Frequent Car Finance Mistakes… And How You Can Avoid Them
It’s the end of the financial year and with car dealerships in mega sales mode it can be a great time to snap up a new car bargain. But before you step foot onto the car lot, it’s important to spend some time wising up on dealer finance tactics. Mozo asked car finance expert Rob Chaloner of stratton to highlight some of the most frequent car finance mistakes and how you can avoid them, here’s his advice:
It’s no secret that if something seems too good to be true, it probably is. Take car finance, for example. Dealerships advertise vehicles at unbelievably low finance rates in the hopes of inducing you to buy the car. And because different dealerships advertise comparable prices for the cars themselves, choosing the lowest interest rate seems like an obvious way to save money, right?
While a low interest rate can certainly be tempting, this factor alone does not equal cost savings over the life of a car loan.
Believe it or not, you could actually save more money in the long run by paying a higher interest rate. To make sense of this, you need to understand the big picture behind the low dealer finance offer — because that’s all it is: An offer that generally must be accepted “as is.”
When you agree to accept the low interest rate, you must also agree to the terms contained in the fine print; any attempt to change these terms usually eliminates the special interest rate. This is because the car manufacturer typically subsidises the low interest rate to the dealer in exchange for your right to negotiate purchase price reductions! In essence, the car dealer trades your bargaining power to offer you a lower interest rate.
But don’t you want to be the one making that kind of financial decision? After all, it’s your hard-earned money and you should be in charge of it. Here are a few tips to help you take back control over your car purchase.
1. Do Your Research.
Due diligence is key if you want to get the best deal on anything, but especially with a substantial purchase like a car. Shop around for the best prices on things like insurance, warranties and aftermarket products, as these are often sources of dealer profit.
When you are ready to walk into the dealership, you’ll be armed with the information you need to achieve the deal that makes the most sense for you.
2. Organise Your Financing First.
The most important bit of prep work you can do is securing pre-approved financing. Do this before you ever walk on the car yard so that you are not tempted by the low dealer interest rates.
You will also be in a much better bargaining position. If you secure your own financing, you do not have to accept the behind-the-scenes trade between the manufacturer and the dealership where your negotiating power is concerned. Consider this:
By obtaining separate financing, you are not bound by the “as is” requirement of the low interest rate offering. You are free to negotiate a lower sales price and even if your separate financing is at a higher rate, you could pay less than a deal that has you paying $5,000 more for the car with dealer financing at the lower rate.
Indeed, if you were to purchase the car “as is” at $50,000 with dealer financing at 2% interest with no residual, over a 60-month term, you would pay back $52495.8 over the life of the loan.
However, if you negotiated an additional $5,000 reduction in the drive-away price with pre-approved financing at 5.50%, you would only pay $51337.8 and enjoy a savings of $1,158. Think of everything you could accomplish with that kind of cash!
3. Drive Down the Total Cost.
One of the main benefits to pre-arranging separate financing is reclaiming your right to negotiate the total cost of your car. Here are some of the areas where you can drive down the drive-away price:
- Purchase price of the car itself
- Price of options and after-market products
- Insurance: You don’t have to get insurance through a dealer if it is offered. Shop around to be sure you get the best deal.
- Registration: While the cost of registration is fixed, you can negotiate for it to be paid for by the dealer.
- Dealer delivery fee: This can include anything from filing paperwork and interstate delivery to basic detailing and rebooting the car’s computer. Find out what yours covers and negotiate accordingly.
4. Remember Who’s in Charge.
The most important thing to remember is that you are in complete control over your purchase. By taking some of the steps outlined above, you can ensure you are in the best position possible to get the deal that will work for you!
What are some other ways you have saved money when buying a car?