Car Financing Strategies, Part 1 (Jeff Burch, Money Book)
To get a great deal on a new or used car, you have to do more than just twist the dealer into giving you a great price. You also must haggle and bargain for best terms and interest rate for your new car loan. Usually, car dealerships will give in to your tactics to lower the price of car, but will launch a full-scale assault when it comes to car financing. That is because a dealership makes most of their money on car financing.
To be fair, it is the goal of any good business to make money, and that is what a good dealership should do. Furthermore, a dealership has a full arsenal of schemes and tricks to get the job done. However, it is the right of any consumer to research and gain knowledge in order to get the best deal possible. With a little insight, you can fine-tune yourself into a consumer who knows his way around a dealership and guard against dealer traps.
According to www.edmunds.com, in the United States the average car deal consists of:
■ Down payment of $2,400
■ Amount financed $24,864
■ Monthly payment of $479.
The most popular loan term is 6-years. Nowadays, you can finance up to 100% of the manufacturer's suggested retail price, plus taxes, tags and fees. Even if you are "upside down" on your old car loan (you still owe money after the trade-in), it's no longer a deal breaker.
However, car loans can vary from 0% to as high as 30%. Therefore, it is extremely important to know that dealers put their most gifted, brightest and toughest closers in the finance/insurance office. This is the place where you are shown offers for extended warranties and other add-ons, including tons of paperwork that can exhaust you to the point of giving in.
The following strategies will help prevent you from being “taken for a ride” in a dealer's finance office.
Strategy #1: To begin with, arrange financing first from an outside source. A good place to start looking for a car loan is through local credit unions, which mostly, have the lowest interest rates. If you don’t belong to a credit union already, join one fast. Car loans are only one of many benefits of belonging to a credit union. All military personnel can belong to a credit union.
To find credit unions in your area, call the Credit Union National Association (CUNA) at 800-358-5710 or visit www.cuna.org.
Once you find a few credit unions, call them over the phone; compare their loan rates with other institutions offering car loans, such as local banks, thrifts, savings-and-loan, etc.
Once you have your financing in place, start your search for the car you want, but do not tell the salesperson that you already have your car loan secured, until you have the car's price in writing.
Danger: Not researching the best terms and financing before purchasing a car, and assuming that dealers offer the best deal when it comes to financing a car loan, to which, consumers later learn to their angst of longer and higher payments.
Lesson: Dealers are just “middlemen” when it comes to car financing between you and car lending institution. Dealers typically try to finance your car at a higher interest rate set by their source, so they can increase their profit margin.
Example: If you qualify for a 6% rate, but the dealer charges 8% on a 60-month, $20,000 car loan, you pay over $1,100 more in interest (extra profit for the dealer).
Auto Loan Calculator: Use calculator to check interest rates to see how much car you can afford at: www.bankrate.com/calculators/auto/auto-loan-calculator.aspx
WARNING: Do not forget to include auto insurance payments, especially, when considering how high a price you want to pay for a car.
This series of articles on Car Financing Strategies from Jeff Burch's Money Book will continue tomorrow.