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Jeffery S. Bredthauer
Assistant
Professor of Finance, Banking and Real Estate at University of Nebraska
Omaha
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
I would say this (mid-spring) is an average time of the year to buy. I
think the best time to buy is either at the end of December, just prior to
the New Year, or mid-summer, when the new model year cars are coming out
and dealers are trying to liquidate existing inventory.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
I would predict that with the Federal Reserve preparing for rate increases,
auto financing may get marginally worse (increase) over the next 12 months.
What steps can buyers and dealers take to make the car buying process
more transparent and hassle free?
Buyers should approach the process and at the outset inform the dealer they
want to cut to the bottom line immediately to hopefully avoid the "dance"
of back and forth negotiation, which typically accompanies the auto
purchasing process. Dealers know that informed buyers use the Internet to
determine the invoice price paid; as such they should start with that price
and inform the buyer they must include a markup in order to stay in
business.
What tips do you have for individuals with fair or poor credit who are
looking for an auto loan?
First, if you can't afford a new or (new) used car, don't buy it. Make do
with what you currently have. If you must buy with credit, take steps to
improve your credit scores so as to avoid higher risk interest rates. Also,
be careful to avoid predatory lending practices, which would require
exorbitant interest rates, "balloon" payments or pre-payment fees.
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Carolyn Reichert
Clinical Associate
Professor of Finance and Managerial Economics at University of Texas at
Dallas, Jindal School of Management
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
Assuming you mean mid-May, then I would lean towards a 5. It is okay. The
best times are month end or quarter end since dealers often need to meet
quota. Historically, the model year changes in September-October, so you
can get good deals on older models as they make space for new inventory.
This suggests that August – September are a better for buying a car.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
Deals may improve slightly to push inventory before the new models arrive
or to spur demand for a specific vehicle. Overall demand for autos is
fairly strong, and people who put off buying a car are now looking to
purchase. This means less need for incentives, and in general, incentives
will remain flat.
What steps can buyers and dealers take to make the car buying process
more transparent and hassle free?
Buyers need to do their homework. They need to know how much they can spend
on a vehicle. This includes the down payment, the monthly payments,
insurance, fuel and maintenance. This tells them how much car they can
afford. The buyer then needs to look for vehicles at that price point. This
means knowing the base price, as well as the cost for added features. This
information allows them to negotiate with the dealership. They need to
remember that the dealership does need to make a profit. Finally, the buyer
should check for any financing deals or incentives and should get loan or
lease estimates from several financial institutions. This allows the buyer
to evaluate the deal and get the best financing alternative. There are a
number of applications and web sites to make this easier.
Dealers know buyers have access to more information than ever before.
Dealers need to offer a fair price with a convenient and streamlined
shopping experience. Ratings should be standardized to make comparisons
easier across vehicles and dealerships. The pricing should be clear and
concise. A convenient menu that lists options and prices would allow buyers
to decide which features to add. This could include customization options
specific to the dealership.
The financing should be streamlined. The majority of the paperwork could be
completed electronically before arriving at the dealership. At a minimum,
the buyer could complete a pre-check electronically that would speed the
remaining paperwork. With a pre-check, the buyer could be certified for a
maximum amount on a lease or loan. If the actual loan or lease was below
the maximum, then the paperwork would be minimal. The pre-check would be
good for a limited period at all participating dealerships.
What tips do you have for individuals with fair or poor credit who are
looking for an auto loan?
Obviously, the best thing to do is waiting until their credit has improved.
Find out why the credit rating is low and take steps to improve it. If that
is not an option, then they need to shop around for the best alternative.
This involves looking at the APR (annual percentage rate), the loan terms
and any incentives. They should look beyond subprime lenders to include
banks and credit unions, particularly ones with experience in auto loans.
Insurers and employers may offer assistance with the buying process as
well. They can also check their local area for classes on money management.
The buyers need to be realistic on the amount of car they can afford and
how long they want to make payments. The loan should have a low APR over a
short period of time with clear terms that are final. There are web sites
on auto credit and comparing loan terms that buyers can use.
What are some signs that you may be getting ripped off in the auto
financing process?
Check the terms of the contract. The APR and the contract terms should be
clearly laid out, including the length of the loan and any down payment.
Make sure the contract terms are final (not contingent or conditional).
Beware of loans that require you to buy additional items (such as an
extended warranty). You should be able to review the documents before you
sign them. If they aren’t willing to let you do this, then you need
to be wary. Check the reputation of the lender and the dealership for any
complaints and for their Better Business Bureau rating. If the deal
doesn’t feel right or seems too good to be true, then walk away and
get another opinion.
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Lawrence J. White
Robert Kavesh
Professor of Economics at New York University, Stern School of Business
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
7.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
It will get a little worse. Interest rates may rise a bit.
What steps can buyers and dealers take to make the car buying process
more transparent and hassle free?
Buyers can do the research beforehand. Dealers can be clear about what is
being sold. Both should be clear as to the price that is being paid for a
trade-in (if any).
What tips do you have for individuals with fair or poor credit who are
looking for an auto loan?
If an individual has a relationship with a financial institution -- e.g., a
bank or a savings institution, or a credit union -- start there. Find out
the terms of their car loans. Otherwise, shop around.
What are some signs that you may be getting ripped off in the auto
financing process?
If the person can't get a clear answer as to what the interest rate or
monthly payments will be.
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Andreas Rauterkus
Associate
Professor of Accounting and Finance at University of Alabama at Birmingham,
Collat School of Business
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
I would say as long as interest rates are as low as they are right now,
it's certainly a great time to buy a car. So at least 8.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
It's a function of interest rates. The general expectation is for interest
rates to increase and thus, financing deals will get less attractive. There
will always be the 0% financing deals, but we have to remember that those
require excellent credit and probably only about 25% of car customers
actually qualify for those.
What tips do you have for individuals with fair or poor credit who are
looking for an auto loan?
Instead of using lot financing, approach a bank or, even better, a credit
union and inquire about financing options. Credit unions generally offer
the lowest rates. Don't fall for the easy monthly payment options offered
by a lot of used car dealers. Those usually carry very high interest rates.
What are some signs that you may be getting ripped off in the auto
financing process?
When shopping for a car loan, do your homework and have some idea what the
current interest rates are. A lot of car financing deals are offered to you
assuming that you have no idea what kind of loan you can get. In addition,
be aware of fees. Generally, there should not be any closing fees involved.
The longer the list of fees, the more suspicious you should get. Number
one, know what you can qualify for by checking with a bank or credit union,
maybe even have a credit commitment in hand. Information is the strongest
negotiation tool.
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Marilynn Hood
Lecturer in
Finance at Texas A&M University, Mays Business School
Do you expect auto
financing deals to improve/get worse/stay the same over the next 12
months?
Rates should remain low. However, just because you can get a low rate on
the loan doesn't mean you have negotiated the best price on the vehicle.
Additionally, you need to plan ahead of time which extra deals they throw
at you when you're in closing that you want to purchase. The extended
warranties, etc., can add thousands to your total cost. So even if you have
negotiated a rock bottom purchase price, dealers can easily make up their
margin by persuading you to purchase these add-ons when they have you
pinned down in that little office signing on all the dotted lines. And
here's a tip: if you do decide to purchase some of these extras at closing,
ask if they can give you a better price on the item or just include it with
the purchase price of the vehicle. Sometimes they will negotiate even on
those things.
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Russell Stevens
Adjunct Assistant
Professor of Business and Management at Hope International University
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
9.
What steps can buyers and dealers take to make the car buying process
more transparent and hassle free?
I like the no-haggle shops, but they have to prove good prices to do that.
What are some signs that you may be getting ripped off in the auto
financing process?
I think the old process of the salesperson going to the back office to ask
a manager is the biggest sign of a rip-off.
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Rebecca Neumann and
Saleh Sahabehtabrizy
Associate
Professor of Economics and Teaching Assistant, respectively, at University
of Wisconsin-Milwaukee
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
7.5. The rates are still fairly low, which makes it a good time to purchase
a car. Towards the end of summer, however, the deals are likely to be even
better. The decision to buy a car should be based not only on the
financing and sales available, but also on each individual's personal
situation.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
As credit markets tighten over the next 12 months, the benchmark interest
rates are expected to rise slightly. Given the current economic outlook, an
increase in car loan rates, which depend upon the benchmark interest rate,
is also likely. Yet, the magnitude may not be of great significance. For
those with the very best credit scores, a small movement in benchmark
interest rates may raise the rate slightly. But the available rate for any
given individual is going to depend not only on the benchmark rates (i.e.,
the federal funds rate and its effect on the prime interest rate) but also
on the credit report/credit score for an individual.
Financing in general is expected to become more expensive as the Federal
Reserve takes steps to wind back on quantitative easing. For the near
future, however, interest rates are expected to stay fairly low.
What steps can buyers and dealers take to make the car buying process
more transparent and hassle free?
Car dealers don't necessarily have any significant incentives to make the
purchasing process "more transparent and hassle free." They are already
operating in a fairly competitive market, and greater transparency may not
work to their advantage. On the contrary, asymmetric information may
greatly contribute to their margin.
As for the buyers, it is important that they make use of the car companies'
websites as well as the online ratings to educate themselves on the
varieties that are available to them in the market. They should also get an
estimate on how much they can afford to pay for, based on their individual
projected cash flow. Then, given their search and their ability to pay,
they should go on a hunt, telling the dealers that they will be on the
market for a while and are looking for different brands and models. Buyers
should take their time; they should never go after a narrow niche (i.e., a
particular brand or model); and they should always keep their options open.
Greater information brings better deals for consumers in this market.
To get the best deal possible, consumers need to be willing to walk away
from the deal. Consumers also should know their financing options ahead of
time (including the potential interest rate that they might get given their
credit score) so that they understand completely any financing that they
are offered directly from the dealership.
What tips do you have for individuals with fair or poor credit who are
looking for an auto loan?
Almost no one can build great equity in a vehicle. Car values drop
significantly after the purchase. (Exotic cars are exceptions.) Thus, it
may be important to consider the used car market, should a customer finds
that he/she has bad credit. Avoid loan sharks, and make use of credit
unions' car loans to purchase a fairly cheap used car. Consumers can use
any number of online financing calculators to see what they will need to
pay for a given loan on a vehicle.
What are some signs that you may be getting ripped off in the auto
financing process?
As indicated above, the key is to educate yourself on the prices and the
rates in the market. Once you take your time to do so, you will have a
proper understanding of the rates and the terms. Then, it will be fairly
easy to distinguish between a good deal and a bad deal.
Also, keep in mind that you should always compute the precise value of your
purchase (there are a number of financial calculators that are available
online that can do this for you). This is one of the things that we teach
in our Economics of Personal Finance class at University of Wisconsin -
Milwaukee. We use concepts based on the time value of money to help
students understand what they will need to pay for a given loan (e.g., for
student loans, car loans, home loans). Understanding a bit about these
calculations can add some transparency to the borrowing process. During
the course, students are required to calculate the payments directly
themselves using present value (or future value) concepts. After the
course is over, the hope is that understanding these calculations will help
students be better informed consumers. While we don't really expect that
students will use the formulas to calculate the payments directly
themselves in the future, they will be better able to understand the
financing options that may be presented by a lender or by a car dealer.
Those who understand the impact of interest rates, the amount of down
payment, the length or term of the loan, and the amount of the monthly
payment will be better able to negotiate over the price and/or the payments
involved.
In the end, if a deal doesn't feel right, then walk away. There are plenty
of other options and plenty of competition within the auto market.
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David Lander
Adjunct Professor
of Law at Saint Louis University School of Law
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is this a good time of year to buy a
car?
8.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
Stay about the same, in the short run.
What steps can buyers and dealers take to make the car buying process
more transparent and hassle free?
Read as much as possible about the process of identifying and buying a car.
If possible, have two or three types of car as a choice so you can bargain.
What tips do you have for individuals with fair or poor credit who are
looking for an auto loan?
Buy from as reputable a dealer as possible. Ask friends and family.
What are some signs that you may be getting ripped off in the auto
financing process?
Rush, lack of transparency.
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Brian Larson
Associate Professor
of Marketing, Widener University
Do you expect auto
financing deals to improve/get worse/stay the same over the next 12
months?
Stay the same or get mildly worse. Consumer confidence is improving and
they have more money in their pockets - they will spend. As spending by US
consumers’ increases in a sound economy, typically the FED's response
is to tighten money supply which could lessen the finance deals for auto
buyers.
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Frank L. DuBois
Chair and
Associate Professor of International Business, Kogod School of Business,
American University
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is now a good time to buy a car?
I would say 9 or 10 since we are looking at an improving economy in the USA
but challenges abroad - stronger dollar will also mean better deals on
imported vehicles from Europe and Asia.
Consumers that have delayed purchases are now getting forced into looking
for cars as maintenance and repair costs on older cars rise. Also as fuel
prices have dropped consumers are less worried about fuel efficiency and so
prices on smaller cars have softened.
So it really depends on the car you are looking for - all of the cars out
there are getting better and better in terms of quality and reliability -
the gap in quality between US and Japanese cars has narrowed considerably
and
U.S.
manufacturers are producing some interesting vehicles that compete
successfully with imports. Lower fuel prices will lead to more driving and
more demand for cars.
Used car market is challenging in the absence of financing options;
consumers don't have the 5-10K cash to buy used, unless they can get
financing from dealers.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
Expect financing deals to stay the same. Banks and captive lenders
representing manufacturers have extended loan maturities to keep monthly
costs down on high cost (>$25K) cars. 72 month loans are becoming more
common versus 48 and 60 months. Cars are lasting longer though.
Creditworthiness of borrowers is critical, much easier to foreclose on a
car than a house.
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Jack Tracey
Executive Director,
National Automotive Finance Association
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is now a good time to buy a car?
I’d give it a 10 now for several reasons. Production levels are very
high at the manufacturers. They’re making lots of cars. There are
lots of cars in the market. The underlying funding in the industry now is
low. The financing market in all areas is being supported by very, very
low government funding rates. As such, the ability to get money at a low
rate and then turn around and use it to finance vehicles keeps the rate
low. The rates can even be lower for the non-prime sector. There is an
awful lot of competition out there amongst the people that are financing,
so there’s a pressure to keep rates as low as they can be because
everybody wants a piece of this very active market. The other thing is,
the used car market is healthy.
All of the components necessary to have a brisk and competitive environment
are in place. And when all of those things are in place, the consumer
comes along to get a car and get it financed, he’s got a much better
opportunity than when we were in the midst of the financial crisis. These
dynamics weren’t in play, so it wasn’t as easy or as good of an
opportunity. But right now, yeah, it is. And that’s demonstrated by
the fact that so many car loans are being made now. My advice would be if
somebody is thinking about getting a car, now would be a great time to step
into the market.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
I would say that they’ll probably stay the same. The government has
said they’re not going to start raising interest rates.
They’re going to do it very slow and methodically.
You know, we’re at I think 16 million new cars produced in the
country. We were down to 12 million when we were in the throes of the
financial crisis. My hesitancy would be: Are the manufacturers able to
produce product in sufficient quantities for a continued healthy
marketplace? And, yeah they will. They’ll put on extra crews and
shifts.
So, my answer to that is, for the next year the window will remain pretty
much as it is now. And the economists and whatnot that speak into our
industry also say that, that the short-term outlook is very good.
Is there anything unique going on in the non-prime sector of the market
that many people might not think about?
A lot of people, when they've had difficulty with their finances, really
feel that they can’t go into the market, that they’re sort of
weakened in their ability to negotiate and do a deal. People really
shouldn't feel that way. The market is such that there are a lot of
finance companies competing for the business. Those that are in the
non-prime space know that people do, from time to time, have problems. So
they’re all competing for the same customer and the customer
shouldn't be hesitant because there was a default on a student loan or
something like that. Yeah, there will be higher rates than there would be
if you were just a prime customer, but since there’s so much
competition in the non-prime area, the difference between what the prime
bar would get and the non-prime is competitively set. So, there’s
going to be increased amount but it’s not going to be excessive.
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Nihal Bayraktar
Associate Professor
of Economics, Penn State Harrisburg
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is now a good time to buy a car?
If it is asked to me whether it is now a good time to buy a car, I would
say 8 on a scale of 1 (an emphatic no) to 10 (an emphatic yes). Currently,
interest rates are historically low. This fact makes purchasing cars very
attractive.
We have these low interest rates in the financial markets thanks to easy
monetary policies of the Federal Reserve System, the central bank of the
United States. Nobody can be sure when it actually will happen, but the
Federal Reserve is expected to start reversing the easy monetary policy
around mid-2015. This policy change is expected to increase interest rates
in the financial system, including on consumer loans.
Thus, I personally believe that it is a right time to buy a car, especially
if it is financed with loan. The reason for not going with 10 on the scale
is that there is always a chance that the cost of borrowing can remain low
more than a year. In this case, there may not be much difference in terms
of purchasing the car right now or later as long as interest rates are
stable.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
Overall, I expect auto financing deals to get worse, meaning that higher
interest payments will be asked, if the Federal Reserve changes their easy
monetary policy and starts targeting higher interest rates. But it would
stay the same over the next 12 months if the Federal Reserve does not
change their current policies. So everything depends on monetary policies
of the Federal Reserve.
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Michael B. Behrmann
Department Chair
and Associate Professor of Automotive Technology, Southern Illinois
University, College of Applied Sciences and Arts
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is now a good time to buy a car?
I rate the current climate for buying a newer car as 10 out of 10.
- Manufacturers have numerous new or refreshed models hitting the
dealers’ lots right now that incorporate many of the latest safety
and convenience systems. The safety of today’s vehicles far exceed
those from just a few years ago. Systems such as electronic stability
control (ESC) can help minimize loss of vehicle control by keeping the
vehicle on the road and heading where intended. The National Highway
Traffic Safety Administration estimates that ESC systems can reduce
single-vehicle crashes of passenger cars by 39% and single vehicle crashes
of sport utility vehicles by 59%.
Other systems such as adaptive speed control, lane departure/assist
systems, park assist, integrated Wi-Fi and keyless access systems that
unlock or even open access door can not only make ones driving experience
safer, but possibly more enjoyable. Buying a newer car can provide a
significant improvement in safety protection.
- Interest rates for vehicle purchases can still be found at very
reasonable rates and near historical lows. Although rates for new vehicle
loans have crept up some since last year, most consumers can still find
very reasonable rates to accommodate various payment options.
- A consumer may still find a few new 2014 model year vehicles on the
lots. With the new 2015 model year vehicles arriving, one may find some
great deals on the 2014’s.
- Many manufacturers also have various incentive packages available for
the consumer. From cash back to low or no interest financing, all of those
may help when looking to purchase a new car.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
With the improving economy, I do expect auto financing loan rates to
increase some over the next 12 months. The wildcard may be how closely
manufacturers want to keep their inventory levels and production rates in
check. Small changes may impact the offering or elimination of various
incentive packages. With sales of new vehicles for many manufacturers over
the past year showing dramatic increases, holding out for a better
incentive package to arrive may not happen.
All of this combined, now is an exceptional time to consider a newer
vehicle.
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George Belch
Chair and Professor
of Marketing, College of Business Administration, San Diego State
University
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is now a good time to buy a car?
Regarding whether it is a good time to buy a car I would rate it a 7 to 8.
The low interest rates and in some cases zero percent financing being
offered by some automotive companies make it very attractive to purchase a
car right now. Since an automobile is a depreciating asset, it is probably
better to finance it and the low rates make it easier to do so.
Also, many automotive dealers are offering rebates and other financial
incentives as the market is very competitive right now for most vehicles.
Thus buyers should be able to get significant reductions on many models if
they shop around and are patient.
The only down side is that prices keep increasing as the average price of a
new vehicle is now around $32,000 which is very expensive, particularly for
middle class consumers. However, it is unlikely we will see a decline in
prices, particularly if the economy continues to recover and auto sales
continue to increase.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
Auto financing deals will be tied to overall interest rates and Federal
Reserve policies. If the Fed decides to increase interest rates it is
likely that the increase will impact rates for auto loans. However, it is
possible that automobile companies will subsidize the rates as a
promotional incentive which might keep them low.
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Donald Grimes
Senior Research
Specialist, Institute for Research on Labor, Employment and the Economy at
University of Michigan
On a scale of 1 (an
emphatic no) to 10 (an emphatic yes), is now a good time to buy a car?
Sales have been much stronger than I expected, so keep that in mind as I
answer the questions.
I would say that right now is not a good time to buy a car, so I would say
a 3.
Do you expect auto financing deals to improve/get worse/stay the same
over the next 12 months?
The deals are not very good and in answer to this question, I think they
will get better over the next 12 months. This is especially true of
Japanese and European vehicles, where the stronger dollar will encourage
the foreign auto companies to offer much better prices, either through a
direct reduction in price or more likely a better incentive package. That
increased competition will force U.S. nameplates to respond in kind.
Genna
Brown
Jeffery S.
Bredthauer
Carolyn
Reichert
Lawrence J.
White
Andreas
Rauterkus
Marilynn
Hood
Russell
Stevens
Rebecca
Neumann and Saleh Sahabehtabrizy
David
Lander
Brian
Larson
Frank L.
DuBois
Jack
Tracey
Nihal
Bayraktar
Michael B.
Behrmann
George
Belch
Donald
Grimes
Todd J.
Zywicki
