The first thing you want to know is what you want to buy BEFORE you ever go out shopping! Let me make this very clear. Car dealer’s jobs are to sell you a car on your very first visit. A salesman/woman and their sales manager believe that if you walk into their dealership and do not leave with a car, you will never come back again. They are going to hammer on you until they either A) Make you mad and you get up and leave or B) Sell you a car. It’s the nature of the beast. Know it and accept it ahead of time. What do you want to buy? Where can you get unbiased information on the auto? http://www.kbb.com and http://www.nadaguides will fetch you cost, warranty repairs, recalls,rebates and information on problems and tons of other related info beforehand.

Limit your shopping to three models. Keep it simple. Those will be the ones that you will shop for. More than three models is too time consuming and complicates your car-buying experience. Keep it simple.

Can you afford the car? You may think you can afford the car, but the bank may think otherwise! I have seen this so many times in my career.

Let me explain automobile economics 101: Take your gross monthly income (what you make per month BEFORE Uncle Sam taxes you) and remember, this income needs to be verifiable with provable-tax returns, check stubs with taxes taken out or a W-2. If you are self-employed, you will need two years of tax returns with Schedule C’s. The schedule C is the income that you actually paid taxes on. Being self-employed can be tough. You may need to combine a spouse’s income if you are self-employed. Now with your gross monthly income figured out, tally up what all of your debts are that you have going out each month. Include everything…it’s listed on your credit bureau’s.

Example: Car note=$450.00 + House note= $560.00 + Credit card debt= $425.00 + Boat note= $310.00 + Charge-offs=$1200.00 (yes, charge-offs; these are bills that you never paid and they were written off). Add all of your debts up. With just your obvious debts (including the charge-offs), you have $1805.00 per month going out. I arrived at that figure by adding up all the monthly notes and taking 5% of the charge-offs. 5% of $1200.00 = $60.00.

We’re not through, though. Now we have to figure in your cost of living=utilities. Each lender has their own algorithm for utilities but a good range to estimate would be to add $300.00. Now we have a total outgo of $2105.00. Next, add your car insurance payment. For this example, let’s use $100.00 per month. This is what you have to have to pay your current bills before you take on any other debt. Almost all lenders will not allow your new car note to exceed 20% of your gross monthly income. For our example, let’s assume that your gross income is $5300.00 per month. To make it easy, take $2205.00 and double it. That would be $4410.00. That would leave you with disposable income of $990.00.

What the lender is looking at here is referred to as ‘debt-to-income’.They want to know if you have more going out than you can handle. This is strictly a case of numbers and provable numbers.

If your gross income was $4500.00 and you had $2105.00 in debts each month, you need to be prepared for one of two things; (1)add your spouse’s income and your spouse to the deal or (2)trade in the other open auto. If your debt-to-income is running too close to 50%, you’re going to have a hard time getting a loan for anything. Make sense? The way the bank looks at it is like this: you can’t afford both cars so they assume that you are going to let the other (older) car go back to the lender=repossession. That’s their take. Debt-to-income is a HUGE deal.

In this case, your disposable leftover income is $990.00. 20% of your gross ($5300.00) would be $1060.00. Whoa! Let me be the first to inform you that you are NOT getting a car payment of $1060.00! Why? Well, you only have $990.00 left over for starters. Let’s be realistic here.

Most lenders will slice that in half which will equal $495.00. Your payment call should be around that figure, give or take a few dollars. How expensive of a car can you buy on a $495.00 payment? Good question and one that you absolutely need to know so that you can pick out the correct car. One answer depends on the term of the loan. You can finance for 36, 48, 60 or 72 months, as a for-instance. That equates to 3 years, 4 years, 5 years and 6 years.

I will tell you this: the worst thing you can do is extend the note out the longest amount of time in order to get the payment where you can afford it. That creates a syndrome that now affects over 75% of car owners called being “Upside Down.” It means that you owe more on your car than it’s worth. It also means that you need more money down when you go to trade it in. The only way around that is a lot of money down or a short-term loan. If you will buy what you can afford and finance for the shortest term possible, you will be in a much better position to trade sooner.

You can again do a Google search for a ‘car loan calculator’. You will then punch in the loan amount you want to borrow, the term (48,60, etc.) and the interest rate. If you have not gotten approved already and know what your interest rate is, you will have to guesstimate.

Here’s a rule of thumb for you-it’s not an exact science without knowing your credit, but it is a guide you can follow to get you close.

Let’s base the rate on your beacon score: that’s what the lenders are going to look at.

If your beacon (credit score) is in the 400 or lower range, you will need to figure your interest rate on a new car at 21% (state maximums differ-it could be 18%). If you are looking at a used car, figure on 33%.

If your beacon score is in the low 500 range, figure your new car loan as you would for the above-mentioned 400 beacon.

If your beacon score is in the mid to high 500-range, figure a new car at 18% and a used car at 27%.

If you have a beacon of 600 to 649, figure a new car at 16% and a used car at 20%.

If you have a beacon score of 650 to 699, figure a new car rate at 12% and a used car rate at 16%. I may be hitting too high on a few of these, but I live in a state that has the highest rates in the nation. Better safe than sorry.

With the car loan calculator, you will basically be backing into the payment. Punch in an amount that you believe you will be financing and then adjust to get it to the payment of $495.00.

In my next article, I will take you by the hand and personally walk you through the steps to get pre-approved online and get the check, negotiating, how to narrow down your three cars in a hurry, what NOT to say or do at the dealership, what to demand before you sign and what to expect once you go into the finance office to sign.

INTRODUCTION

The present threat of suspected entrance of depression is not an event suddenly came about. In the late seventies, some writers had warned the world that national income distribution in both the developed and the developing economies was going on becoming more unequal with their advancement on the path of economic development and growth. They had opined that the increasing inequality, if not controlled, would one day create a strong barrier in the way of economic development and growth. The warning was over looked. Therefore, on account of persisting inequality, greater portion of national income went on concentrating in the hands of a small numbered rich group and the remaining smaller portion was to feed the large numbered general mass.

INCOM DISTRIBUTION INEQUALITY

 The inequality of income distribution became more rigorous in developing economies because the corruption pacing with development process also contributed a lot towards making the income distribution more unequal therein. I remember (Late) Mr. Rajiv Gandhi when as the Prime Minister of India he had accepted that only 20 paisa (one fifth of a rupee) was being actually utilized in government investment out of one released rupee.  

With the passing of time, some from the rich group became economically and politically so sound that they either entered in the policy making group or became capable of influencing the policy makers. Therefore, the economic policies went on being so formulated that the part of national income going into the hands of these rich elites, and their kith and kin went on increasing. Thus, a group of rich elites, being very small in number, emerged in each capitalist developing or developed economy and grabbed a big portion of the fruits of development and growth. The rest of the rich group stayed on back foot and ultimately joined the following middle income group. Moreover, the poverty alleviation move enabled many of the low income group to step up and join the middle income group. Thus the mass of middle income group went on rapidly increasing in number and thereby the middle income group became a dominant consumer group. It became so wide and so dominant that today the word ‘market’ means the market of consumption goods pertaining to the consumption of this middle income group, unless it is otherwise specified.

THE DEVELOPED ECONOMIES

In developed economies, the rich elites (the rich minority) made use of huge funds, accumulated in their hands, in two ways.

(i) They heavily invested in the production of commodities pertaining to the consumption of the vast middle income group. But, the disposable income of this group increased with a lower rate than the growth rate of the production of their consumption items because of the rising inequality of income distribution and a high degree competition among producers to squeeze the purchasing power of this market dominating group. That is why the developed economies came across slackness especially in the market of the consumer goods pertaining to the consumption of middle income group. The developed economies had got the idea of future slackness or depressive trend well in the later eighties when they started insisting the developing economies for coming under the globalization move so that the extra production of developed economies may find market in developing economies. However, this was pointed out by some economists (like in India when there was introduced the new economic policy in July 91 to provide a good thrust to the process of globalization). But the voice of those thinkers was lost in the uproar of the initially increasing foreign exchange receipts. In addition to this, the behest of IMF and World Bank made the governments of developing member countries to neglect this type of criticisms. With the help of globalization the developed economies has been succeeding in keeping the condition of over production averted for last 20 years. But, the recessive tendency has so far become so strengthened that the developing economies, too, instead of saving the developed economies, have but themselves become victim of depression.

(ii) They utilized the remaining funds, though still bulky, in speculation activities both commodity and non-commodity speculation. The funds (liquidity) utilized in non-commodity speculation (like shares, debentures etc.) was mistakenly regarded as investment and, therefore, taken into account as active saving. But, actually this liquidity or, in other words, this portion of the total saving did nothing towards the effective demand in the market. Thence, it is almost the same as inactive saving. Thus, the liquidity utilized in speculation market (especially in share market) was snatched from the hands of middle income group and turned into inactive saving. This amount along with the black money entered not into demand formation whereby total demand in market lagged behind the total supply and, thereby, a condition of over production came about there.

THE DEVELOPING ECONOMIES

As regards to the developing economies, the story of there’s depressive trend ran almost in the similar way but with a slight difference. Inequalities in income distribution prevailed and went on increasing in developing economies also similarly as in developed economies. The difference was that corruption in developing economies was more persistent than in developed economies. The portion of liquidity accumulated on account of corruption was turned into black money. Only a small portion of this black money could be utilized some how to add to demand in market. Its remaining big portion went either to foreign banks as hidden deposits or stealthily invested in foreign companies or, otherwise, remained unused and lying in hidden money chests of rich elites. This however did not contributed to demand in market but this did not even contributed to the productive investment. The persistent lack of capital in developing economies became more rigorous on account of the black money. Therefore, the developing economies were but experiencing inflationary pressure up to the late eighties on account of heavy autonomous (unproductive) investment in welfare and employment schemes (apart from that in infrastructure) by their governments being dependent on foreign aid, World Bank financing, external debts and deficit financing. As the eighties end and the nineties begin the inflationary trend started being converted into depressive trend in the developing economies also on account of the following events.

(i) Various schemes, moves and drives to convert black money into white were launched whereby a considerable part of black money came out, became converted into white money and it added to productive investment. This increased supply in the market. Though employment also was thereby increased to add to the demand but lesser was added to demand than to supply due to highly unequal income distribution in developing economies.

(ii) Under the process of globalization MNCs were allowed to enter in the developing economies. The MNCs made heavy productive investments and thus considerably added to the total supply in the markets but the thereby increased employment could not equally add to the total demand because a considerable part of their production value (revenue) went to their respective mother countries in the form of profits. Moreover these MNCs kept considerable part of their revenue in the form of undistributed profit deposited generally in the foreign banks.

(iii) The expansion of share markets took impetus in developing economies in the middle of nineties on account of some small scams and computerization of stock exchanges. However, a big scam always creates uncertainty in stock exchange activities and therefore harms the share market. But, contrarily, small scams always help increase the stock exchange activities because small scams create more ups and downs in share prices. The share market business or, in other words, the stock exchange activities are actually the non-commodity speculation activities and, therefore, are directly proportional to the rate of change in share prices with respect to both the time and the level of share prices. The expansion of share market attracted huge amounts of funds (liquidity) which could have contributed to investment, production, employment, consumption etc. in the form of active saving.

(iv) The globalization made easy access to the markets of developing economies for depression stricken developed economies. Therefore, the gluts of consumer goods started being dumped into the markets of developing economies. The goods produced in developed economies are of better quality and cheaper (on account of lower production cost) than the goods produced in developing economies. In addition to this, the consumption of the mass of developing economies is highly conspicuous. These two factors attracted the consumers of developing economies towards those dumped goods so much that their home produced consumption goods lost the demand up to a considerable level. However, the flood of Chinese goods in world market in recent years has made a big dent on the dumping activities of the developed economies but it makes no difference to the importing economy whether dumping is done by China or another country. However, the Chinese dumping increased the intensity of depression in developed economies by affecting adversely the demand of their export.

Each of the events discussed above contributed towards increasing the supply but decreasing the demand of consumption goods in the developing economies. The combined effect of these events made a considerable change whereby up to the year 2008 the developing economies also came into the grip of depressive trend in their markets.

PRESENT SITUATION

Whatever the geography, the travelling path, the process and the story of the depression 2008 may be, we should not hesitate to accept now that it has so far become a problem not only of the developed economies but of the whole world. Therefore, all economies of the world should collectively fight against it taking it as the ‘World Mission Depression 2008’.

Leaving all things aside we should recall Lord Keynes and conceive that depression comes about only when saving exceed investment or, in other words, when a portion of total saving remains un-invested and lying in the form of inactive saving. The present depression 2008 also is not an exception. However, all the governments are claiming that they are keeping deficit in their budgets far more than the estimated inactive saving. But, they are mistaking because they are not including the blocked black money, exported black money and the money utilized in speculating activities in their estimation pertaining to the inactive saving. All the three types of money are the liquidities not utilized as investment. Therefore, the world governments, to fight against the depression 2008, should find ways and means to convert these moneys into investment, desirably into autonomous investment in the beginning. However, a considerable portion of black money is too stubborn to be converted. Similar is in case of the money engaged in speculation. Therefore, the governments should take into account the unconverted part of the black money and the money engaged in speculation, as inactive saving while deciding the extent of their budget deficits. As soon as the governments start keeping their budget deficit more than the total inactive saving estimated as suggested above, the process of reflation will start and bring the world economy out of depression.

      _________________________________________________