Credit and Personal Finance Blog | Credit Karma

April 26th, 2010

Consumer Benefits From Companies ~ Are They Worth It?

Companies, such as Geico and Bank of America, are offering consumers additional privileges and benefits as a way to revamp their relationship.

These benefits include wallet-friendly deals to help stand out in a competitive market. Here’s a glance at the value and perks of two programs.

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February 28th, 2010

Favorite Product Picks for February

Every month, Credit Karma hunts through the top financial products to bring you our favorite picks, what we loved about them, and why you should give them a try too.

In February, we are focusing on offers that have the Best Service and came up with three that we just can’t stop raving about. If you want to treat yourself to a little TLC in your personal finance life, the following picks are sure to deliver.

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January 5th, 2010

Dear Credit Karma – All About Auto Loans

Dear Credit Karma,
I was recently divorced and my ex-husband has an auto loan and my name is still on the debt, how do I go about that debt NOT affecting my credit score anymore?

The only way to remove yourself as a co-signer on this loan is for your husband to refinance the car under his name alone. This new loan will replace the old loan and you will no longer be liable as a co-signer. But in the meantime, any actions– including default or missed payments– taken on the account by you or your ex-husband will damage both of your credit scores. The debt will remain on your credit report as long as you are a co-signer, so have him refinance the loan as soon as possible to protect your credit score.

Dear Credit Karma,
My husband and I share a car – I really need to get my own, but we filed for bankruptcy a year and a half ago. I have poor credit because of that (and struggle with making payments on time). How likely am I to get an auto loan?

While bankruptcy is a tough financial pitfall to recover from, take heart: it won’t haunt your credit forever, and you can get an auto loan, but at a steep cost. If you are set on buying a car now, you will likely resort to a subprime or high risk lender, who cater to borrowers with poor credit, who will likely approve your loan. The real question is not “how likely are you to get an auto loan?”, but “can afford the exorbitantly high interest rate those types of lenders typically charge?”. Check out difference in payments between a poor credit and good credit borrower for a $25,000 loan on a 48-month payment plan:

*interest rates from Five Cent Nickel

That’s a difference of about $89 a month, which adds up to $4,295 difference in payments over the life of the loan. To see what kind of interest rate you’ll be offered and if you can afford it, look up your credit score and compare it to Five Cent Nickel’s auto loan interest rates.

The lesson here is that while you might need the car right now, the extra cost in interest rates over time may be reason enough to hold off on purchasing a car until you have better credit. Tacking an extra car loan payment may worsen your credit and overwhelm you with debt, especially if you are already struggling to make payments on time. Consider alternatives like carpooling, public transportation, or a system of sharing the car with your husband. In the meantime, take the next few months to improve your credit score with healthy credit habits like making on-time payments, using a secured card, and using the money you would have used on a new car to pay off existing debts. Within a year or so, you will have a higher credit score and be able to receive better financing options from lenders.

Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!

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October 1st, 2009

Buying Your First New Car

You’ve been dreaming about it for years and you finally have the funds to make it come true—buying your first brand new car. But it’s going to take a couple steps of financial planning before you retire your old clunker from college and sit in the driver’s seat of your perfect car. Use this easy guide to the car-buying process so you know how to prepare, what to expect, and best of all, know how to get a fair deal on the car of your dreams.

First stop, the Internet: The more information you can gather before you get to the dealer, the more informed you’ll be when you purchase your fancy new car. Focus on educating yourself in three areas: how much you can afford, what vehicle you want with which options, and what a fair price range would be.

How much you can afford will depend on what car and what kind of loan you can get. Since you can’t estimate what kind of APR a lender will offer based on your credit score, you can at least check out car loan APR trends to help you discern what a reasonable rate would be. Also, calculate the monthly loan payments that is within your budget so you know what you are comfortable paying month-to-month.

Research online what kind of car options are available to you so you know what to look for when you get to the dealer and can expect how much it will cost. Go to TrueCar and select the make and model of your car and check off the options you want, down to the color and tinted windows. TrueCar will provide local data on the average price consumers are actually paying for your exact car, so you know the reasonable and accurate price to negotiate with once you get into the gauntlet with the dealer.

Second stop, the car dealership: You’ve got all the information you need, and now it’s time to go to the dealership and drive off with your car. The typical car-buying process goes like this: you’ll take the car you want on a test drive to be sure it’s what you want, put your TrueCar price report to work haggling with the salesman over what you think is a fair deal, the dealer will run your credit report and use your credit score to determine what financing options are available to you, you’ll haggle more over pricing, and then the final blow—you either sign the paperwork and drive away, or you walk away. Be warned, the dealer will still try and sell you warranty packages and car accessories right up until you drive off the lot.

Third stop, the comfort of your driveway: Congratulations! Not only have you navigated the chaotic process of buying a new car, but you made it home safely in your dream car. Now it’s all about maintenance and proper upkeep. Don’t forget to get car insurance on your vehicle right away, change the oil every 3000 miles, get a car wash every now and then, and pay your loan payments on-time, and you’ll avoid any speed bumps along the ever-winding road of car-owning freedom.

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September 21st, 2009

TrueCar Review: The New Car Shopper’s Tool

If you’re in the market for a new car, TrueCar will help you drive off the lot knowing just what kind of deal you got. TrueCar aims to make the car purchasing process honest, transparent, and fair by providing consumers recent, local data of new car sales specific to the make, model, trim, and option of any vehicle. Before, haggling for hours over the price of a new car was a rite of passage every consumer had to go through. Now, by knowing the average price other consumers paid for a specific car, you can arm yourself with the tools you need to get a better deal on any new car purchase simply by being an informed, empowered consumer.

TrueCar makes understanding the negotiation process between car dealer and customer super simple. They develop a Price Report for the particular vehicle you want by aggregating data from many different sources of how much car buyers in your particular geographic area actually paid for the exact car with the same options you are looking for at the dealerships. The Price Report is a simple straight-forward graphic with data that helps new car shoppers quickly ballpark a good price, a great price, and the average price paid for a specific car. It also details the mark-up on all option packages as well as the actual dealer cost, factory invoice, and the sticker price many car salesmen try to hold buyers too. TrueCar also shows you the average price paid over the last six months for the vehicle. This is especially nice, since incentives and government programs like Cash for Clunkers can shift negotiation power quickly.

How do you use this data to negotiate a better price? Print out the Price Report and take it with you when you go shopping for that perfect car. While the car salesperson may pace back and forth to their manager to settle the price, you can remain steady in your offer price as you have a TrueCar Price Report in hand. Now, if you find yourself at the dealer wanting a different color, or a couple more add-ons, don’t worry; you can call TrueCar and they will email you an updated Price Report to your iPhone or Blackberry.

One thing TrueCar can’t help you with though—new car financing. Make sure you have a strong credit score in hand when you head to the dealership. Also, do your research and know what financing offers are available to you from the dealers as well as APRs you can get from going direct to Capital One Auto Finance or Up2Drive. In addition to financing, check with your auto insurance company regarding insurance coverage costs for that car you’ve been eyeing. You need to be able to afford much more than just the new car.

New car shopping has always been one of those events you never walk away feeling good about: you are suddenly worried you gave in too much or left wondering if you really did get a good deal like the salesperson kept telling you. TrueCar helps set a fair and transparent price for new cars in the market everyday so you can get your new set of keys worry-free.

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September 16th, 2009

GM’s 60-day Satisfaction Guarantee Interests Car Buyers

General Motors just launched their 60-day Satisfaction Guarantee that offers a full purchase-price refund to eligible buyers of new GM vehicles until November 30, 2009. As part of GM’s larger “May the Best Car Win” campaign to stand out against the competition, the 60-day Satisfaction Guarantee is GM’s big push to gain back consumer confidence in the company name. GM is betting on their new car line-up and are willing to put cars being returned at risk to move cars off the lots, hopefully for good.

According to ConsumerReports.org, buyers are less likely to consider buying a GM car now than a year ago because of the company’s current economic standing and unappealing product offerings. The 60-day Guarantee aims to improve GM’s image problem while also moving inventory off the lots. GM reportedly expects less than 3% of vehicles to be returned under the Guarantee

If you do decide to buy, returning your vehicle may not be easy as there is lots of fine print. Here’s a quick list straight from GM:

• The Eligible Vehicle must be a new 2009 or 2010 model.
• You have purchased an Eligible Vehicle and taken Delivery between September 14, 2009 and November 30, 2009.
• You must be able to deliver to the Participating Dealership a clean and unencumbered title to the Eligible Vehicle, which title has remained in your name since the Delivery Date of the Eligible Vehicle.
• You must be an individual natural person who is the title owner of the Eligible Vehicle. Businesses, corporations and partnerships do not qualify.
• Your Eligible Vehicle’s odometer must not have more than 4,000 miles since the Delivery Date.
• Your Eligible Vehicle must have been registered and insured in the Buyer’s name since the Delivery Date.
• Your Eligible Vehicle must have no more than $200 of damage as determined by GM or GM’s agent. Such damage may include, without limitation, internal or external scratches, scrapes, dents, odors, rips, burns, etc.
• Your Eligible Vehicle may not be leased.
• Your Eligible Vehicle must have been returned to a Participating Dealership where you purchased it, in the same working order as it was on the Delivery Date.
• Your Eligible Vehicle must not have incurred damage or non-warranted repairs in excess of $200, regardless of whether such damage has been repaired.
• Your Eligible Vehicle must not have been subject to any liens or other security interests other than a lien for the original financing used to purchase the Eligible Vehicle.
• A minimum of thirty (30) days must have passed since the Delivery Date of Your Eligible Vehicle.
• Only one Eligible Vehicle may be returned per household.
• Your Eligible Vehicle must pass a purchase inspection conducted by GM or GM’s agent.

While this might be a good incentive to basically test-drive anything from a pick-up truck to a Corvette for a month, don’t get too carried away with all the excitement. Make sure the Satisfaction Guarantee isn’t the main reason you choose GM, and that you still negotiate for a fair price. Make sure it is the car that is right for you, and not just right for you right now.

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August 4th, 2009

The Great Car Insurance Switcheroo – How do the savings stack up?

Picking the right car insurance company is all about savings—how much time, money, and customer service benefits you can get from switching auto insurance providers helps you to figure out which company is a cut above the rest.

The highly commoditized world of auto insurance demands that companies use anything, from clever marketing of talking mascots to discounts for good driving and even good grades, just to gain a competitive edge. But the three big C’s – convenience to quote or buy, cost, and customer service—stand out as the factors consumers consider when determining which company is the best safety bumper when they are out on the open road.

It is difficult to pick a best out of the bunch because car insurance companies tend to sound the same when they boast the basic commercial gimmick of, “Save $325 dollars when you switch to a different auto insurer.” So, we challenged their claims by taking two very different profiles—a new car-owning college student, and a 30-something couple with two kids and two vehicles—and used consistent coverage across the auto insurers to see how they truly stack up in savings.

* of Savings per year (reported average annual savings of customers)
**Provided by J.D Power and Associates, Overall Purchase Experience score for new insurance buyers based on how customers rate their new auto insurance provider overall.

Round-up

There was very little difference across convenience, cost, and customer service in comparing the six auto insurers. In terms of convenience, all the company websites’ online quotes had quick, easy accessibility and a fast turn-around; each company took 5 to 10 minutes and a few of them also offered additional phone or insurance agent support. For cost, switching swung between saving as much as $465 or costing the consumer an additional $259. For customer service, GEICO has the highest J.D Powers rating, but this factor varied according to the unique claims service and customer care features each company offers.

Since competition between companies has standardized much of the coverage and minimized the range of cost, some companies get creative in how they set themselves apart from the others. For example, Esurance offers E-star Direct Repair Program, which speeds up the hassle of car accidents by recommending a body shop, providing online repair monitoring with pictures of your car’s repairs, and guarantees on all repairs for as long as you own your car. Allstate‘s “Accident Forgiveness” policy, if you qualify, promises that your auto insurance premiums will not increase after a car accident, even if it is your fault. 21st Century is best known for its lower rates than other insurers and simple, user-friendly website, with a self-adjusting timer to pinpoint the current average time to complete a quote.

However, auto insurance cost is not just a function of your car type, coverage, and service level; it is also about how risky you may be as a driver. The underwriting process of insurance providers looks at your credit report and credit score to gauge the risk of insuring you and your vehicle. Typically, the lower the credit score, the higher perceived risk of a claim, and not surprisingly, the higher your car insurance may cost.

When it comes to choosing which auto insurance provider will make you feel at ease on the road while still being easy on your wallet, shop competitively and look at what each provider offers and what savings you can get by switching. Ultimately, no one insurance provider is comparatively better for all consumers—it all depends on what you want in a happily-ever-after for you, your family, and your car.

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August 3rd, 2009

Auto Stimulus ‘Cash for Clunkers’ A Bang or Bust?

The Cash for Clunkers Program is waiting for a fill up as a Bill that passed Friday in the House, which would refuel the Program with an additional $2 billion, awaits approval in the Senate. The government program, originally slated to run through November, ran out of gas after just five days, rolling through its $1 billion allowance that provided credits to consumers for trading in their old gas guzzlers and driving off the lot with new, more fuel-efficient vehicles.

Cash for Clunkers is meant to be a rare Trifecta: good for consumers, good for the environment, and most importantly, good for the auto industry. If the Bill passes the Senate, the additional funding will provide approximately 500,000 additional gas guzzling vehicles to be towed off the roads.

The program works like this: you must trade in a “drivable” car that has been continuously insured for the past year and registered to you for at least a year. The car must be 25 years old, from model year 1984 or older, and have a combined fuel economy of 18 miles per gallon or less. If the car you purchase has an EPA-rated fuel economy of 10 mpg better than your trade-in, you are eligible for a $4500 credit towards your new car purchase. If the EPA-rated fuel economy is between 4 and 9 mpg better than your clunker, you are eligible for a $3500 credit towards your new car purchase. The trade-in deal for heavy duty vehicles has slightly different qualifications, but still offers a $3500-$4500 credit for eligible vehicles.

It’s important to understand that the money is not a rebate, but substitute value for your trade-in. The dealer will submit a voucher for your trade-in credit of $4500 or $3500 to the Program for reimbursement. If the new fuel efficient car you purchase is over the trade-in credit, which it will be, you are still eligible for any incentive the dealers offer and have access to the same financing options available to all consumers.

In addition to job history, total loan amount, car type, and past experience repaying an auto loan, your credit report and credit score are a key component auto lenders consider when determining whether or not to extend you credit for a car loan, and if so, the auto loan rate they will charge for your vehicle loan. In general, the higher your credit score the better the loan terms.

After everything is said and done, your old clunker will be hauled off to the junkyard to be stripped of any parts for resale and then torn down to scrap metal. The environment, the auto industry, and especially you, will be driving away with a sweet deal. Hopefully, the proposed refueling of this Program will jumpstart many dealerships and jobs across the US.

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July 22nd, 2009

Standing Side By Side With Consumers In Rough Economic Times

What started as an innovative automaker’s marketing ploy, which helped move inventory by offering purchase protection plans for jobless customers, is now becoming a standard level of consumer support across many different markets. Companies are coming up with more creative solutions—rebates, penalty-free refunds, special offers should you become unemployed—to get consumers back into stores and opening their wallets again.

Hyundai kicked off the recession trend of buyer incentives with its Assurance plan launched in January, which gives customers who are laid off within a year of purchasing a new Hyundai the option of returning the car and being absolved of the remaining payments (up to $7,500).

And where one good offer goes, many were sure to follow:

AutoNation, the largest U.S auto dealership chain, pledged to cover car payments of the recently unemployed for 6 months through its Protection Payment program; Ford’s Advantage Plan covered monthly car payments of $700 for a year for customers who bought a vehicle between March 1 and June 1 and lost their job by the end of 2009; GM’s Total Confidence program covered payments of $500 for up to 9 months for customers who purchased between April 1 and June 1 and lose their job within 21 months of purchase.

With unemployment creeping to near 10% nationally, job-loss protection offers are a smart strategy to give nervous consumers a sense of security to spend money while also easing consumers’ fear of possible unemployment. The idea to provide offers based on possible future job loss spread quickly from carmakers to financial service companies to airlines and even to drug companies.

Nowadays, a little peace of mind has become a way of business.

• Need that new dishwasher or stove but concerned about losing your job? Sears’ Buyer Protection Plan gives consumers a safety net in these troubled times. Use your Sears card to purchase a major home appliance totaling $399 or more and you are protected if you are involuntarily laid off. If consumers lose their job after 60 days and up to one year from the date of purchase, 1/12 of the entire purchase price is credited to your account each month until it is paid off or you are employed again. The Buyer Protection Plan is in a nationwide testing period from July 6 to August 1, 2009.

• Want to get the high rates of a CD but concerned about the penalties that could come with locking up your money in a CD? Discover Bank aims to help you earn more while worrying less. Their new Penalty Free 12-month CD earns consumers 2.00% APY, and if customers loses their job, they can withdraw their savings principal plus interest without any penalties or fees.

• JetBlue wants you to plan your vacation free from the worries of your employment status. If you are involuntarily laid off, The JetBlue Promise Program will fully refund your fare as long as your travel plans are prior to December 31, 2009, you are over 18, and you paid for the itinerary. JetBlue also offers a Getaways Vacation Package Refund as part of the Promises Program. The Promise Program was originally slated to end in June, but has been extended through 2009.

• Don’t let unemployment stop you from staying healthy. Pfizer’s MAINTAIN (Medicines Assistance for Those who Are in Need) program is a free medicine program for the newly unemployed. Pfizer‘s MAINTAIN program gives away 70+ types of prescription drugs for up to a year or until you become re-insured. To be eligible, you must be taking a prescribed Pfizer medication for 3 months prior to becoming unemployed; enrollment is open through December 2009.

• K-Mart is running the Smart Assist Savings card pilot program, in which unemployed customers can save 20% on all Kmart private label goods for 6 months. This discount program is being run first in Michigan, where unemployment is at the national high of over 14%.

In these rough times, it’s great to see companies reach out to meet consumers half way on the risk scale of unemployment. Not only are companies going to drive additional sales by providing consumers the confidence to shop, but there’s a significant amount of good karma these companies are building with both unemployed and employed consumers alike.

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November 6th, 2008

Credit Crunch Negatively Impacts Buyers of Detroit 3

Only 42 % of United States consumers who purchased a new car or a new truck during the past 90 days chose one that was made by Detroit companies, which is a grand decrease from 47 % a year ago. This is a rapid decline that was more than likely aggravated not only by the suffering economy, but also by the lower income levels that United States customers are experiencing. The credit situation, according to a senior director of industry analysis at the Power Information Network, is impacting domestics more than it is affecting the Asian markets. Detroit automakers have three primary brands, Chevrolet, Dodge and Ford. All of these brands attract buyers that have a median household income that is $5,000 or more below the industry average, according to the Power Information Network.

In this environment of much tighter credit, customers who are making more money are in a much better situation to purchase vehicles using cash. The more recent data from the Power Information Network shows that cash purchases of vehicles have definitely been on the rise in recent months because financing and leasing are becoming the less prevalent options for many consumers.

When gas prices began to go up in the second quarter of 2006, Detroit’s primary automakers experienced a serious headwind, seeing their retail share of the United States market drop below the 50 percent mark. The weak lending environment because of the credit crunch is the second headwind for these automakers to content with. Now not only are consumers tending to buy against options like the large SUVs and pickup trucks that Detroit automakers are known for because of the gas price fluctuations, but also because these higher price tags require higher financing and therefore less purchasing options. The recent retail market share performance of the Detroit automakers is a sign that even automakers are facing serious challenges in this suffering economy of ours.

Some of the other intense challenges that are being faced by the local automakers include perceptions of subpar quality, a lack of fuel efficient subcompact and hybrid vehicles, too many different dealerships and brands, vehicle lineups that are not quite as fresh as with other competitors, and even higher labor costs in relation to what foreign automakers offer. These things are disappointing, and even shocking, but they are simply a continuation of the same themes that we have been seeing for some time now.

Detroit automakers lost a combined 5 % points off of their market share in the last quarter, in comparison to the same period a year ago, which is the fastest year over year decline in two years. During this same period, General Motors lost a percentage point, Ford Motor Co. lost two percentage points and Chrysler LLC lost two percentage points. Two percentage points of market share is equal to the full production for an assembly plant for an entire year.

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