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You Picked the Car; Now They Pick Your Pocket?Aug 12 '01 Write an essay on this topic.
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The Bottom Line BEFORE you finance your car, READ my 5 Tips on Automobile Financing!
In recent diatribes I've alerted you to "5 Tips" to Buying New or Used Automobiles. In those reviews I touched on some of the secrets of the Finance End-Game. It this review, I will give you more detail... "5 Tips" directed solely at this fear-inducing portion of the car buying experience. Tip # 1 Be Pre-Approved for a loan. I can not stress this point enough. It is the one thing that does the most to shift the power from the dealer to you. You will not be at their mercy for your interest rate or payment. (In fact, when the sales manager knows you are already pre-approved, he will treat you much more seriously when you present your offer than he might if you were "low-balling" an offer and he has questions about your financial worthiness!) Most reputable banks, credit unions, or other financial institutions will work with you toward your pre-approval, either for a certain vehicle or for a "maximum" loan value. Do the preliminary work; you'll be glad you did. Tip # 2: Let The Finance/Business Manager Try to Beat Your Rate Many times they can! IF you're at their mercy, you can't be as sure they're working totally on your behalf. As I pointed out in previous reviews, when you need the dealership to secure financing, you can count on them... to add to the rate they receive from the loan institution! Generally speaking, they will add .2% to .4% interest rate to a loan approval they receive. (Example: They secure 7.8% interest, they tell you they've gotten you 8.2%... extra profit for the dealership, extra bonus money for the Finance Manager and probably the salesman too!) However... when you are in the Power Position they have a target they have to beat! Many times the Business/Finance Manager will know of programs that can beat your rate! Sometimes it's a manufacturer incentive. Sometimes it's an obscure loan company. Regardless of who or what, if they can meet your terms, and beat your finance rate (thus lowering your payments and the amount of money you pay overall); do you care if they make a few extra bucks too? In my opinion, if they do that kind of research and save me money, they deserve a little too! Tip # 3: Don't Allow Your Credit to be Checked Until You've Selected the Vehicle... Especially if You Have Been Pre-Approved! One of the tricks that the dealership will use to determine your "ability to buy" is to pull your credit... basically run a credit check on you. This will give them access to your Beacon Score; the rating that is used as a benchmark to determine your qualification for certain levels of loans. IF you're already pre-approved, your credit is of no concern to them... until and unless you come to an agreement with the dealership on a car and you opt to let their business manager try to "beat" your rate. IF you're not pre-approved, this is a card that you don't need to play. Until you prove that you're not qualified to buy a car, they will treat you like you are! Until you prove that you're not able to walk into any bank anywhere to secure a loan, they're going to treat you like you can stroke a check for the car! Once you've opened yourself up to them, you've given over part of your power. Now if you DO need them to secure a loan for you, that's fine... and when the deal is signed and you have a contract, then they can pull your credit and the business manager can go to work! Also it is important to remember that every time your credit is "pulled", your valuable Beacon Score takes a small hit... not a lot, maybe 2 to 7 points... but many of the premium/prestigious/hard-to-get loan rates require very high Beacon's... and if you've had your credit "pulled" all over town, chances are pretty good that your Beacon has been "dinged" to death! (There is some kind of weird logic here that says that if your credit is checked and then a loan is not made, that the people who considered you must have turned you down for some reason... never is it considered it seems that you turned them down!) Tip # 4: Money Talks! You've heard it before, you'll hear it again. Cash is still king! Sure, the dealership hopes to make a killing on you in the financing of your car, but even if you've got to avail yourself to their knowledge of the automobile loan field, you want to have as much of a down payment as you can. Certain loan companies will actually lower your rate of interest if you've invested some of your own money into the deal. Their reasoning is simple; the more of a risk/investment you have in the vehicle, the less likely you are to walk away from it... and if you do default on the loan, they're going to have an easier time recouping their investment if you've put a thousand or three into it! Also, the cash is a good tool to use in the early stages of negotiations to show good faith. The salesman is going to do everything he can to pump you for information. If he knows that you're putting three thousand dollars down, they know that either you can get financed on your own or their guy can probably find someone to "carry the paper"... which is another term they use, which basically means "loan you the money!" Tip # 5: If Your Credit is "Bruised, Battered, or Broken!" Sometimes you don't have the best credit. Sometimes it's not your fault. (Really...) What do you do then? Do not automatically think you have to be relegated to the "mom & pop" Buy Here/Pay Here kind of Car Lot experience. Many of these Finance Managers handle what is called "Secondary Financing." Secondary Financing is quite simply a secondary form of financing! Usually it involves certain requirements, a certain price limit on the car, a certain age vehicle, a certain amount of cash down. ALWAYS it involves a higher interest rate. That said, sometimes the act of restoring your credit is painful. Sometimes it seems that the very people who need the break of lower payments and easier terms are the ones who continue paying more money and suffer harder terms. Is it fair? Is Life? My experience was that about half the people who needed secondary financing were decent, upstanding people who had hit a stretch of hard luck in their life. Some were people who had been very foolish when they were very young and had mended their ways and needed the second chance. Some would abuse what ever break they got. But the Finance Manager was going to work as hard for them as he could. Is he going to make money for his effort? Sure he is. Does he deserve to? Absolutely. Again, because of the stringent terms many of the secondary companies have, the dealership will not be able to add much to the loan. There simply isn't enough room for the customer to "carry" any additional fees. Sometimes there might be some kind of rebate from the loan company to the dealership; kind of a bonus (similar to the Hold Back we discussed that is hidden in the invoice price of a new car!) The best tip I can give any of you who need to go the secondary finance route: Come Prepared! Know That You'll Need to Prove Your Income, Know That You'll Need MORE Documentation of Your Facts, Know That You'll Have to Jump Thru More Hoops... And Once You've Gotten Approved, Don't Go to the Next Dealer and Try For Better! Your Credit Probably Can't Carry the Extra Hits! Accept that you're going to have to pay more this time and strive to improve your credit... primarily by paying this loan in a timely manner... then next time you can join the ranks of those with power. I hope these 5 tips about the financing of your car proves helpful. Don't forget to check my other reviews... and happy car shopping!  |
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