F&I office: Business -- or monkey business?

It's time to stay focused, examine the contract and avoid these mistakes:

Buying into dealer financing: Some dealers may imply that you have to work through their finance department. You don't. If you can obtain better terms elsewhere, there's no reason you shouldn't.

Not reading the contract: It sounds basic, and it is. Even so, many people fail to do it. "Most people spend more time analyzing a watermelon in the grocery store than they do reviewing a contract for a $30,000 car," says Jeff Ostroff of ConsumerNet Inc., the Fort Lauderdale-based firm that publishes carbuyingtips.com. Tired of negotiating, many assume the written contract will reflect all the negotiations that already have occurred. That's not always the case.

"In the dealership, you need to understand everything you sign on the contract," says Mark McCready, director of pricing strategies with carsdirect.com, Los Angeles.

Mistaking a lease for a purchase: An unscrupulous car dealer may slip a "lease to own" contract in front of you when you think you're buying a car. That may be how the monthly payment got so low. Many lease contracts are lease-to-own agreements, but that's not the same as buying the car. With a lease, you're paying the amount that the car is depreciating. To purchase the car at the end of the lease term, you may have to make a large balloon payment or refinance.

Failing to research extended warranties: Extended warranties (aka, service contracts) kick in once the warranty that comes with a new car expires. For some drivers, it makes sense to know they're protected if anything goes wrong. Before purchasing an extended warranty, however, keep these pointers in mind:

Purchasing insurance you don't want: Finance managers often push for you to buy insurance policies, such as gap insurance. This pays you if your car is stolen or totaled, and you owe more than it is worth. Say your car is totaled and you owe $15,000, but your auto insurance company will pay you only its current value of $10,000. You'd be responsible for the $5,000 to pay off the loan. Gap insurance would cover that difference.

In some situations, this makes sense. In others, it's a waste of hard-earned cash. Sometimes your regular auto insurance policy already includes this coverage. Crunch the numbers before you enter the F&I office.

Another type of insurance, credit life insurance, will repay the balance of your loan should you die before it's paid off. Again, you'll need to logically think through your financial situation to see if this makes sense for you.

Agreeing to front-load the interest: Some car loans will require you to pay all the interest upfront, meaning you'll be hit with extra interest charges if you prepay the loan. Make sure your loan has straight amortization, advises Rosenberg of taxmama.com. That way, your payments will cover the principal as well as the interest.

Paying for extras you don't want: A dealer may throw into the car purchase agreement any number of extra products, such as fabric protection, pinstriping, undercoating and VIN etching. "They're ridiculous," says Reed of Edmunds.com. Most car shoppers can apply their own fabric protection for hundreds less than the dealer will charge, and all cars are undercoated at the factory. VIN etching refers to the practice of etching the car's vehicle identification number (VIN) into different parts of the car, such as the window. Most industry experts say it doesn't offer much protection against thieves, but if you want this, you can spend about $20 and 20 minutes etching your car yourself, says Ostroff of carbuyingtips.com. Dealers may charge several hundred dollars.

Trading in a car you haven't paid off: Trading in a car on which you still owe money can be dangerous for several reasons. First, your pocketbook will take a hit, as you may still be paying off your old car, even as you're paying on the new car you're leasing or purchasing. Also, you'll be spreading that existing balance -- and paying interest on it -- over the life of the new loan instead the few months you had left on the old loan.

What's more, a few dealers have used this technique to scam customers, explains Ostroff, by not paying off the balance on your trade-in. When customers eventually hear from the bank about the delinquent payments, the finance managers offer to pay off some of the balance, but try to shift the remainder back to the customer. "It's another way for them to squeeze a few more payments from you," says Ostroff.

To avoid this, make sure you obtain an agreement in writing that says the dealership will completely pay off your old loan within 10 days of the date of the agreement, he recommends.

Failing to prepare: Preparation and stamina can help you navigate the negotiation process with the finance manager. Do your homework. Know your credit score, know what interest rate you should qualify for; know what the cars you like are going for; and know what extras you will and won't pay for. Make sure your contract reflects your wishes. Then, remain on your toes when you get to the finance manager's office.

"It's like a chess match, "says Ostroff. "You want to think ahead about what they are going to say. Then you want to figure out how to debunk it."

Karen M. Kroll is a freelance writer in Minnesota.