12 CAR DEALER FINANCE TRICKS TO AVOID.

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So you’re thinking about buying the car of your dreams, and in that quest, you are looking for different financing options you can use. While most car dealers will be super friendly and accommodating, you need to understand that for them, selling a car is a business transaction, and they will find ways through which they can successfully generate a profit.

To achieve these objectives, they will employ multiple strategies outlined below that you will need to be wary of.

1. The Illusion That Your Credit Score Is Not Excellent.

Most dealers might make statements that your credit score is not as good to get your desired level of financing and payback schedule. While not every dealer does this, some can, and therefore it is imperative for you first fully to understand your credit score and eligibility.

Knowing exactly where you stand in terms of credit is helpful because then the likelihood of getting in a more expensive or unfeasible payment plan decreases.

2. Marketing Baits

If you’re surfing the internet for car deals then I would advise you not to take every crazy deal you see there seriously. Most car dealers use the bait practice to advertise a vehicle at a fantastic cheap price only to let you know that the product has been sold out. Still, they also conveniently place another similar car or another similar bunch of cars at a “slightly” higher price.

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This practice gets you out of the home and in front of the dealer, and they can use their marketing tactics to put you on the spot and encourage you to make a decision.

3. Dealer Added Options

Another financing trick that most dealers use is adding in a dealer option where the advertised car will be there but it will have something additional that will add up to the price. These options can be things like a sunroof or a spoiler, or another safety feature that is not technically required, but the dealer will make you feel like this is a better deal than advertised.

The trick these dealers usually use is by breaking down the additional amount you will be paying. Suppose a sunroof they would give you a monthly cost quote instead of an annual cost quote so, while the sunroof’s annual cost would be $1200 the monthly cost would be $100 per month, which seems like a steal price. Even if you don’t use the sunroof, you would be inclined to purchase because, with a small amount of $100, you can give your car a more classy feel or vibe.

4. Negotiation On Monthly Payments

There is a common adage for financing because the quicker you get done with a loan, the better. Most purchasers make a standard error because they negotiate in terms of the monthly payments and fail to deal on the loan tenure. If you make negotiations in terms of the monthly payments, then the dealer will stretch them out to a longer period, and as a result, you will pay more than you would have normally paid because the interest payments will pile up.

When you stretch out the loan payment tenure, you undertake the dealer makes a large amount of money only from the interest payments.

5. Avoid Showing Your Hand

A common question that any dealer will ask you is your budget to show you the options in that particular segment. The best way to deal with these questions is to avoid giving a monetary value to the dealer, as the dealer might quote you a higher price to mint more money off you.

If you’ve already secured third-party financing and let the dealer know about this beforehand, they might increase the price to cover the amount they would not make to finance your loan. If you get financing from the dealership itself, they might offer you additional discounts or an even sweeter deal simply because they will eventually cover up the amount.

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It’s better to explicitly define your range or spendable income towards the end of the deal. Dealers can also offer sweet deals and make up for the loss on the back end is by making a higher interest rate or a higher premium.

6. Money Factor

One trick insurers use is by using the money factor for their calculations. Most buyers are not aware of the money factor rule only because it goes towards the finance end and seems to be too complex and unnecessary to be in common knowledge.

However, the money factor is not as complex as you would usually think it would be. It’s a simple decimal figure that is used to calculate the APR. Ask to see the money factor and multiply it by 2400 to get the interest rate. If you get a higher rate than the market rate, you have grounds to run negotiations.

7. Spot Delivery Offers

Some dealers might extend a spot delivery option to someone buying a car as a sign of goodwill. However, it is better if you politely decline the offer until the deal is finalized, as this situation is commonly used as a tactic to deceive buyers and cause them to make the purchase.

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If your dealer offers to make a spot delivery, it is best not to take him up on the offer and first satisfy yourself with the role before proceeding elsewhere.

8. Know The Dealer Car Purchase Price

The price on the top of the car is the price suggested by the manufacturer and most dealers will try to get you to negotiate and run a bargain on the basis of that price. The smart thing is to ask the invoice amount and work yourself up from that price.

Working upwards instead of downwards helps you effectively identify the investor’s cushion and places you in a better bargaining position overall. If you’re a careful buyer, you should take some time before deciding and not give in to the dealer’s artificially created sense of urgency.

9. Rollovers

While it seems to be a good idea to make a trade-up transaction and shift towards a more expensive car, it is often not as good an idea. One way car buyers do this is by rolling over their current cars’ payments into a new car loan or a lease. The disadvantage of such a system is that you will probably pay a lot more for the second car than it’s worth.

These arrangements can be bad in the long run because if you don’t like the new car and decide to trade it in, you will have to bear a large chunk of money going out of your pocket for it.

10. Never Ignore Car Depreciation

While there is no con of stretching out your interest payments over a couple of years, it becomes a problem when your car depreciates much faster than your repayment rate. In that case, before you’re through with your loan repayment, your car loses most of its value, and if you try to exchange or trade it in, you become liable to pay even more interest.

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If you’re unable to make higher payments, then it might be better to get a less expensive car because that will prove to be more conducive to you in the long run.

11. Don’t Always Go For Dealer Recommendations

While your dealer might recommend you a vehicle that seems to be aligned with your objectives, the dealer is a business entity, and he is contractually bound to car manufacturers. There is a chance that the dealer might be contractually obligated to push some slower-selling models forward instead. Most advertisements wouldn’t mention this; therefore, it is always better to do your research and then make sure that you get a car that best suits your needs.

In other cases, you also might be able to strike a better deal on some slower-selling car models. Provided that the model fits your priorities and budget as well.

12. Pushing You To Lease A Vehicle

Another strategy that dealers use is pushing their clients to lease a vehicle instead of owning it. The problem with this particular strategy is that you never own anything despite owning it for years with leasing. The lease option is attractive in the sense that the monthly payments are almost at half the rate.

If you can only afford the lease payments on a car, there is a good chance that you can’t afford it otherwise, and that can be a burden on your finances later on when you’re interested in purchasing the car.

CONCLUSION

With all that said, car dealers are not always bad, and if you’re lucky, you can even land yourself with a good dealer that places your interests first and is motivated towards making sure that you as a customer are satisfied with what you’re getting.

The best way to secure yourself from getting a bad dealer is by making sure that you do your homework in detail. It is also not a bad idea to ask for advice from someone who has experience or someone knowledgeable about cars because you will be better positioned to assess the car and your requirements along with the budget.

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