The single most important thing you can do to ensure you get the best financing deal for your new car is to ask questions. Lots of questions.
Once you understand the basics of car financing, write out your questions before going to the dealer or the bank.
Here are some key ones that are “must ask” questions. And to make sure you get the best deal and don’t get ripped off, make sure you get answers and that you fully understand them:
What’s the interest rate I’m really paying?
The APR (annual percentage rate) is the best way to know what interest you are paying. It is the actual interest rate you pay annually on the unpaid balance of the loan. The rate you are offered will to a large extent depend on your credit score, a number that dealers get from your credit report.
Are there any possible penalties in my loan?
Does paying the loan off early entail penalties? Are there any other possible extra charges that could occur during the term of my loan? Are there “hidden charges,” which are effectively penalties.
What the best thing to do with my old vehicle?
The market, not what you think the vehicle is worth, will set the value of your transportation, be it a trade-in or a private sale. Conventional wisdom says don’t talk about trade-in price until you have settled on a price for the new car. The trade in is part of the dealing process; don’t fail to use it to maximum value. The dealer may offer you a good price, but then get some of his money back on your new vehicle financing. Make sure you see where your trade-in money is being applied to the financing, otherwise, some, most, or even all of it, might never go to making your new car payments lower.
You’ll usually get more selling privately, but it can be more of a hassle. Do the same research you’ll do for your new car — plus check local used auto classifieds — to find out your best asking price.
How much is that car?
You know not everyone pays sticker price. One way to get the best buy is to
know how to haggle the price down. Dealers may be willing to bargain on their profit margin, often between 10 and 20 percent. Usually, this is the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price.
Research your prospective buy — new or used — and compare it to others. Arriving at a dealership aware of the price of the car you want to buy is a major advantage. Some sites that offer pricing as well as other information are
Kelley Blue Book,NADA, and
What about the deposit?
Before you give anyone a deposit on a vehicle, be sure you know whether can you get it back if you change your mind — or is it gone forever? Get the salesman’s answer in writing before you hand any money over.
Should I buy a “service contract”?
Read the contract from top to bottom then look at everything covered by warranties and insurance policies. Is there a good chance the service contract will be needed? Does it cover some unlikely occurrences that would cost the earth or everyday occurrences that shouldn’t cost too much anyway? Your call.
Also, be sure you know the answers to this six-pack of questions before you say yes to the financing:
What is the …
- precise (down to the penny) price I’m paying for the vehicle?
- total amount (be exact) being financed?
- amount I’m paying for the credit (finance charge)?
- annual percentage rate (APR) I’m paying?
- exact amount of each payment?
- total number of payments?
Can I bring it back if I don’t like the car, or the deal?
Once a new car is bought, it’s bought. You can’t take it back (unless the dealer is a surprisingly nice person). There are some dealers who do say they’ll take it back. It’s a huge plus — but make sure you get it in writing before you sign and drive away.
What about credit insurance?
Your lender may offer, or even demand, credit insurance. First, find out exactly what it will cost you. If you have an existing insurance policy that covers the same thing, make a thorough comparison. It’s not required by federal law, and check your state’s requirement (through the office of your attorney general or insurance commissioner) if your lender requires it. If you must pay, make sure it is included in the cost of your credit and see where it is reflected in the APR you are paying.
Golden rule of auto financing
Go prepared. Uncertainty is your enemy, and salespeople are experienced at recognizing and using it.
— Posted: March 3, 2001