Finally you have decided to buy a car. You have found the brand, model and color you want. Now comes the most difficult part: signing the documents. If you do not have the financing in place before visiting the dealer, you will need to apply for financing from the retailer. The seller and the financial manager will try to sell you everything from extended warranties to floor mats. You will need to be prepared for the unstoppable sales pitch that is about to come. In this post, I’m going to learn more about negotiating a car loan, which is one of the key areas you need to master when trying to take advantage of our 5 tips on how to buy a new or used car from a dealer.
Here are 5 great tips to help you negotiate the best offer:
1. Always negotiate the price.
This may seem simple enough but it can actually be difficult. One trick that car sellers often use is to get you to negotiate payments. You will be asked questions such as: “How much are you trying to pay per month?” Or “What do you want your payment to be?” Car dealers like to negotiate payments instead of the actual car price. This is because they want to set the price based on the maximum monthly payment you are willing to pay. If you fall in love with this tactic, you will end up paying a lot more for your car. Negotiate the price, not the car payments!
2. Keep the loan term as short as possible.
Dealers have come up with creative financing programs that will allow borrowers to reduce their monthly payments. They do this by extending the number of years on the car loan. Today, borrowers are allowed to finance a car for up to 7 years. This is absolutely ridiculous! A car is a depreciating asset and is losing value every year. The best loan term is 4 years or less. The maximum is 5 years. Under no circumstances should you ever take a car loan for 60 months or you may find yourself very well with an inverted car loan.
3. Skip all the extras.
The financial managers will try to convince you to buy all the options available. They will sell you accident insurance, rust protection, fabric protection, extended warranties, paint protection and car alarms. Many of these are useful articles but the retailer’s markup is ridiculous. They make huge profits by taking customers away from these products. You can get warranty extensions and alarms for less expensive aftermarket cars. Anti-rust is not essential for modern cars. You can apply Scotchgard and paint protection yourself for a few dollars. Gap insurance is sold to most credit unions for a much lower price.
4. Say no to high-interest loans.
Your credit rating will determine the interest rate you get. Just because your credit isn’t tip-top doesn’t mean you have to take a loan with a ridiculously high interest rate. Individuals with good credit will receive loans with a single digit APR. Individuals with average credit can get loans from 10% to 12%. Individuals with bad credit will be offered loans at 15% or higher. Many people with bad credit accept loans with interest rates up to 24%. Never take a loan with exorbitant interest rates. No matter what your credit situation is, it is never worth paying usurious interest rates just for the right to own a car.
5. Keep the emotions out of your decision.
Buying a car can be an incredibly emotional decision. After you’ve gone out for a test drive and smelled that new car, it can be hard to leave. If the dealer is not willing to negotiate, you should be ready to leave. Remember that they are not doing you a favor by selling you a car. You are paying the money for this car. Do not let your feelings block you into a bad car loan that you will regret for years to come.
Have you got horror stories since you negotiated your car loan? Any additional advice you have for negotiating a car loan?