"Know the Drill When Buying Your Next Car"

By Chris Stinebert and Andy Koblenz

The current economic downturn is affecting families all across the United States. Personal and family finances are on everyone’s minds, but the added stress that comes with military life can make financial planning even more of a challenge.

However, members of the military have consistently demonstrated that they are up for the challenge, and could teach their civilian counterparts a thing or two about preparing for and making sound financial decisions, particularly when it comes to such activities as applying for credit or financing a vehicle.

According to a recent survey comparing certain financial habits of service members and Americans in general, almost seven in ten in the military (68 percent) have purchased a vehicle in the past three years, compared to just 48 percent of the general public. And almost six in ten (57 percent) of service members plan to purchase a new or used vehicle in the next three years – versus 45 percent of consumers nationally. Among military buyers, nearly two-thirds expect to finance that vehicle purchase.

Preparedness Pays Off

Financing a vehicle is a way of life in America, and military personnel report being remarkably prepared for this major financial event in their lives – notably more so than the general American public. Service members are more likely than the average consumer to understand the process of buying and financing a vehicle, and as such, more likely to be satisfied with their purchase.

In the second national survey of its kind – conducted by Americans Well-informed on Automobile Retailing Economics (AWARE), a non-profit auto financing education group – results reveal that military members are also committed to learning more about the financing process, particularly about negotiating financing rates and better reading and understanding their contracts.

Service members are particularly aware of the importance of preparedness in today’s market, with nine in ten (91 percent) agreeing that the current economic climate has increased the need for borrowers to educate themselves about vehicle financing.

And service members are already following their own advice, especially when it comes to conducting research on vehicle financing rates and sources. More than eight in ten (81 percent) of military consumers conducted research before applying for financing for their most recent vehicle purchase. This is significantly better than the general public, where only 51 percent of consumers conducted research.

While these statistics may seem surprising to some outside the military, this is not “new news” to AWARE, who has been in close contact with educators on military installations involved in the “financial readiness” movement.

These educators attribute military members’ high level of comfort and understanding of the vehicle financing process to the extensive personal finance education programs, such as the Department of Defense’s Military Financial Education Program, which are occurring across the armed forces.

Likely due to this education, military respondents indicate a higher level of comfort with the vehicle financing process than the general public, with more than three quarters (78 percent) of the military reporting that they feel informed about vehicle financing, compared to 57 percent of American consumers in general.

But educators report that they do see service members who have made unfortunate financial decisions and are suffering the consequences of those decisions. For this reason, it is important that we continue making financial education available, and providing tools that help military consumers make informed decisions throughout their financial lives.

The Military Financial Education Program, Military Assistance Program – The Money Station, and Military Sentinel are just a few projects of the Department of Defense that provide financial education services to military members and their families.

Lessons Learned From the Forces

Vehicle ownership can improve earning potential by providing the opportunity to commute to better paying jobs and dedicate more time to education and job training. Having a car also improves quality of life, and allows individuals to spend more time with family, and provide better care for spouses and children.

But today’s economic challenges make it more essential than ever for consumers to do the homework required to make sound vehicle financing decisions. The financial education programs in the military, offered through the Department of Defense and each of the armed forces, and civilian resources, seem to be making a positive impact when it comes to preparing servicemen and women to make what is likely one of the largest purchases of their life – a vehicle.

As in so many aspects of their lives, military members are setting a fine example that other
Americans would be wise to follow.

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Chris Stinebert is Chairman of AWARE, and President and CEO of the American Financial Services Association (AFSA).

Andy Koblenz is Vice Chairman of AWARE, and Vice President of Legal and Regulatory Affairs and General Counsel of the National Automobile Dealers Association (NADA).

AWARE (Americans Well-informed on Automobile Retailing Economics) is a national non-profit organization specializing in auto financing education. This national campaign was launched by NADA, AFSA and other major players in the vehicle financing industry to enhance understanding of the vehicle financing process. A host of tools, calculators, articles and other resources to help consumers sufficiently prepare for auto financing decisions can be found on AWARE’s Web site – www.AutoFinancing101.org – available in both English and Spanish.

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Auto Buying Road Trip

With the federal stimulus package including a $2.3 billion tax break for new-car and truck buyers, a new vehicle purchase may be more feasible for many consumers in the near future. Americans Well-informed on Automobile Retailing Economics (AWARE) offers these tips to help consumers navigate the vehicle financing process:

Before visiting the dealership…

Know what you can afford – and resolve to stay within your limit. Decide what type of car you really need, and set a price range that fits your budget. Budget worksheets and a list of auto financing calculators can be found at www.AutoFinancing101.org/LearningSuite.

Do your homework. Gather all the information you can find – using the Internet, buying guides and consumer publications – to learn about vehicles on your short list.

Know the terminology. Become familiar with common terms you’re likely to hear or read – such as down payment, APR and trade-in allowance – when you’re financing a car or truck. You can find the definitions of many such terms at www.AutoFinancing101.org/Resources/Glossary.asp.

Review your credit report. You should know what creditors will know – plus you can correct any errors you find. All consumers are entitled to a free copy of their credit report once a year from each of the three nationwide credit reporting companies. Request your free annual credit reports by visiting www.annualcreditreport.com, calling 1-877-322-8228 toll-free or mailing a request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Comparison shop. Compare the annual percentage rates (APR) and other financing terms offered by several different sources, such as banks, credit unions, finance companies and dealerships.

Understand the difference between buying and leasing. You can download a free government publication, “Keys to Vehicle Leasing,” at www.federalreserve.gov/pubs/leasing.

While shopping for an auto at the dealership…

Stick with your plan. Stay within the price range you can afford – the number you determined before walking into the dealership.

Negotiate. Take your time negotiating the car’s price as well as the financing rate you are offered.

Understand the value and price of optional services. Examples include credit insurance, guaranteed auto protection and extended service contracts. If you do not want such services, do not sign for them.

Read any contract carefully before signing it. Ask questions about anything you do not understand.

After completing the auto purchase or lease…

Make your payments on time. Late or missed payments incur late fees and may even cause your vehicle to be repossessed, permanently. And a bad payment record will show up on your credit report, damaging your ability to get credit in the future. If you have difficulty making your payments, work out a repayment plan with your financial institution. If necessary, seek the services of a reputable non-profit credit counseling agency.

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Dealer Financing

One of the most common types of vehicle financing today is “dealer financing,” where a buyer and a dealership enter into a contract where the buyer agrees to pay the amount financed, plus an agreed-upon finance charge, over a period of time. The dealership may retain the contract but usually sells it to a bank, finance company or credit union, which services the account and collects the payment. Last year alone, more than 40 million auto financing transactions were arranged through dealerships.

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