For starters, if you are going to buy a car on credit, the best way to start is to go to a credit union and “pre-qualify” for a car loan. In other words, find out what you will be able to afford from someone who is not trying to sell you a car. When you go car shopping, you will have a better idea of your limits. No need to visit the Volvo dealer if you are on a Dodge budget.
When you get to the dealer, negotiate the price of the vehicle first, then the financing. If they want to know what you can afford, tell them the price range that you already determined is what you can afford. Do not tell them what you would like your monthly payment to be.
Which line are you more likely going to fall for?
- I know you said you could only afford $250 a month, but the number came back at $260. You can do that right? Its like skipping a 3 cups of coffee a month.
- I know you said you could only afford $10,650, but the number came back at $13,448. You can do that right?
Dealers like to work backwards from the payment. For example, $250 per month at 6% for 48 months means a $10,645.08 car. But the same monthly payment for 60 months means a $12,931.39 car. $260 per month means $13,448. The dealer pads its pocket by playing with the payment number and the number of payments.
Stick to your number, be prepared to walk away, and do not spend more than an hour at the dealer. Do not bring the kids, do not test drive it until you know the exact price and know it will fit in your budget. (A new car is always going to drive nicer than your old car, and unless you are James Bond or Danica Patrick, you probably will not be able to discern the subtleties of a car’s handling, anyway.)
Once you have settled on the car, hang on to your price. They are going to play the “offer game,” where the sales person must check with the boss on the price, in order to try to bump the price up. (This is where, if you were negotiating based on your monthly payment, things could quickly get out of hand because they would already know where you want to be and every dollar more per month is gravy.)
Only after you get the price fixed should you start talking about financing. If the dealer can beat the credit union’s rate great, but make sure you are comparing apples to apples. Is the APR the same? Is the length of the loan term the same? Are there any extra finance charges?
In filing out a credit application, do not fudge any numbers. If you have been at your new job only 2 weeks, don’t let them convince you to put your old job on the application. If your income varies depending on your overtime hours, go with either just your regular hours or a very low overtime amount. Remember, you are going to be paying on this loan for years to come, and as we all found out recently, the economy can change.
If you take the car before the loan has been “approved,” pay close attention to what will happen to any down payment. A client once got turned down on loan for a car on which she had made a $2,000 cash down payment. When she asked for her down payment back, the dealer pulled out the “conditional delivery agreement,” which permitted the dealer to charge restocking fees: 3% of the sales price; mileage @ $.25 per mile, $150 inspection fee, $98 cleaning fee, $11.50 for a new window sticker, and son on. After a week the dealer wanted her to return the car and keep $700. That is an expensive rental.
If you take the car, give them your old one as trade-in, and then a week later they call and tell you the financing fell through, but they already sold your trade-in, call a consumer lawyer.
Nick Slade is a consumer rights lawyer, and will be posting at Caveat Emptor until 12.2.2009.
(photo: Wikimedia Commons)
If you are in Minnesota, contact The Glover Law Firm, LLC, for a free case evaluation. In any other state, you can find a consumer rights lawyer using the National Association of Consumer Advocates lawyer database.
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