subject: Don't Get Caught In The Auto Loan Trap [print this page] Don't Get Caught In The Auto Loan Trap
Car dealership ads are everywhere. They're on the radio, TV, print, billboards, and just about anywhere else you can think of. These ads are designed to entice you onto their lot to buy a new or used car. Some of the deals sound great, but are they too good to be true? Maybe or maybe not, it depends on the dealer. Dealers bank on impulse buyers, but with some education and a little planning you can turn the tables on them.
First thing you should always do before you ever step foot onto a dealers showroom floor is to obtain your annual free credit report and get your credit score.
Lenders have been hit hard by this economy and have been tightening credit offers to everyone. If your credit score is below 700 you will likely have a hard time getting a low interest rate. Dealerships advertise low rates knowing that only a small portion of the population can actually qualified for them. But most people always think their credit is better than what it actually is and dealers bank on this to get people on the lot to look at cars.
When a would be customer arrives at the dealership the salesman negotiates based on the special offers available. Take 0% financing for instance, in order to qualify for this rate the dealer retains all rebates and incentives from the manufacturer. So if a car cost $25,000 with 0% financing you might could actually buy the car for $17-18,000 but the salesman can't tell you that and still offer the rate discount. The problem arises when buyers are told they don't qualify for the rate and think they have to purchase at that price and don't haggle on price any further.
Advertising promotions like Employee Discounts and others where the dealer cuts the price of the vehicle by as much as $10,000 or more sound good and get a lot of people looking at cars. Typically through when you sit down to sign th paperwork you realize that the interest rate is extremely high even for buyers that have a 700 or better credit score.
In addition, the finance department at your dealership will typically charge you a $295 doc fee and try to sell you additional items like credit life insurance, warranty programs, etc that they earn commissions on.
Final Remarks
You can counter all this by educating yourself and careful planning. Talk to your bank where you have a checking or savings account or join a credit union. The loan officer there can offer you some unbiased advice and discuss a payment and terms that fit you and your credit profile. This will allow you to freely negotiate the vehicle price with the dealership.
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