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HSFPP WEEKLY UPDATE # 25: Used Car Financing

MESSAGE FROM FLASHMAN: I hope all of you had a wonderful and restful summer. Beginning this year, based on your suggestions, sections of the Weekly Updates will no longer be separated by lines, but by bold lettering. This should eliminate some of the formatting problems that you may have experienced with our updates. Also check the “What’s New” link on the main page of our Web site for the most recent updates regarding the Kentucky HSFPP. In the next two weeks, our webmaster will post all of the Weekly Updates including titles and related units in the HSFPP to make searching for topics related to particular units much easier.

Please keep the ideas coming, as the Weekly Updates are designed for your use. Your suggestions are not limited to the format of our Weekly Updates, and may include great websites, topics, and news stories related to units of the HSFPP, or similar subjects that aren’t covered but should be.

Last year was a great success for the High School Financial Planning Program, and with your willingness to share Weekly Updates with other teachers, we will surely reach more students than ever before.

For those who are receiving Weekly Updates for the first time, this issue is a follow-up to issue # 24 on car buying, which is available on our Web site under the resource link. The direct link to # 24 is:


Student Activity:

Topic: Tips for Financing or Refinancing a Used Car

You savvy teen consumers have shown much foresight in the hours you spend researching used vehicles to find the best vehicle at the best price, checking Consumer Reports and other sources for useful information. However, surveys show that most of you and your parents don’t consider shopping around for the lowest finance rate, and this can cost you big money. I’m sure you don’t want to spend more of your after-school hours than you have to working to pay off your auto loan, so here’s the deal: Finance companies owned by the automakers provide the majority of all vehicle loans, often at 3.9 %, 1.9%, or even 0% financing for new cars. Consumers who hear about these low rates might naturally assume that they also apply to used cars. However, the typical rate for used cars from a dealership
last year was around 8%.

According to a recent New York Times.com story by Micheline Maynard (August 11, 2002), a consumer who bought a used vehicle received a dealer loan at 8.25 Annual Percentage Rate (APR), thinking that was the best rate available. “Then a friend suggested that he investigate auto loan refinancing [via the Internet], something he never knew existed.” He managed to refinance his loan at 6.9 APR over 72 months, which should save him “around $2,000 in interest expenses over the life of the loan.” His only other costs were the title-transfer fee and a little time.

The vehicle refinancing market is still very small, which isn’t surprising if you consider how little time many parents spend initially in getting the best interest rate. How many of your parents, when they bought their new car a couple of years ago, took the low rate (5.9%) car dealers offer them, versus rebates ranging from as little as a $1,000 to as high as $5,000? I recommend that consumers do the math. Would your parents have been better off to take the rebate or to finance the car from their credit union or another financial institution? Based on my experience, credit unions usually offer their members lower rates than other lending institutions, but you should always shop around for the best deal. If you are a relative of a credit union member, you also are allowed to join and receive member benefits, such as auto loans.

Remember that auto manufacturers' primary goal is to help dealerships sell new vehicles, and not to make it less expensive for you to buy a used vehicle.

Source: “A New Way to Cut Payments on Your Old Car,” August 11, 2002, by MICHELINE MAYNARD.


Student Questions:

On page 113 of the HSFPP Student Guide, you’ll find a worksheet to complete for financing the used vehicle that you
plan to buy, or for refinancing your current vehicle in order to reduce the total cost of your loan. For those who are comparing your current loan with the cost of refinancing, Lender #1 on the worksheet should be your current lender. Get a quote from a lender that you find on the Internet, a quote from a parent’s credit union if they belong to one, and a quote from another local lender.

The following Web site will provide you numerous links that will help in completing this exercise:


Edmunds’ Web site, the sixth site listed, is the one most closely related to this exercise; on the right side of their main page, you will find a link for refinancing a vehicle.

After completing the worksheet, answer the following questions and be prepared to share your results in class:

  1. Did all lenders quote you the same rate (APR)? If not, which lender had the lowest APR and what were the
    reasons why?
  2. What were the total finance charges from each lender for a 3-year loan? Also, what was the total difference from the least to the most expensive? For those considering refinancing your vehicle, how much could you save, if anything, by refinancing?

HSFPP Weekly Update website pick of the week:


Probably most of you are familiar with Edmunds' New Cars & Trucks Prices & Reviews and Edmunds' Used Cars & Trucks Prices if you ever bought a vehicle. Their Web site, one of the best commercial sites available, is listed in the student link section of our Web site under the unit on “Car Buying.”

Kentucky High School Financial Planning Website


The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.

Original Document: Tuesday, August 20, 2002

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