After having put off car purchases for years due to the recession, Americans are returning to dealer showrooms. Car sales are up over 7% in the past year, but knowing dealer secrets can mean the difference between getting a great deal and getting soaked.
Buying a car is not a single transaction
When you enter a dealer showroom you’re about to embark on several transactions, not just one. They include purchasing a car, purchasing a loan, selling your old car, and purchasing extras like extended warranties and upgrades.
An effective car dealer will quickly determine which transaction you’re paying the most attention to. Concerned about paying the lowest price for your new car? The dealer may be more than happy to oblige, but you better believe you’ll get soaked with a high interest rate loan and may get practically nothing for your trade-in.
Don’t develop tunnel vision. Pay attention to all aspects of the car buying experience.
Everything will be used against you
I hate the small talk car dealers strike up as you test drive a car. Truth be told, they’re not interested in you, but in obtaining as much information as possible to use in negotiations. How much money do you have to spend, what’s your motivation, and who really makes the purchasing decisions in the family are what they are trying to determine.
Keep the conversation simple. You don’t need to tell your salesperson what you do for a living or exactly why you’re buying a new car.
Monthly payments are fool’s gold
Focusing on the monthly payment is a salesperson’s greatest weapon. Any car can be sold for a great low monthly payment. It just may take you seven years and several thousand dollars in interest charges to do it. Your best bet, focus on the total price of the car, not the monthly payments.
Watch out for dealer arranged loans
The finance manager tells you he can get you a great interest rate on your auto loan. What he doesn’t tell you is that you’ll almost always get a better rate if you shop for a loan before you step on the dealer lot.
You see the finance manager has a little secret. Auto dealers receive a “kick-back” from the the bank or finance company that provides you with the loan.
Let’s say, for example, that your credit history qualifies you for a 5% interest rate. Your friendly finance manager is allowed to add as much as 2% to the loan cost. You get a 7% interest rate, when in reality you could have paid only 5%. The dealer pockets the difference. This can cost you a thousand dollars or more over the life of the loan.
Worse yet, the dealer often packs the loan with overpriced and unneeded add-ons like credit insurance and extended warranties.
Don’t fall into the trap. Shop around and secure an auto loan from a bank or your credit union before you go car shopping.
Don’t be a yo-yo
According to the Center for Responsible Lending, 1 in 4 buyers with incomes less than $25,000 falls victim to the “yo-yo” scam.
The dealer tells you that he can get you a rate lower than your credit union, but that he’ll have to take care of the paperwork. In the meantime you’re allowed to take the car home.
Days later the dealer calls to inform you that “the great loan fell through.” You’ll be asked to return to the dealership to “work it out,” meaning you’ll be forced to pay a much higher interest rate. And of course you won’t be able to back out of the deal because your trade-in has already been “sold.”
Your best bet, never walk out the dealership without finalizing the financing.
With the right knowledge, you can beat car dealers at their own game, saving thousands of dollars in the process.
BMWK, what car buying advice do you have for prospective buyers? What tricks or traps have you encountered?