Wealth Wednesday: Six strategies to keep in mind when you purchase a certified pre-owned vehicle.
Total new vehicle registrations among African-American consumers reached 641,090 in 2010 (the most recent statistics available), an increase of 11.5 percent over the prior year, and represented 7.4 percent of all new vehicle registrations in 2010, according to research firm Polk. Furthermore, the African-American market volume increase was 68.6 percent greater than the non-ethnic market increase of 6.8 percent. The most popular brands for African-Americans include Nissan, Chevrolet, Toyota and Ford.
Aside from buying a home, purchasing a car is one of the biggest financial decisions that the African-American consumer will make in his or her lifetime. Purchase a used car and you take on someone else’s troubles and issues, but buy a set of new wheels and you could wind up paying much more than you want to — both upfront and over time — for your purchase. Anyone who is torn between these two options will be glad to know that most manufacturers now offer certified pre-owned (CPO) options that help to bridge the gap between used and new autos.
CPOs are considered a great wealth-building tactic because the shelf life and quality of cars have increased dramatically over the last decade and dealer CPO programs have stepped up in the last two years. Bottom line: You save money on getting a quality vehicle and won’t have to waste money on constantly repairing a lemon.
CPO programs find automobile manufacturers taking their late-model used vehicles (usually less than five years old) and putting them through a fairly rigorous inspection process, attaching an extended warranty and other perks, and selling them at a premium to the used-car-buying public.
According to Cars.com, the benefit of CPOs to consumers is clear: You get a like-new car with new-car-like peace of mind. Not only do you get these benefits at a used-car price, but you’re often able to enter a vehicle segment (luxury, sport utility vehicle, etc.) you otherwise couldn't afford.
When buying a car through a CPO program — or used or new — be sure to follow these six steps to success:
Know What You Can Afford
Don’t set foot in a dealership until you have a good idea of exactly what you can afford in terms of a down payment and monthly payments. What can you realistically pay out on a monthly basis? Don’t forget to factor in maintenance costs, insurance premiums and fuel expenses when calculating this number. Check out Bankrate.com for a helpful auto loan calculator.
Check Your Credit
Be sure to check your credit score (visit www.myfico.com for a free, online checkup) to obtain your 3-digit rating on a typical scale of 350 to about 850. This number can have a significant impact on what types of loans you will qualify for and at what annual percentage rates (APR). Currently, for example, Bankrate.com is reporting a 36-month new car loan rate of about 4.70 percent.
Leverage the Internet
Before you step foot in an auto dealership, use the Internet to start researching car options and determining which vehicle(s) best suits your lifestyle and needs. If you’re looking for a new or used car you can use the Internet to narrow down your choices by make, model, prices, customer reviews, photos, videos and other keywords.
Educate Yourself on CPO Programs
On websites like AutoTrader.com, Kelley Blue Book and Cars.com you can compare manufacturers’ CPO programs, get details on what the programs include and how they work, and search for available cars. Toyota’s CPO program, for example, includes a 12-month/12,000-mile comprehensive warranty, a year of roadside assistance, and a 160-point quality assurance inspection.
Understand That You’ll Pay More for a CPO
Cars purchased via a CPO program are going to be more expensive then the typical used cars because of the process that the dealer puts the cars through before selling them. In 3 tips on buying a certified pre-owned car, Bankrate.com points out that it's still important to weigh the value of what you are getting in exchange for paying a higher price. “Compare the prices of cars of the same year, make, model, and similar mileage and condition that are certified and not certified,” the author advises, “to determine if you are getting your money's worth for the additional cost.”
Ask About Insurance Rates
Take this step in advance and you’ll be better equipped to decide which make and model car will be most affordable overall. Get insurance estimates from several sources (local agents, online providers and so forth) for the various vehicles that you are considering. Different makes and models command different rates, for example, and first-time and/or younger buyers typically pay higher premiums.
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(Photo: Getty Images/Cultura RF)