Car Buying Tips: Avoiding Auto Finance Pitfalls
Everything you do at a dealership before you meet with the finance manager is really just chit chat. Even if a salesperson asks you to sign something before you meet with finance, it's probably just to say "I will agree to this if finance approves it." You probably won't talk about interest rates, your credit score, or your bank account in a meaningful way until you see a finance manager. That makes the finance step one of the most important parts of car buying.
Know What Interest Rate Your Qualify for or Get Financed by Your Bank
Your interest rate is determined by the current finance market, your credit score, and the auto loan term. Auto finance managers often quote car buyers a higher rate than the bank will give and then take the extra money for themselves. Knowing what you qualify for can help you avoid paying hundreds of extra dollars. You can get an idea by doing a quick search online (example of helpful article here) or asking your bank. In fact, you can let your bank handle the financing instead of letting the dealership do it. Don't forget you have options.
Auto finance managers usually spend several minutes talking about how you can protect your car with an extended warranty. Some are pretty good at it. What you need to remember is that you don't have to buy the extended warranty right there in the finance office. If you know exactly which vehicle you want, you can get extended warranty quotes online before you visit the dealership, to compare to the dealer's policies. You can also just look for extended warranties after you take the car home. You can buy from the dealership or elsewhere at any time.
Another thing to remember about extended warranties is that the dealer's price is often negotiable. If you have warranty quotes from companies like carchex.com, compare those prices with the dealer's and then ask for a discount. Be sure to show the manager your quotes. That will increase the odds of a discount. Even if you get a good reduction, you still don't have to accept it.
Don't Get Yo-Yo'ed
One of the most frustrating events that can happen to a car buyer is yo-yo financing. It's when the dealership sells you a car, hands it over to you and, later, calls you to tell you they can't give you the interest rate you agreed to. You're then forced to accept a higher rate or lose your down payment. Many dealerships will deliver the vehicle before the bank agrees to the terms, which can lead to the yo-yo effect.
Sounds a little evil, right? Some jurisdictions have laws that protect consumers against yo-yo financing. You could check if such laws are in place in your area. You could also refuse delivery (actually taking the vehicle and going home) of the vehicle until the financing has been nailed down by the bank. If you don't have an excellent credit score, meaning 720 or more, you're more vulnerable to the yo-yo trick. However, most dealerships are respectable enough to at least try to keep you from getting yo-yo'ed.
If there's one idea you should take to the dealership it's that you should not be rushed through the process of car buying. If you feel like you're being pushed, tell the representative that you'll have to think it over and get back to him (or her) later. Then, when you're ready to make a deal, check all the paperwork and make sure the numbers are as you thought they'd be.
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