Jeff Watters is a business consultant & freelance author who lives in Delaware and the former manager of Mattress stores & AWAI member.
How to Buy a Car in the Modern World
Did you know the most profitable salesperson for the dealership is the business office representative? You focus your time on getting a great price and fight that battle by researching and shopping online and visiting car dealerships, but when you go to finance the vehicle, you are totally unprepared.
Beware of the Finance Office
The Finance and Insurance (F&I) representative will offer you a competitive rate. Rates are not a problem, but the structure of the loan is something to consider seriously. The longer the term of the loan the more the "F&I" office makes for the dealership. That’s right, they get a kickback from the loan company for originating the loan.
Used car dealerships will “pack” your loan at a higher rate or auction off your loan to second-chance lenders with a built-in fee of up to $1,000. This additional undisclosed charge is what "second chance" lenders get for taking a loan from someone with bad or damaged credit. Downpayment and loans on a used car are higher than on new cars because of these fees.
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The Add-on Products
When the F&I office is selling insurance, such as gap insurance, the dealership makes more money yet. Gap insurance is optional coverage for newer cars that cover deductibles to the collision portion of your insurance policy. It may pay the balance of a lease or loan due on a vehicle. However, you can buy this insurance from your insurance agent for much less. Warranties are very profitable to the F&I office. Up to $3,000 and the kickback to the dealership could be 50% or more. The office manager tells you that an extended warranty (also called a "service contract") will give you peace of mind. Then prepare for the hard sell you never imagined was coming. F&I managers will also offer you things like paint protection, prepaid maintenance plans, and theft-recovery policies, showing you catalogs and videos to sway your decision.
How you combat any of these tactics is to visit a bank or credit union first. See the loan officer and find out how much money you can borrow and the rate. Then call your insurance agent and tell them you are considering a new or newer car if buying used. Get the rates first and then see the new or used car dealer. When you come prepared the dealer is at a disadvantage.
Before you buy a car, research the model thoroughly online. Use email to communicate with the seller and view their inventory online. Get the price before you go to the dealer that has the car. When you visit the dealership don’t show any emotion or say anything about buying the car. Feign disinterest if you need to but once the salesperson sees you are motivated the deal will get better for them and more expensive for you.
Then make an offer significantly lower than the one offered by the dealer. Never accept the salesperson's offer without getting the manager involved. Managers will sell cars at a loss to get incentives from the factories that enhance the dealer's reputation with the factory. Later the dealer will try to make up any losses on service or add-on contracts.
They make cars to order so don’t worry about losing the car. Research the real cost of ownership, the estimated trade-in value, cost of insurance, and finance rate or payments per month. When you visit the bank, they will tell you what down payment you need or the amount they are willing to finance. Add together the payment and insurance plus the expected gas purchases for each month and add 10% to that figure. If the amount is something you can live with you have made a good decision. If not, you should not buy that car.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.