Here is the the financial responsibility and consumer credit episode that every young person needs to hear...please share it!
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Hey, folks, welcome to another edition of My Car Guru.
This is an interesting week.
It's the last week of the month at a car dealership, which is a big deal.
You know, I don't know if a lot of businesses really push, well, have as much push as
car dealerships do to hit their numbers, to exceed what their competition is doing,
to beat the other Nissan and Ford dealers in this region.
I like to do it.
I like being in the top three, at least.
There are dealers that are a lot, well, in a lot larger cities than me, but I sell
just about as many cars as they do.
Because so many folks drive here to buy their Fords and Nissan's, which is great.
I love it.
I guess the question that you may be asking yourself right now.
So Lenny, it's a good week for you.
Is it a good week for me?
If I'm in the market for a car, I think it is.
I think there is enough pressure on most car dealers to finish strong, and they're willing
to cut some really close deals.
Well, how do you get them to do it, Lenny?
It's not hard, folks.
Number one, you send me your email address to 423-552-2020.
That is my cell phone number.
Text it to me, or you can email it to me at LennyLawson2020 at gmail.com, and I'll send
you the Kar-Guru guidebook, which is just pretty much guaranteed protection against a
bad car deal.
So if you follow the guidebook, and you use the four targets as instructed in the guidebook,
I don't care if you live in South Africa or Europe, got a couple interesting requests.
Well, they're just fascinating to me for me to get a request for a Kar-Guru guidebook
to England and to South Africa, and where was the other one, let's see, New York
and Oregon.
That was just thrilling for me, for a little old guy in East Tennessee.
A little old guy that, well, pretty good sized old guy that knows a lot about the car business
and how it works from the inside, and so that I can help you, or as we say in East
Tennessee, help you ins on the outside.
The guidebook does that without needing my direct intervention, so send me a request
and you'll get it.
It's free.
It's a great price.
It's a PDF.
If you know what that means, I kind of do.
I typed it all up in a Word document and then turned it into a PDF somehow.
Just click this little button on my computer and then I just keep it stored in this particular
file.
And when somebody requests it, I just drag it and drop it on the email and boom,
there it is, and you've got it.
I just updated it, very critical information about credit and I think it's worthy of a discussion
on this show to kind of reiterate some of the most important points in the guidebook
concerning credit because what do you tell young people in your family about credit?
Do you ever talk about it?
Do you ever share any of the failures that you've had when it comes to credit?
You know, until the last 15 years or so, I have been a great customer of banks, as
I say in the guidebook.
They love to loan me money.
Why do you think that is?
Why do you think banks love to loan Lenny Lawson at times millions of dollars?
Well, it's not just because I'm a nice guy.
I can assure you that.
It is really because I have good collateral, what is collateral?
That's what backs up the loan.
That could be typically hard assets or it could be insurance.
It could be an insurance policy guarantees alone.
I've got several insurance policies tied up in the financing of my building.
Now, they're going to release them here in not too distant future because I'm
asking them to.
But yeah, I have good collateral and another very important thing.
I have a great track record for paying them back for making all my payments on time.
And I learned that habit from my parents, my mom and dad.
That kind of responsibility is often a reflection of how you're raised.
I'm not bragging about it.
I am grateful for it.
But there's a lot of people living in households right now.
You may be listening to this where you weren't raised in a house like that.
Your parents struggled all the time with money.
They overspent or they just didn't have adequate incomes.
And so they struggled with debt and
they struggled with making payments and making them on time.
Maybe they bought too many boats and campers and jet skis and
financed them all the time and of course that's a recipe for disaster.
I'll talk about that here in a minute.
But the good thing about my situation is I don't need banks anymore except for
managing bank accounts and
loaning money to my customers to buy and finance cars.
Really need them for that.
Because if it weren't for banks and credit unions and the captives,
which would be like Ford Motor Credit, GM Financial, Toyota Motor Credit.
If it weren't for all of those institutions,
we wouldn't be able to sell any cars because not many people can pay
cash for cars.
So I have enough personal and business capital that I don't need to
finance my operations like I used to.
One time I had to.
I mean, I had to have a credit line.
I had to live in the credit line and max it out many times and then pay it
down and then max it out again as business would come and go.
It was not fun.
No, there were times back during multiple recessions where I'd go home
and I'd say thank goodness today is over or get to the weekend.
Thank goodness the banks are closed because I don't have to worry about
overdrawing at the bank.
Somehow by Monday, I will find some money.
I mean, it's no way to live and I know that there are people out there
that live that way on a daily basis and you just got to find a way out.
Sometimes you have to do like a guy that's a tenant of mine right now.
He just struggled and struggled and struggled in his business trying to
make it go and finally he just the handwriting on the wall was there
for a long time.
It was shouting at him and finally he just had to acknowledge the fact
that he wasn't going to be able to run this business profitably and he
just kept going in deeper and deeper debt.
So he finally decided to liquidate, lick his wounds and latch onto
another career, which thankfully he has one.
It's all lined up.
He just has to do it.
He has to give up on his dreams and a lot of people just don't want to do that.
They just keep fighting it but it is a great feeling to be financially let's
say liquid enough to not be totally reliant on just got to sell something
today because if I don't, I'm going out of business.
So here are some key principles of personal financial management that I
think you must know and understand because if you follow them eventually they
will provide you with the financial independence that you want.
And this is so important for young people that are getting ready to go
out into the world and they're going to start engaging in financial
transactions.
They're going to start buying things.
They have aspirations.
Sometimes the aspirations, the goals, the things that they want aren't
accessible yet.
Sometimes they rush it and they get in too much debt to acquire all these
toys and then the next thing you know, they can't make all their payments
and they're trying to figure out a way out and typically the way out is
to file for bankruptcy.
And that's a bad way to start for a young person.
I've seen it way too often.
I've never done it myself, got close, but was able to find a way.
So let's talk about some of the principles I think that are so important
to understand.
You know, the foundation of maintaining good credit is establishing
good habits like not spending more than you earn, saving something
for a rainy day.
You know, you may improve your lifestyle with debt but it's also
putting your lifestyle at risk.
And so this is something that you have to avoid if you can.
If you're going into debt, do it for the right reasons.
You know, if you're trying to buy a house or purchase an investment
property, something that's going to, you know, give you a return maybe
for vital needs, emergent needs like transportation or necessary
home maintenance or improvements, that's totally understandable.
You'll have to borrow money, get into a line of credit, a home
equity line of credit or something like that or just go and borrow
money.
You should not go into debt for toys.
I believe that boats, jet skis, campers, swimming pools,
motorcycles side-by-sides, four-wheelers, et cetera.
If you can't pay cash for a toy without draining your savings
account, then save until you can pay at least 50% of the
purchase price.
If you can get 0% financing on a side-by-side or a boat or
something, that's a little different story.
But the debt can really stack up still and you still have
to make monthly payments.
It doesn't matter that it's zero.
If you can't afford it, you can't afford it.
So even with low finance rates, you can find yourself
stretched to the point where you are living paycheck to
paycheck and you're just not able to enjoy what you have
chosen to spend your money on.
I mean, it can be like an anchor around your neck, a
financial anchor, a drain on your enthusiasm.
So we don't want that to happen.
I'll take my first break.
I'll be back and we will continue.
OK, I am back.
We're talking about personal financial responsibility and
trying to get off to the right start.
I don't care where you live.
It's the same thing.
And if you get off to a bad start, it's really hard to
recover because you don't have the income to recover.
So thinking about debt, thinking about getting credit,
everything you do when it comes to credit and the payment
of debt is monitored and tracked by credit bureaus.
I don't know what they're called in other countries, but
in the United States.
That's what they're called.
There's three main credit bureaus.
If you fail to pay a $20 hospital copay and it ends
up getting charged off or written off by the
institution, that will harm your credit.
If you are laid on a car payment, it is recorded
on your credit report.
Here's something a lot of people don't really understand.
If you miss one payment altogether, you have a
payment due for March, and you just don't make the March
payment, but you make the April payment.
And you make all the other subsequent payments on time.
Guess what?
On your credit report, it'll show that you are 30 days
late on every single payment because you never made up
that March payment.
A lot of people have gotten burned by that.
They think, well, we're doing good.
No, you needed to double up and pay that March payment
because that one is haunting you for the rest of the term
and could potentially, well, it's definitely going to harm
your credit because, like I say, you're going to show
late on everything, and when you apply for a car loan,
you either may not be able to get it, or if you get it,
you're going to have to pay a higher interest rate,
just because you missed one payment.
So don't miss one payment.
One of the most important things I did many years ago
was establish a relationship with a loan officer
at a bank or credit union.
You know, those relationships matter a whole lot over time.
And once they get to know you on a first name basis,
it's a whole lot easier to go in and ask for a loan.
Let me tell you how to establish credit.
This is a great model that I created many, many years ago,
and a lot of people have used this to great success.
So open a checking and savings account
at a bank or credit union of your choice.
Strive really hard to build a savings account.
Put as much in there as you can.
I know this may sound lofty,
but try to get to $10,000 in savings
and never get an overdraft on your checking account.
That's very important that you never overdraw
on your checking account.
This is a big problem with people who have debit cards
and don't ever reconcile their account
like we used to when we use checkbooks.
Strive to keep at least one month worth of expenses
in your checking account at all times.
So let's say that you do a lot of saving a year from now,
you got $10,000 in savings,
and you've got one month's worth of expenses
in your checking account.
Think about the freedom that that gives you.
I guess the certain degree of relief.
Okay, I've got this, I'm gonna fall back on,
but you can't relax, you gotta keep going.
Now these two behaviors will be noticed
by the banking representative,
and they'll lead to more favorable loan terms
when you decide to buy and finance something.
Once you hit $5,000 in savings,
now this is before you get to 10,
once you get 5,000, buy a CD,
a certificate of deposit.
Don't leave it in a low interest savings account
so that you can earn more interest on your money.
And then every time you add another 5,000,
buy another CD.
Banks like to see people do this.
This shows that you're a little bit more savvy
than the average saver.
Now, once you have your banking strategy working,
it's time to establish credit.
You go to the bank officer, who knows you by now,
and you borrow $5,000.
You use your CD, your $5,000 CD as collateral
for the $5,000 loan.
Why don't we wanna borrow 5,000?
Because you're trying to establish credit.
Once you have the 5,000 in borrowed funds,
open a separate account and put the 5,000 in it.
Have the bank draft the monthly payments out of that account.
Add enough money to that account to cover the interest,
otherwise you'll overdraft on that account at some point.
But when the loan is paid off,
your credit report will show
that you borrowed $5,000 for a year and you paid it off.
You paid every payment on time
because the bank was drafting
the monthly payments out of it.
Your credit score will jump significantly.
Next time, borrow $10,000,
once you can cover it with your CD, that is,
and follow the same process.
Put it in the bank, your credit score will jump even more.
At this point, you will probably be able to walk into
any new car dealership and get a car loan on a car
at a good interest rate
due to your great payment history
on a special type of loan.
What kind of loan is it?
It's an installment loan.
It's not revolving credit.
That's what credit card debt is called.
Revolving credit.
That doesn't help you that much.
It hurts you.
What you want is installment credit
because that shows discipline.
That shows that you know how to make a monthly payment.
Now debit cards are fine
if you carry a reasonable balance
in your checking account at all times.
Otherwise, they can get you in trouble.
I personally prefer credit cards,
but never more than one or two at a time.
Whenever a merchant offers you a bigger discount,
if you open a credit card, which they do all the time,
say no, I don't want it.
Yeah, but it gets 20% off.
It doesn't matter.
Once you've got that extra credit card,
you're gonna get a ding on your credit report.
You don't want those credit cards,
even if it does save you 20 bucks
on a pair of lucky blue jeans.
You don't need it.
Never charge more on a credit card
than you can pay off when you get the monthly statement.
You never carry a balance on a credit card.
I know you have to right now.
And the reason is because you don't have any money
and you're living paycheck to paycheck
and you've not got a saving strategy
and you've not developed a household budget
that allows you to save money as a priority.
Saving money should be like a monthly bill that you have.
You automatically pull it out of your check,
get it sent to the credit union,
or you take it to the bank
and you deposit $100 or $200 or $500 out of every check.
And then the next thing you know you look up
and you've got, if you're doing 500 a month,
you've got $6,000 in the bank at the end of the year.
That's a good feeling.
But yeah, credit card companies charge
very high interest rates
and they only kick in though
when you carry a balance forward.
Otherwise, the merchants are paying the credit card fees.
You're not paying anything.
When you charge something at a merchant,
they pay credit card fees.
You don't.
But you start paying very high interest rate
if you carry a balance forward
and you just don't wanna do that.
It hurts your credit.
Okay, we'll talk about car loans here in just one minute.
Okay, I'm back again
and we wanna talk about car loans here for just a second.
The interest rates are set at the bank or credit union,
but some banks allow car dealers
to mark up the rate up to 2%
under something called an indirect lending agreement.
So if you go to a credit union and borrow money for a car,
if you go to a dealership
that also has an indirect lending relationship
with that credit union, you'll get the same rate.
They won't mark up that rate.
But there are some banks,
usually big national banks that allow dealers
to mark up the interest rate
and boy, that can make a huge difference
in your monthly payment.
It definitely makes a lot of difference
to the dealership that does that.
Just make sure that whatever rates you're paying
that it's competitive with the rates that you could get
if you went directly to the bank or the credit union.
I'd even ask the dealer if they're marking up the rate.
They'll look at you and say, why do you ask that?
Oh, what do you mean?
Yeah, what's your buy rate with this bank?
If you say that,
they'll know you're a savvy customer
and they'll know that they dare not mark up the rate.
Okay, banks look at three attributes
when it comes to loan decisions.
This is very important.
I know I'm going kind of fast,
but capacity, capital and character.
Do you have the income required
to service all of your existing expenses
and pay the loan payments?
That's capacity.
Do you have the assets to back up the loan?
That's capital.
And then finally, what kind of person are you?
This third attribute can be very subjective,
but it has a lot to do with your reputation
from the credit references that you give them
and the credit bureau reports.
So when they look at that, I mean, it tells the story.
It says what your behavior is like
and it may not look good.
And one final point is,
and I'll have to cover a few more next time,
but interest rate, a lot of people
don't really understand what it is.
They think it's just some arbitrary number.
It's a measure of risk.
If a person has a very poor record of paying debt,
they can stoop our money,
but the sources for the funds
are going to be very expensive.
It could be like 25 to 50%, these check cashing places.
I mean, it could be a couple hundred percent
that they charge.
I know it's terrible,
but the terms will be harsh on those loans.
But if a person is on the other end of the scale,
they're going to get very good rates.
At or below the standard rates
paid by the bank's best customers.
That's often called prime rate.
You may have heard that before,
but this is what the very best customers of the bank
can borrow money for.
Sometimes they can borrow a little under prime
if the bank really wants to keep their business.
But if you have marginal credit,
maybe a score of 6.30 to 6.80,
you're going to pay higher rates
than prime rate qualifiers.
It's just a fact of the matter.
And then finally, there is no such thing
as zero percent financing folks.
In the car business, you have to give up
most or all of the available factor rebates
in order to get zero percent.
So there is a trade-off and it's very important
for you to look at multiple scenarios
if you're trying to buy a new car
and they give you a choice of a $4,000 rebate
or zero percent financing for 60 months,
have them quote payments both ways
to see what the payments end up being.
And keep in mind, if you give up the rebate
and take the low rate
and typically trade every two or three years,
that could be a bad move.
It could take paying four years at zero percent
to make up for losing the $4,000 rebate
that you would have gotten right off the top of the price.
So again, it's math, either you do it
or have the finance manager and the dealership do it.
And then you'll know which way to go.
So the good news is,
you don't have to remember all this.
Just send me an email to Lenny Lawson 2020 at gmail.com
or a text message to 423-552-2020
say I want the guidebook
and include your email address
and I'll send it to you almost immediately
and it's free.
So you can also text me anytime about any kind of issue
and people do all the time
about issues that they're having with their car,
questions about whether to proceed
with a certain type of repair or trade the vehicle.
You know, I just can't give you,
I can't begin to tell you all the different scenarios
that I get to deal with every week
just from this podcast slash radio program.
But it's a blessing to me
because it gives me the opportunity to bless you.
Thanks for listening and I'll see you next time.
Thank you.
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