It seems as if everyone on this planet thinks that dealerships are always up to shady tactics. While most of them are, it’s better that you come prepared to a dealership, rather than not know anything at all, especially when it comes to the financing sector.
I was lucky enough to ask my Uncle, who used to work at a car dealership a few questions involving the financing department, and he was more than happy to share his secrets on financing.
Tips for Dealing with the Finance Guy
I’m hoping that you can take these tips, and save yourself some money.
1) Never EVER tell them your budget
If you’ve walked into a car dealership before, and you were going to get a loan, they probably sat you down, and asked you what you wanted to pay per month for your car.
Well, guess what? When they ask you this question, this is what they are going to gear toward making your loan payments. For example, if you tell them that you want to spend around $250 a month, this is what they want your payment to be. Instead, the right thing to say is, “I’m not sure, we will worry about that later.”
Read more about the 4 square method at Edmunds.
2) ALWAYS shop outside the dealership
The dealerships make a huge deal on financing, and unless they are running a 0% for the life of the loan, you’re going to want to look elsewhere. You’ll have to understand that a dealership gets a huge kick back from other banks, and it can be as high as 10%.
I would advise that you do your shopping online, or if you’re like me, you’ll want to connect with a local credit union. You will find that the major banks generally have some of the worst rates.
Run a car loan calculator to see the total cost of each loan. Make sure to factor in rebates that are only applicable when you take dealer financing – higher interest doesn’t necessarily mean more expensive in the long run!
3) Warranties can be bought outside
A lot of people didn’t know this, but did you know that you can get your extended warranty outside of the dealership? It’s true! If you search places online for extended warranties, you will find that there are plenty of companies that are willing to give you a warranty at the fraction of the cost at a dealership.
If they offer you something like this, tell them no at first, but come back later with a quote, and see if they will match it. While I like a dealership warranty, I will only buy it at the right price.
4) Keep it simple!
The lesson learned here is that you have to come into the dealership with other options. Don’t buy into everything that they are going to offer you, because I can promise you that you’ll find 99% of the things that they are offering online for a discounted price.
Be honest, and tell them that you want to compare, and you’ll be more than happy to come back, and let them match. A good dealership will match, or come close to a competitor’s price.
Good Luck
You’ll find that a salesperson will always be a salesperson that’s aggressive, and wants to make a sale. You’ll have to play the same role. By following these tips alone, you will find that you can save yourself a car load of money!
Hopefully these car finance insider tips provide useful. Do you have any that you would like to share?
I'm MLR. After graduating from college debt free, I decided to write a blog encouraging people to adapt responsible and sensible personal finance rules.
January 25th, 2010 at 8:37 am |
The last car I bought, I bought new and I am pretty sure things went down exactly how you said not to do it. They said how much are you willing to spend, I answered, and magically we got pretty close to that number. The deal was for 0% financing though so I felt a little better about it.
I am now car payment free and trying to figure out how to convince my wife she doesn’t need a new car, well new to her anyway. I guess if I lose out I can at least use this advice to save me a little on the financing. I always heard it is better to check with local credit unions before buying a car because their rates are probably going to be better than anything you can get at the dealership.
Kyle C.´s last blog ..Think Things Through or it Could Cost You
[Reply]
kosmo @ The Casual Observer Reply:
January 25th, 2010 at 8:52 am |
@Kyle C., I fight this battle with my wife sometimes, too :) Our commuter car (which I drive) has 113K miles on it. Hey, just getting broken in. It’s not a piece of crap, either – it looks good and runs good.
kosmo @ The Casual Observer´s last blog ..Bold Predictions for 2010
[Reply]
MyLifeROI Reply:
February 8th, 2010 at 1:26 pm |
@Kyle C.,
Yeah, and know how to do a total cost calculation for the life of the loan.
I was looking for 36 month loans. If I used private financing I would lose out on a $500 rebate. If I used their financing (a full 2% points higher), I would get the rebate.
They tried to just tell me “Well, guess you are going private financing since its lower interest by so much.. right?”
I ran the numbers and the higher interest rate with the rebate made more sense.. and that’s over 36 months. I’m going to pay it off in ~10 months… making it an even better deal.
Never take anything for granted with car sales and financing!
[Reply]
January 25th, 2010 at 11:02 am |
I read somewhere that you should ONLY NEGOTIATE PRICE…like you said don’t get into TERMS discussion..how much a month, interest rate, length of loan..these can get you in trouble…I would add going outside the dealership for financing..stay with price only.
[Reply]
January 25th, 2010 at 12:14 pm |
Good advice, wish I read this before I bought my new car. I didn’t even realize you could finance from an outside service. Since I am younger they gave me a higher interest rate too even if my credit is great which sucked.
Craig´s last blog ..Tonight’s PF Twitter Chat is Canceled
[Reply]
Kosmo @ The Casual Observer Reply:
January 26th, 2010 at 9:45 am |
@Craig, It’s not too late. Chat with your bank. If they’re willing to loan you the money, you could get a loan from them and pay off the balance of the loan with the dealer. It would have been optimal to do this at square 1, but it might still makes sense, esp if you can get a good rate.
I’ve only financed one car through a dealership. It was at 0.9%, which was hard to pass up :)
Kosmo @ The Casual Observer´s last blog ..Bad Baseball Contracts
[Reply]
MyLifeROI Reply:
February 8th, 2010 at 1:27 pm |
@Craig,
What Kosmo said. But make sure there are no early payoff penalties!
[Reply]
January 25th, 2010 at 5:04 pm |
I used to work at car dealerships too. More often than not, customers do reveal what they’re willing to pay for. On another perspective, buyers have very unrealistic expectations with their budget… like, they want a top-of-the-line, late model car on a $200/month budget with little or no down and a 5-year loan. Not gonna happen. Just do the math… 200 x 60 = $12000. No matter how you wring the salesperson or the dealership, they won’t be able to sell you a vehicle that costs $30,000 to $50,000 MSRP.
So I tried to pull the customers back to earth and teach them the simple math. You want to pay $200 a month for 5 years? That’s great. That’s about $12,000, deduct the cost of interest, tax and paperwork then you will probably be within your budget with an $8000 to $10000 car… most likely a pre-owned one.
FYI. I’m no longer in the car business because, as my wife told me, I’m too nice to make money in this business.
arm-and-leg-safe shopper´s last blog ..Healthcare Reform Update
[Reply]
MyLifeROI Reply:
February 8th, 2010 at 1:28 pm |
@arm-and-leg-safe shopper,
Yep. “Get me in that Lexus for $200/mo and I’ll take it!” Not even a tricky salesman will be able to work that… unless it’s a lease with a large lump sum due at signing, I guess.
[Reply]
January 25th, 2010 at 10:59 pm |
To always be prepared, willing and able to get up and walk out of a place. They can’t stand that. I almost feel as though I haven’t gotten the best deal if I don’t do this at least once during the process
[Reply]
MyLifeROI Reply:
February 8th, 2010 at 1:30 pm |
@David/yourfinances101,
I just email every local dealership exactly what car I want. I let them duke it out until I am at or below invoice and then I go in and buy it.
Apparently some dealers won’t play this game. But the bigger ones usually will because they still make money once you count the holdback.
[Reply]
February 11th, 2010 at 8:46 pm |
You are either with these hawks or you’re against them and everywhere they swoop for the kill they will be welcome because the alternative is endorse systemic pillaging, fiscal child rape, etc, sir.
[Reply]
June 10th, 2010 at 4:18 am |
I used to work at car dealerships too. More often than not, customers do reveal what they’re willing to pay for. On another perspective, buyers have very unrealistic expectations with their budget… like, they want a top-of-the-line, late model car on a $200/month budget with little or no down and a 5-year loan. Not gonna happen. Just do the math… 200 x 60 = $12000. No matter how you wring the salesperson or the dealership, they won’t be able to sell you a vehicle that costs $30,000 to $50,000 MSRP.
[Reply]
July 29th, 2010 at 6:04 pm |
Thanks for the info. this site is good and informative and i suggest my friend to visit this site.
Online Finance
[Reply]