This week’s blog features a guest post from freelance writer Mark Vallet. Mark specializes in automotive and insurance writing. He’s written for popular auto websites. Mark is also a regular contributor to a number of other Quinn Street Web properties. Visit Mark’s site at markvallet.com.
You need a new car. The research is done. You have found the perfect vehicle and arrived at a fair price. The only thing left is to get rid of your old ride. Should you sell it yourself or trade it in at the dealership?
The truth is, only you can decide which option is right for you. A private sale may be right for one person, while trading it in is the perfect solution for another. There are definite advantages and drawbacks to each method and weighing those factors before deciding how to get rid of your current vehicle is key to making the best deal on your new ride.
Selling it Yourself
In almost all situations you will get more money for your used vehicle if you sell it yourself. Selling it yourself cuts out the middleman. Dealers have expenses when it comes to reselling your car, everything from repairs and cleaning to overhead, which means they have to buy low and sell high. Cutting out the dealer means cutting out their costs, putting more money in your pocket. However, the extra money comes at a price.
Selling your old car takes time, marketing know-how and most importantly, patience. If you decide to sell it on your own, you will not be alone. According to Manheim Consulting, over 11 million cars are sold person to person every year and roughly 40 million used cars are sold annually, which is roughly three times the number of new car sales.
The big pro of selling your car yourself is simple. More money. The exact amount of the windfall will vary greatly depending on the age, condition and type of vehicle you are selling, but in most cases the additional profit will be measured in the thousands of dollars.
The list of cons tends to be a bit longer:
Time – Selling a car takes time. You will need to research the value of the car, post an ad and then deal with the calls and test drives. Depending on the desirability of your car this process can end up taking months.
Money – While you will almost certainly get a better price for your car, you will also have to shell out some money up front. Cleaning, detailing, and repairs cost money, as do advertisements.
Effort – In order to get top dollar you will need to clean it up and get any outstanding issues fixed. Getting it detailed and repaired can require significant effort.
Liability – When selling your own vehicle, properly transferring the paperwork is key. Make sure you have the title and it is correctly signed over to the new owner. In addition, if the new owner has issues with the vehicle, they will be coming back to you. The liability shifts directly to the dealer with a trade-in.
While all of these cons can be intimidating, selling a car yourself can be the right decision, especially if you have a newer, in demand model.
Trade It In
While selling it yourself will put money in your pocket, trading it in will save tons of time and effort. Simply show up at a dealership, negotiate an acceptable price and sign over the title. In most cases it takes less than an hour. According to NADA data, new car dealers acquired 57 percent of the used cars they retailed through trade-ins in 2011.
The trade-in process is usually pretty straightforward. A dealer will assess your vehicle and make an offer. These offers are negotiable but don’t expect the dealer to move dramatically on the price. Once you have agreed on a price it will be deducted from the cost of your new car.
The trade-in process is all about the convenience factor. It can save weeks or months of advertisements and meeting potential buyers. In addition, it immediately transfers liability to the dealer. If something goes wrong with the car, it’s no longer your problem.
In most states you may be able to recover a bit of the lost profit when it comes time to pay the taxes on your new vehicle. The majority of states only require you to pay sales tax on the difference in cost between the trade-in value of your old car and the price of the new vehicle. If you live in a state with a high tax rate this can be a big savings.
Regardless of which route you decide to go, clean up your car and remove all personal items. A grungy car will result in a lower selling price no matter who buys it. Paperwork is also key to a successful sale, make sure you have the title handy as well as your service records.
In the end it’s your decision as to what works best for your situation. Take your time, consider the pros and cons of each option and then get started selling, or trading in your old vehicle.
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This week will feature a two-part series covering how lenders view risks associated with younger and older borrowers. Erik Payne, a writer and researcher for Callahan & Associates (www.creditunions.com), has written this informative series as a guest blogger for rateGenius. Click here for part one.
Part 2: Gen Y vs Baby Boomers
The Importance Of Gen Y aka the Millennials
A 2012 analysis by FICO showed that 16 percent of people aged 18 to 29 did not own a credit card, up from 9 percent in 2005. A decline in credit popularity means these borrowers have and develop little to no credit history. And no credit score equals risk, right?
Gen Y and other young people are risky; there is no doubt. The information with which to base an approval or denial on is slim, but it does exist. A larger problem, it seems, is credit unions find it difficult to attract them to the institution at all. This generation has more options in which to trust its finances than its predecessors, creating a more competitive environment for financial institutions, no longer just competing against one another for membership. They are competing against payday lenders, crowdsourced platforms and websites, all of which offer young people certain conveniences financial institutions do not or cannot.
“We’re all having to fight harder and compete harder for that smaller piece of pie,” says Jeff Harper, chief lending officer of the $1 billion in asset-size Orange County’s Credit Union in Santa Anna, CA
Wants, needs, priorities and interests have shifted. Credit unions want lasting relationships with these young members; want them to fit the ideal borrower of yesterday. The kind who has low debt-to-income, the kind with a stable job outlook, the kind of borrower their parents would have been. Unfortunately, that’s not who Gen Y is. Gen Y expects to stay on a job for less than three years. It’s unrealistic for financial institutions to expect brand loyalty when younger people do not intend to show job loyalty. Financial institutions may want life-long members, but young people may only be interested in the loan.
“You can lead the horse to water but you can’t make him drink,” states Bill Vogeney, chief lending officer of the $4 billion in asset-size Ent Credit Union in Colorado Springs, CO
If this is the new normal, Gen Y should be reviewed differently than other generations. Credit unions adapting to the new financial environment and change their lending review processes (within the context of qualified mortgage and ability to repay laws) will have an easier time attracting the young people they so desperately want.
Harper echoes this sentiment. “If we are going to be relevant, we need to make sure we are considering the changing landscape of how younger people can earn income compared to our Boomers and older generations that had these career jobs.”
As the retirement age stretches from 65 to now potentially 70 and beyond, people are staying in the workforce for longer than ever, many without adequate savings to get them through retirement.
“They just don’t have a whole lot of retirement savings,” says Vogeney. “And if they don’t have a whole lot of retirement savings it’s probably because they have an awful lot of debt, right?”
On a case by case basis, as Vogeney points out, that may not always be true. But more and more older individuals are running into savings shortages. With no or minimal income coming in to offset that, personal financial portfolios can deteriorate.
As with younger people, the response by financial institutions to older borrowers should not be to avoid lending nor continue to employ unrealistic financial standards. It should be to work with these borrowers, offer them help in times of distress. Unlike younger people, this group is more likely to be loyal to the institution. Short term debt help here pays off with long-term relationships, possibly spanning generations.
Though Boomers and older generations have adult children, presumably already with institutional relationships, finance can often be a family affair. “We are trying to make sure that we are speaking to our young members through their parents,” Harper says. “A lot of young folks care what their parents have to say about finance. We see a lot of parents getting involved.”
Vogeney, perhaps unusual for a chief lending officer at an institution of Ent CU’s size, looks at every borrower request for financial assistance on a loan. It helps him learn as much as he can about a borrower before his department makes the decision to approve or deny. Loan modifications can help older borrowers who have had unexpected costs or realized their savings are not as much as they initially anticipated.
What Is The Question?
The question for credit unions to answer is not who is riskier between young and old people, rather, despite the challenges, how can they safely make loans to these groups? Priorities for credit unions revolve around the members and their needs, with positive financial performance a result of a job well done.
“Lending can be as simple as you make it or as complicated as you make it,” states Vogeney. “Oftentimes I’ll tell an underwriter or one of our loan originators, ‘Tell me something good about the loan.’ Tell me something positive. Do the positives outweigh the negatives?”
In a simplified sense, this is what lending is: Do the positives of an application outweigh the negatives? What is the risk? What is the reward? Can the borrower repay this loan?
It’s not about why these borrowers are risky, because all borrowers are. There are many outside factors, social and economic, that create risk in every age group. Good health is never guaranteed, neither is steady employment. Saying that two groups are inherently riskier than others ignores the suddenness and randomness of life.
Risk stems from ignorance. And credit unions, whether due to the heightened compliance standards or the study of more advanced predictive financial statistics, have no excuse to be ignorant (nor are they). There is considerable information available with which to judge an application, credit unions need to decide which works best for them. Which statistics best depict whether a member can repay a loan?
This week will feature a two-part series covering how lenders view risks associated with younger and older borrowers. Erik Payne, a writer and researcher for Callahan & Associates (www.creditunions.com), has written this informative series as a guest blogger for rateGenius.
Part 1: Are Some Members Riskier Than Others?
Why credit unions are asking the wrong question
It’s easy to ask, but harder to answer. Are credit unions that lend to younger (17-25) or older (65+) people right to consider one inherently riskier than others? From a lender’s perspective, regardless of age, every potential borrower presents a distinctive set of challenges to consider before an approval or denial.
Younger people, including the overanalyzed Gen Y generation, present risks stemming from a lack of personal finance knowledge, as well as the limited amount of financial information on which lenders have to make an informed decision.
The risks older people present to lenders are primarily in three areas: health concerns associated with age, the increased probability of job loss or unemployment, and the lack of retirement savings. According to a recent Bankrate survey, among the 60 percent of Americans aged 55-64 who have savings accounts, the median balance is just $100,000.
Risk overlaps between the two demographics. According to millenialbranding.com, younger generations who can find jobs can expect to make a median salary of $39,700. Similarly, retired members living off social security and retirement savings face financial limitations as well, as they are close to or have already left the workforce.
Small to non-existent income streams poor future earnings potential, limited savings, zero credit history and debt issues; one can be excused for thinking younger and older members are riskier than others. But in the eyes of the lenders, age is just a number.
So, The Young and Old Are Not More Risky?
“I don’t think so to be honest,” says Bill Vogeney, chief lending officer of the $4 billion in asset-size Ent Credit Union in Colorado Springs, CO. “I think there are certain things you need to consider and there are things you can do to make lending to anybody less risky.”
Jeff Harper, chief lending officer of the $1 billion in asset-size Orange County’s Credit Union in Santa Anna, CA, agrees. “From my perspective that is kind of a loaded question,” he says. “We like to look at our loan decisions outside of age, because when you start to look at the age aspect of a borrower it could be easy to broad-brush folks.”
Credit unions are in the business of making loans to those with the ability to repay; focusing on age can impede that progress. It’s also not the way member-centric institutions go about their business.
“You might have an older person and you’re thinking this person is 80 years old, so how are they going to pay a 30-year mortgage?” says Harper. “You just can’t look at things that way.”
The opposite applies, as well. While borrower inexperience should not scare away lenders without further review, borrower experience is only part of the lending decision criteria.
“I think that lenders, rightfully so, would look at a borrower in their 50s, 60s, 70s, and say ‘Wow, they have great stability,’” says Vogeney. “They automatically assume they are good credit risks. But I think anybody that has been around in the lending business for 25-30 years would tell you we probably see more borrowers at that stage of life carrying bigger amount of debt than they ever had.”
Looking at demographics can be myopic, especially if the goal is to make quality loans. That’s why Vogeney and Harper’s institutions take a more holistic approach to their lending process. More information begets improved decision-making. Both young and older potential borrowers are approved or denied for loans based on the same criteria, according to Harper.
“The main thing that we look for are the traditional attributes of underwriting, such as the stability of streams of income, what their relationship is with us,” Harper says. “What their collateral is, unsecured debt compared to income, those kinds of things. We don’t really focus on age in that context.”
Ent CU focuses on similar statistics. Through its first time buyer program, it has studied the financial habits of younger people. Vogeney remembers going into the experiment with certain assumptions about the kinds of borrowers the institution would want.
“What we found was the underwriters really didn’t stick to the criteria, and when we looked at the loans that we approved that fell outside the criteria we couldn’t see any reason for approving them,” Vogeney says. “Our experience showed us that if the borrower didn’t have the job stability, didn’t have a year on the job, didn’t have a year’s worth of credit; it really didn’t matter as long as they had some checking account history with us.”
If these borrowers were already members with checking accounts (and weren’t bouncing checks), they became a good credit risk for the institution. For these borrowers, the risk that a borrower will default on any type of debt by failing to make payments was about 1 percent according to Vogeney. For the borrowers who failed to meet any criteria and were approved, the default rate was closer to 10 percent.