If you do plan to buy a car from a dealership, don’t wander into the showroom without knowing what to expect. Your inexperience can be a great opportunity for a dealer’s salesperson and finance manager to make money. Before you set foot into a dealership, you should know the maximum monthly car payment you can afford, but don’t allow the dealer to only focus on the payment amount. Dealers have ways to manipulate numbers to provide the payment you need, and that may not always be in your best interest. For example, they could extend the loan term to reduce the payment, but you would end up paying more interest over the course of the loan. Insist that the dealership focus on the car’s out-the-door price. Your out-the-door price includes the vehicle purchase price, as well as sales tax, documentation fees, delivery and prep charges, registration, loan interest and any add-on products or services, such as extended warranties.
Out-the-door price reflects the total amount you will pay or finance, broken down into monthly loan payments, and it can be thousands of dollars higher than the price on a car’s window sticker. If you firmly insist you will negotiate only on out-the-door price, you’re in a better position to know if a particular car truly fits your budget.
Your discussion about out-the-door price and financing will take place in the dealership’s finance office. It’s also where you should present preapproved loan offers, which give the finance manager a rate to beat and can help you get the lowest rate possible.
If you end up getting a car loan through the dealership, carefully review the vehicle contract, which will include financing information. Ask for an explanation of any fees or add-on services you weren’t aware of or didn’t agree to. Also, know that even if you’re told otherwise, you have the right to receive a copy of the contract with completed Truth in Lending Act disclosures to take with you. That gives you time to review loan terms without feeling pressure to sign quickly.
One final tip is to beware of yo-yo financing at dealerships. On weekends or during busy times, some dealers will allow you to take a car home without an approved loan, a practice called spot delivery. The finance office provides a sales contract with numbers based on an educated guess and not actual loan approval. When Monday morning rolls around, a dealer may ask you to sign new paperwork with different terms, which you’re legally obligated to do if you keep the car. At this point, you do have the option to turn down the loan and return the car.
To avoid yo-yo financing, take a preapproved loan to the dealership, and always decline any request to sign an incomplete or inaccurate sales contract.
If you’re concerned about being taken advantage of at a dealership, ask a more experienced car buyer to go with you. You can still make your own decisions, but having the support of someone who knows the ropes can help you make those decisions with more confidence.
