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Navigating Auto Loans and Dealership Offers



Navigating Auto Loans and Dealership Offers

Smart Car Shopping: Your Guide to an Informed Purchase

A new car is second only to a home as the most expensive purchase many consumers make. That's why knowing how to make an intelligent deal is essential.

Researching Your New Car

Do some research. Think about what car model and options you want and how much you will spend. You'll be less likely to feel pressured into making a hasty or expensive decision at the showroom and more likely to get a better deal.

Consider these suggestions:

  • Check publications online, at a library, or at a bookstore that discuss new car features and prices. These may provide information on the dealer's costs for specific models and options.

  • Shop by comparing models and prices in ads and dealer showrooms to get the best possible price. You also may want to contact your credit union or a car-buying service to make comparisons.

  • Plan to negotiate on price. Dealers may be willing to bargain on their profit margin, often between 10 and 20 percent. Usually, this is the difference between the manufacturer's suggested retail price (MSRP) and the invoice price.

  • Because the price is a factor in the dealer's calculations regardless of whether you pay cash or finance your car - and also affects your monthly payments - negotiating the price can save you money.

  • Consider ordering your new car if you don't see what you want on the dealer's lot. This may involve a delay, but cars on the lot may have options you don't want, which can raise the price. However, dealers often want to sell their current inventory quickly, so you may be able to negotiate a good deal if an in-stock car meets your needs.

What to Know Before You Buy

Learning the Terms

Negotiations often have a vocabulary of their own. Here are some terms you may hear when you're talking price.

  • The Invoice Price is the manufacturer's initial charge to the dealer. This is usually higher than the dealer's final cost because dealers receive rebates, allowances, discounts, and incentive awards. Generally, the invoice price should include freight (destination and delivery). If you're buying a car based on the invoice price (for example, "at invoice," "$100 below invoice," "two percent above invoice") and if freight is already included, make sure freight isn't added again to the sales contract.

  • Base Price is the cost of the car without options but includes standard equipment and factory warranty. This price is printed on the Monroney sticker.

  • Monroney Sticker Price shows the base price, the manufacturer's installed options with the manufacturer's suggested retail price, transportation charge, and the fuel economy (mileage). Affixed to the car window, this label is required by federal law and may be removed only by the purchaser.

  • Dealer Sticker Price, usually on an additional sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP), dealer preparation and undercoating.

Financing Your Car

If you decide to finance your car, be aware that the financing obtained by the dealer, even if the dealer contacts lenders on your behalf, may not be the best deal you can get. Contact lenders directly. A credit union can also discuss car loan options with you. Compare the financing they offer you with the financing the dealer offers you. Because offers vary, shop around for the best deal, comparing the annual percentage rate (APR) and the loan length. When negotiating to finance a car, be wary of focusing only on the monthly payment. The total amount you will pay depends on the price of the car you negotiate, the APR, and the loan length.

Sometimes, dealers offer meager financing rates for specific cars or models but may not be willing to negotiate on the price of these cars. You may be required to make a sizeable down payment to qualify for the special rates. With these conditions, you may find it's sometimes more affordable to pay higher financing charges on a lower-priced car or buy a vehicle requiring a smaller down payment.

Before you sign a contract to purchase or finance the car, consider the financing terms and evaluate whether it is affordable. Before you drive off the lot, have a copy of the contract you and the dealer have signed, and be sure that all blanks are filled in.

Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Before you buy credit insurance, consider the cost and whether it's worthwhile. Check your existing policies to avoid duplicating benefits.

Credit insurance is not required by federal law. If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of credit. That is, it must be reflected in the APR. Check with your state Insurance Commissioner or state consumer protection agency. Your state Attorney General may also have requirements about credit insurance.

Before negotiating the price of your next new car, use this worksheet to establish the bargaining room. TIP: You can get the invoice price by reviewing the dealer's invoice or car publications.

Trading in Your Old Car

Discuss the possibility of a trade-in only after you've negotiated the best possible price for your new car and after researching the value of your old car. Find out what your current vehicle is worth before you negotiate the purchase of a new car.

Check the National Automobile Dealers Association's (NADA) Guides, Edmunds, and Kelley Blue Book. This information may help you get a better price from the dealer. Though it may take longer to sell your car yourself, you generally will get more money than if you trade it in.

Considering a Service Contract

When purchasing a new car, you can buy service contracts that cover the repair of specific parts or issues. These contracts can be from manufacturers, dealerships, or independent companies, and their coverage may or may not extend beyond the manufacturer's warranty. Remember that the car's price already includes a warranty, whereas a service contract comes at an additional cost.

Before deciding to purchase a service contract, read it carefully and consider these questions:

  • What's the difference between the coverage under the warranty and the service contract?
  • Does the dealer or manufacturer offer an extended warranty?
  • What repairs are covered?
  • Is routine maintenance covered?
  • Who pays for the labor? The parts?
  • Who performs the repairs? Can repairs be made elsewhere?
  • How long does the service contract last?
  • What are the cancellation and refund policies?