5 Mistakes to Avoid at the Dealership
You’ve been saving for years and it’s finally time to purchase your dream car. You cannot wait. Your spouse is a little concerned, however, and keeps cautioning you to keep your feet on the ground when it’s time to hit the dealerships. You assure her that you’ll be fine; you’ve bought cars before, but she’s right. Automobile dealerships have earned the reputation they have because they have a ton of tricks up their sleeve to boost their bottom line with your hard-earned cash. Here are five mistakes you should avoid when you head to the dealer to buy your new car, and you should heed them wisely.
1. Worry About the Purchase Price
Financial website Bankrate.com points out the many consumers get tunnel vision the minute they begin to negotiate their new or used car purchase. All they can think about is what the monthly payment will be, and this makes sense. You don’t want to lock yourself into a contract with car payments you cannot afford. Nonetheless, there’s something you should know: The MSRP is not what the dealer paid for the car. The dealer paid a lot less, so ask the salesperson for the invoice price on the car, not the MSRP. Then, negotiate with that and never let the salesperson know how much you can afford each month.
2. Run Your Own Credit Reports or Get Pre-approved
Have you ever heard of a negotiable car loan rate? Probably not because you likely fell into the same trap many other car buyers fall into. You walked into the dealer, picked out your car, and were told the interest rate would be such-and-such and that was it. That’s not it. Dealers have a bad reputation of running your credit report and then fudging the numbers so they can justify a higher interest rate. Don’t fall for this scheme. Rather, run your own reports with all three credit reporting agencies and take them into the dealer with you. If the dealer comes back with a different number, you can show the finance manager your report or – better yet – leave and go to a more reputable place.
3. Don’t Fall for Gimmicks
Low-interest rate loan, cash rebate, no interest… which one is better? Well, that depends on your financial situation and the gimmick itself. Take your time when assessing these options and figure which one is best for you. Yes, the cash rebate may be nice, especially if you can add it to your down payment and reduce your monthly payments even more, but would the lower interest rate suit you better in the end? Which will actually save you the money? Ask the dealer to break down all incentives in great detail, so you can ensure you really are getting the best deal.
4. Don’t Refinance Your Trade-In
Another trick dealers use is to add the balance you have on your existing car loan to your new purchase contract. Did you know they do that? If not, this is something you should always look for when in the negotiating chair. If the dealer won’t give you what you owe on your existing vehicle, it will add the balance to your new car contract, and you will be stuck paying off two cars… and their interest. Don’t roll your negative equity forward. If you can’t find a dealer who will purchase your car for what you owe, try selling it privately or wait a few months until the balance is reduced.
5. Avoid Finance Traps
Finally, the National Automobile Dealers Association reported in 2012 that 37 percent of automobile dealers gross profits come from finance and insurance. What are finance and insurance? It’s all the add-ons they pressure you to purchase. When you add on an extended warranty, fabric protection, paint sealant, service obligations, and the many other things they’ll try to sell you, you increase your contract amount and the interest you will pay on that contract. “Just say no.”
Maybe your spouse was right. There are many things to watch out for when you head to the car dealership to purchase a new car. Don’t be fooled by online dealerships, either. No matter where you go to purchase your dream vehicle, shop smart. Ask that everything, absolutely everything be broken down into chunks you understand. Know what you’re paying for, what you’re financing, and don’t fall into any incentive or extra trap.