Are you car shopping? If so, you’ve probably seen a lot of offers from car dealers in your area. If you’re looking for the best deal, knowledge is power. Knowing about financing and other dealer costs can help you avoid paying too much. Here are some of the top things car dealers don’t want you to know.
1) Dealerships get rewards for financing through certain lenders.
Everyone loves loyalty rewards, and car dealers are no exception. The dealer’s finance department sends your credit history, as well as the price and actual value of the car, to different lenders. Each of those lenders is competing—but not to get you the best deal. They’re competing to get the dealer’s business. So the dealer will naturally pick the lender that gives them the best incentive, regardless of whether the deal’s best for you or not.
This is why it’s a great idea for you to secure your own financing through your financial institution. That way, you can shop around in advance for rates that’ll benefit you, not a dealer.
2) Dealerships don’t want you to have your own financing.
Dealers don’t just sell cars, they sell your business to lenders for a profit. They’re counting on making money on your loan. But you can take steps to avoid paying more than you should. It’s smart to shop ahead by looking up the kind of car you want on a site like Autoland, where you can compare prices. Once you know about how much your car will cost, you can work on getting outside financing.
Talk about your plans and the kind of car you want with your financial institution. Find out what kind of rates they have. This is especially important if you’re a first-time car buyer looking to build credit, or a student who needs parents to co-sign on a loan. Once you know what rates you can get at an outside lender, you can negotiate for the best deal possible with the car dealer. Only after you are satisfied with the terms of the deal should you tell the dealer you have outside financing.
3) Dealerships use bait-and-switch low rate offers to make money.
You’ve probably seen dealerships offering 0% financing on certain cars. How do they make money off that kind of deal? By using that low rate to lure more people onto the lot. Once prospective buyers fall in love with a car and fill out their paperwork, not all of them will qualify for that 0% rate. Dealers count on the volume of cars sold to balance out any loss they might take on those who claim the 0% rate.
Don’t fall for flashy deals. Know your credit score and what kind of rates you qualify for at your financial institution before you visit the dealer.
4) You don’t have to buy GAP insurance through the dealer.
GAP (guaranteed asset protection) insurance protects you against having to pay out your loan balance if your car is stolen or totaled. Some dealers require you to buy GAP insurance if you finance through the dealer.
This is another case where dealers stand to make some money off your financing deal. Dealers often have arrangements with insurance agencies to include GAP policies in their financing package. They’re counting on you not to ask questions or to shop for a better deal. However, your financial institution may offer a better deal on the insurance.
5) You don’t have to agree to last-minute financing charges.
After a long, exhausting day of sales patter and test drives, you’re ready to buy. This is when dealers try to make as much money from you as they can. Often, by now, the license plates are off your old car and the pressure is on you to sign. Now that you’re tired and in the sales manager’s office, some dealers try to tack on extra charges.
This is actually the best time to walk away and get a second opinion. If you haven’t already been pre-approved by your financial institution for a car loan, now’s your chance. Tell the dealer you need some time to think about it and ask them to put their offer down in writing on an offer sheet. That way, if you can get a better deal on financing, you can come back with the offer sheet and a cashier’s check. Chances are the dealer won’t turn down your check even if it means it costs them the extra money they’d have earned on the financing deal.
Buying a car is a big commitment, and you don’t want to go into it unprepared. We can make it easier on you! As a credit union, we don’t have to answer to stockholders, so we can help members finance a new or used car purchase without profits driving the deal. And we can even help you find the perfect car for you, thanks to our partnership with Autoland. Our new AutoSMART partnership can help you find a car at a dealer in your area. If you’re a first time buyer or a student who needs parents’ help to buy a car, ask about our First-Time Buyer and Parent-Assist Car Buyer programs.
This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation.
