Bankrate has a calculator that simplifies the comparison. Manufacturers' low-interest car financing isn't available to everyone, so it will help to know your credit score before talking to a finance manager. "Your credit must be very good to get the low-interest financing," Reed says.
4. Rolling negative equity forward. "Upside down" is the term used to describe owing more on your car than it is worth. The difference is "negative equity." When a dealer tells an upside-down consumer that he can fold that negative equity into the car financing of the next deal, he means that he will add it to the purchase price of the new car.
You will be paying interest on that negative equity for the term of the new loan. Moreover, if you were upside down on your last trade-in, chances are you will be that much more upside down next time. "It's a horrible practice and should be avoided," Reed says. "They are just making the problem worse. It's because people are buying more car than they can afford. Live within your means!"
5. Financing the cost of add-ons that you can buy separately. According to "2009 F&I Statistics"published by Torrance, Calif.-based F&I Management and Technology magazine, nearly 29 percent of the average gross profits earned in new- and used-car sales departments were generated in the F&I, or finance and insurance, office through aftermarket add-ons.
"Just say no" is good advice. "They are really there to make extra profit for the dealership by increasing interest rates, and selling extended warranties and add-ons such as fabric protection and paint sealant," Reed says.
Even if you want an extended warranty or credit life insurance, these items are available at a lower cost from sources outside the dealership. Folding them into your car loan and paying interest on them for the life of the loan can add hundreds of dollars to the amount you pay. Further, question every fee you don't understand.
"Dealers can write other fees into the contract and give them official-sounding names," Reed says. "These fees are another attempt to take profit on the back end of the deal when the buyer's guard is down."
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