Out There

car buying

Posted in Uncategorized by Pete on September 22, 2009

OK, so we recently bought a used ’07 Subaru Forester from affordable used cars in Anchorage, the largest used car dealer in the state.  We’re pretty happy with it.  $15,000 and it has about 37,000 miles on it.  5.45% from Alaska USA, 60 monthly payments of $244.87.  We will probably pay at least twice that every month, and throw some PFDs on as well to minimize the interest we pay.  But I wanted to share a few things from the process that were interesting.

The dealer ALMOST sold me on the $2,500 optional warranty that would last 7 years and cover most everything.  But there were some exclusions, and it was 7 years or 100,000 miles from when it was NEW, so actually more like 4.5 years and 63,000 miles for us.  I waffled back and forth, but then reasoned that since we will leave our car in the city and only drive it when we’re in town (maybe 2-4 thousand miles a YEAR), it was probably a bad idea to pay a boiler-plate price for something that is priced based on people who drive 5 times that much or more per year.

Have you heard of “GAP Coverage?”  It pays the difference between the insurance settlement check and the amount you owe on the car in the event of a total loss.  Like if it was totalled tomorrow and the bank values it at 10,000, the GAP coverage would pick up the other $4,500 we still would owe in that scenario.  This seems like a fairly unlikely scenario, with a pretty small potential payoff, especially if we will pay large amounts of the amount we owe over the first several months.  They wanted several hundred dollars for this coverage (can’t quite recall exact amount.  $500 maybe?)  No thanks.

Much worse was the disability/loss of life payment protection plan.  This would pay my monthly payment for me in the event that I died or was disabled and unable to work.  But not if it happened within 6 months of signing up for it.  This is a 60-month loan (that I’ll probably pay off in 30 months or less), so losing the first 6 months is a big deal.  They did up all the paperwork at the bank (Alaska USA FCU) and had this plan automatically included.  They were having me sign everything, I asked what this piece of paper is, she explained and I checked the amount and said “What??  Uh…  No thanks.”  They were a little snippy and annoyed that I turned it down and said “All right, well, that means we’ll have to start all this paperwork ALLLL over again…”

The plan costs $3.25 per $1,000 of principal for the given month.  So initially, with a $15,000 loan we’re talking about $50 per month!  For perspective, I pay $12 per month for a 30-year term $100,000 life insurance policy.  It would cost much LESS if it wasn’t a term policy with about 25 years to go, but even so, I’m paying about $.12 per $1,000.  And of course since I already have life insurance (even a small policy), do I really NEED what is essentially a second (tiny and overpriced) life insurance plan?

OK, so how much should disability insurance cost?  I went to an online site that offers you quotes from different brokers, and got 3 quotes.  One was for disability coverage that would pay me $1,800 per month for a max of 5 years, which is a handy comparison because the longest the car one would matter for is 5 years, or actually 4 1/2 years because the first 6 months aren’t eligible.  The monthly cost was $22.50 and it doesn’t kick in until I’m disabled and unable to work for 90 days.  The car one kicks in after I’m unable to work for 30 days.  $22.50/month for a maximum 5-year payout of $108,000, or about $.21 per $1,000 maximum payout.

I know we’re plowing through the weeds here, so to speak, but we’re almost to the conclusion.  I could go out on the internet and get disability and life insurance from reputable companies for far more money, for far longer terms, and pay far less.  Specifically, they wanted $3.25 per $1,000 of maximum payoff.  I could get it for $.33 ($.12 + $.21) per thousand. And keep in mind that what I’m getting for $.33 is something that someone is still making a PROFIT on.  The real cost of course is less, may be $.20 or something.  I hadn’t done the math when I was sitting in the chair trying to scan the fine print and not sign it as she was pressuring me to do, but I could tell right away it was a stinker of a deal.  I don’t mind paying above cost, everyone has to make money.  But that kind of a markup is offensive, even wrong.  Opting out changed my 60 month payment to drop from $276.03 to $244.87.  Note also that they build the extra price in as if you were going to make the minimum payment for 60 months.  If you pay it off way early, you should theoretically pay less toward this fee because your monthly principal will be less than they projected, every time.  But you’re stuck with it.

The last thing I should mention is that the loan process took…for…ev…er.  The sales guy at the dealership said he has been doing this for many years and had **never** seen it take that long.  He called me on my cell hours after we left and thought I had changed my mind.  The bank is literally across the street from the dealership, and we learned later they are crosstraining everyone to handle loans because they got rid of the “community liaison” person who used to open new accounts and do all the loans.  So we had a newbie.  My wife and the 3-year old had to stay right there because my wife was a cosigner (she is the main breadwinner these days).  From the late morning it rolled on and on, about 4 hours (maybe 4.5?) in all.  Oh well.  I also later heard that Credit Union One in Anchorage was financing some people at 4.5%, so I’d at least check them out in addition to Alaska USA.  I had misunderstood a conversation the previous day with Alaska USA and thought we were getting 4.45, not 5.45, and by the time I learned, we were so far in I didn’t care I just wanted it to be over.  We will pay it down very aggressively so the interest won’t matter as much.

OK, so this was an amazingly boring blog post.  Read it when you are having trouble sleeping.  I just wanted to get it all out there.  For more info on the whole car-buying process, one place that was helpful for me was this site.

We also were looking at buying an ’03 Ford Windstar minivan.  Blue Book value is around $5,000, the guy wanted us to assume his remaining payments of around $7,500, so we had to turn him down.  Sounds like he paid around $14,000 for it just a couple years ago.  It occurred to me that he is probably paying for things like GAP coverage, and the disability/life thing, and he probably got killed on the interest rate (might not have great credit).  He was a nice guy and I was a little sad we couldn’t help him out.

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