lewis are now accepting Memberships to BAM.
BAM is the Business And Marketing club for any student who is interested in college scholarships, starting and running a business, or who has or needs a job.

Download our membership application, complete the online application, or pick up an application form from B109 or B113

Full year memberships are just $15 for each club or $20 for both at the finance office.

 

 

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Top 6 Must Have Apps For Online School

Top 6 Must Have Apps For Online School This is a semi-useful list of apps that may benefit your high school experience.