Congratulations! Now you have decided on the best vehicle for you and your family, and are about go into the finance office to sign papers…
Some Thoughts for Preparation
If the salesman hasn’t found out what payment you would be comfortable with yet, believe that they will want to find out as soon as you start talking to the finance officer. Let’s think about this first…Why would they want to talk payment with you now? Haven’t you already decided on a final price, and shouldn’t the payment work itself out anyway? The reality is that they want to know the highest payment you would be comfortable with, so that they can sell you extra things, and work them all into the payment, so you will be pleasantly surprised that your payment can come with all those extra items! That way, you can finance a few extra thousand dollars of extras, and it will only work out to be about an extra $60 per month or so. You need to not start spouting off numbers. You need to just say something like, “What is the interest rate? The payment will be what it is going to be.” This is where you need to do your homework, and find out what payment it should be, based on the financed amount, and the expected interest rate. Not everything is a bad deal that they sell you, but you should know what the prices should be, and prepare yourself to not just be sold something without knowing much about it, or buying on impulse. Make your money work the way you want it to.
You should know before you go into the office, what your credit is like, and what rates you would likely qualify for. Your local credit unions would probably have published rates based on a certain credit score, as well as a stipulation for the year and miles of the vehicle. Even some banks will publish a rate, or tell you if you call them. You don’t really need to feel obligated to talk with a banker directly for the car loan, because most of the time, car dealers can get you a better rate at the local bank than you can get yourself, unless you have a personal connection with a loan officer at a bank. The main reason I am including this general information is to say that some car dealers will get a certain rate from a bank or lending institution, as a rate given to them, and then mark up the rate for you. That way, they make profit on the loan as well, not just the price of the car! Let’s say you have marginal credit, and a bank will respond to the loan request and give them a buy rate (their dealer rate) at 9.5% APR interest. The dealer might turn around and quote 11.5% or 12% to you, making the extra 2% + from the interest. You need to be informed about the rate.
I am not going to tell you that certain extended warranties are good or bad. Some are good, and some are probably a rip-off. You should check with friends or family that have had experience with used- or new-car extended warranties before you go to the dealership. Find out if anyone had any experience with certain warranties. If you find one that seems reputable, and you don’t want to have to have to save up lots of money for expected maintenance repairs, it might be a good idea for you to pay the upfront fee for the warranty. But, you need to know that there can be HUGE markup in these warranties, and they ARE negotiable. A lot of people don’t ask for a discount on these. You might be able to get $500 or more knocked off of the price. Sometimes, on the bigger packages, the dealer might mark it up $1000-1500 or more from cost! Just try your best to research the PUBLISHED price to the dealer before you agree on a package or price. They will try to just quote you a price from some “list”, but you should ask to see an advertised price on their computer screen if possible, so they can’t just read off a price to you. Think of the endless profit possibilities there!
There are other items that should be thought about before the signing…
Gap Insurance– They will try to sell you “Gap” if you are financing a big purchase. Gap insurance is designed to cover the rest of your loan if you owe more than the vehicle is worth in the event that your vehicle is totaled. Gap insurance will pay off your balance of the loan, if the insured amount isn’t enough. You should check with your insurance company or agent, on the cost that they charge per month. Sometimes it is only about $8-15 per month extra with your car insurance policy. The dealer sometimes wants to charge $400-600 (one time charge) or so for Gap insurance. It would be really smart to check with your insurance agent first, and maybe get it from them.
Tire warranties– Most of these are designed to provide coverage for if a tire malfunctions or blows out. If you are buying a used vehicle, and need to probably replace your tires soon anyway, you can buy your tires at an establishment that warranties for those things as included in the tire purchase. You wouldn’t need the extra warranty from the dealership in that case. Some of the warranties are hard to file claims with as well.
Life/Accidental Death/Dismemberment, Etc.– These things are designed to help you make your payments in the event of you either losing your job, becoming unable to work, giving you payments in case of the loss of a limb, paying off your car in the event of your death, etc. If you have a great life insurance benefit through your work, or that you purchased elsewhere, this might be unnecessary to you. Just make sure that you get all the information, and you might read the exclusions to some of the policies. They might not benefit you in the way you think they will or should.
And finally…Undercoating/Vehicle Interior Treatment– Just to let you know, vehicles normally have a corrosion warranty that lasts for quite some time. That is designed to protect you in the case that a frame starts rusting through, or the body starts rusting out, or something terrible like that. Some of the undercoating that dealerships use is pretty good, but you need to decide if it is worth it to you to pay a lot of extra money to get it done. Some of the package treatment options can range upwards of $1000 dollars or more. The interior treatment might help you with some stains, but again, you might think if it is worth the extra money. Especially if you buy a new car, they will try to talk you into it as a “protection of your investment”. Well, I don’t know that a new car is totally an investment. You wouldn’t put your investment money into something that always is guaranteed to depreciate, would you?
I hope that some of these tips help you in your car buying experience. Let me know if you need any more help in your quest for a new or used car. I would love to help people more, especially if they have specific situations they need help with.