Don’t Buy That Car Until you read this report!
Thinking of buying a vehicle, whether its new or used? Tired of the games car dealers play? I’ve worked in the car business for 15 years and have seen all the games. Its gotten much better for customers in the past few years, but dealers love to go back and forth when negotiating with customers, to get every ounce of profit they can.
Its much easier for a new car buyer. If you just ask the dealer to see the vehicle invoice before you get into negotiations, ialmost every dealer will let you seet. The invoice is what the dealer pays for the vehicle, so you can start at that price and try to go lower, maybe up to $1,000 or a little more. At the bottom of the invoice, in the fine print is a figure, usually $500 to $1,300 depending on the cost of the vehicle, is “holdback”, an amount that the dealer gets from the manufacturer, and most dealers will lower the price less than the cost because they have the holdback to negotiate with. If the vehicle you are purchasing is a “hot’ or “popular” vehicle, the dealer may be less inclined to negotiate into the holdback.
Let’s start with your first trip to the dealer. Upon arrival, you meet your salesperson. He/she will greets you, asks you lots of questions, like do you have a trade, how much down are you working with, is there going to be another buyer with you making the purchase, how’s your credit, and so on. All this information has to be turned over to the sales manager as soon as possible. After you find a vehicle, the salesperson sits you down and goes to the sales manager. The sales manager writes up a four square, showing price, trade value, down payment and monthly payment. The salesperson brings the form to you to see what numbers you agree with and which numbers you don’t agree with. This is to determine what they need to work on to maximize the most profit. The dealer always wants you to negotiate on monthly payment. This is the easiest way to hide profit. The process is to keep going back and forth, grinding on you to wear you down. When the salesperson runs into too much resistance from you, then another salesperson comes out to talk to you, (saying they are a sales manager, but not really). Now they continue the process the previous salesperson went through with you until they can’t get any more money from you. If they “sales manager” shakes your hand and says you have a deal, you are one-half way through the process. Next, you get to go to the finance office. You wait for at least 30 minutes, if you are lucky, but more than likely you wait an hour to get into finance. The whole purpose is to keep you at the dealership as long as possible. The longer you are there, the more likely you will agree to purchase products you don’t need or want, just to get out of the dealership. I explain a little later in this report, what goes on in finance. One way to speed up the process, with very little salesperson interaction, is to go directly to the fleet manager.
You should prepare before you go to a dealer. Contact the fleet manager if at all possible before you go to the dealer. Your next choice would be to contact the internet manager. Most people have not even heard of the fleet manager, because this the least profitable department of a dealership, and no dealer wants to “advertise” their least profitable department. Try to get a final price over the phone or internet, if you can get the accurate invoice figure first. This makes it much easier, as the manager can approve the price ahead of time and you won’t have to negotiate (as described above) at the dealership. Some dealers are much more amiable and willing to negotiate than others. Contact the dealers selling the vehicle(s) you are looking to buy and you will quickly find the ones that you would like to deal with.
So you are with the fleet manager and know the cost of the vehicle and have agreed on a price, but that is only half the battle. Most dealers will try to get you to finance with them, and most customers do finance with the dealer. This is when the dealer will try to switch you from price to payment. Never, ever negotiate a deal on payment. When the negotiations are done, the finance manager will go to the sales office to see the “numbers”. This is where the finance manager sees if there is “extra payment” he can work with. Lets say the payment to purchase the car is $300 per month, but you have agreed to $350. The dealer will try to raise the price to get to the payment you have now agreed to. If they can’t raise the price, they will add extras, like service contracts, GAP, credit life or other warranties. Based on your credit score and the interest rate the dealer figures they can get for you, they add in the extras until they get to your agreed payment, the above “extra $50 per month”. Now, when you go into the finance office, they have you sign the normal purchase paperwork, and the paperwork for all the extras. You might notice the extras and say you didn’t want that, but they say, it’s included in the payment you agreed to. Most people feel like they are getting a good deal, as the payment didn’t go up based on what they agreed to, and say “ok”. The dealer just made $1,000 to $4,000 additional profit on those extras. If you say no to the extras, they will raise the interest rate so they can still make profit on the interest rate spread. Before you go into the finance office, find out what interest rate the dealer is figuring your payment on, so if they try to raise the interest rate later, you will know.
You should never buy an extended service contract on a New vehicle, unless you plan to keep the vehicle for 5 or more years, and then, negotiate the price as low as you can. Most dealers get extended service contacts for a cost of less than $1000 but try to sell it to you for $2495 or more. I do not recommend extended service contracts at all, but finance managers lie, lie, lie to customers to scare them into buying. The last dealer I worked for told all customers that the manufacturer only covered repairs that were a result of “defective” parts. This is untrue, but customers fall for it.
Of the extras mentioned above, only GAP is worthwhile, if you don’t pay too much. GAP costs a dealer $150 to $250, but is sold for $495 to $895. GAP is insurance that covers the customer if their vehicle is totaled in an accident, and the payoff amount of the loan is higher than the appraised value of the vehicle. If you put a large down payment on your vehicle purchase, you do not need GAP. If you traded in a vehicle, which had “negative equity” (you owed more than the vehicle is worth) you probably need GAP, because in addition to the negative equity, the value of a vehicle drops a few thousand immediately after you drive off the lot. Just don’t pay too much for GAP. I recommend paying $300 and no more than $395.
If you belong to a credit union, it is best to contact them before you go to the dealer. They will give you a pre-approval or at least tell you what interest rate you qualify for.
Credit unions usually don’t allow dealers to raise the interest rate above their base rate to the customer. Interest rates are usually based on the year of the vehicle, so if you are buying a new car, you will get the best rate.
If you are purchasing a used vehicle, you have much less information to work with. There is no invoice to tell you what the dealer paid. You need to do much more homework before going to the dealer, if you want to get a good deal. If you know what make and model of vehicle you want, go to used car websites like Vehix.com, Cars.com, Craigslist or Autotrader.com to find comparable vehicles that are for sale at other dealers. If you don’t know what type of used vehicle you want, you will have a much harder time getting a good deal unless you pick a vehicle, then go do your research before heading to the dealer.
If you know all the comparable vehicle prices at other dealers or on Craigslist, you can negotiate much better. Try to do as much of the negotiation on-line, with the internet manager. Most salespeople will try to negotiate with you on the phone, but their managers will throw them out of the office if you are not there, in the dealership. The internet manager or fleet manager is usually the only salesperson that can negotiate with you before you go to the dealership.
Interest rates are higher on used vehicles, but only by 1% or so. It is more important to know your credit score before you contact the dealer, then check with your credit union or local bank for an actual rate, if you know the year, make and model of the vehicle you want.
You may need an extended service contract if there is no coverage left from the manufacturer. The dealer’s cost for an extended service contract is less if the vehicle is still covered by the manufacturer at time of sale. If the vehicle is still under the manufacturer’s original factory coverage (usually less than 36,000 miles), this will save you money if you purchase an extended service contract. Finance people will try to sell an extended service contract for as much as possible, usually $2,495 and up. Thankfully, most banks or credit unions have limits that they will finance for an extended service contract. Finance people will always go for the highest price they can get for an extended service contract, and if the bank won’t finance it, will call you back to reduce the price, only because they have to.
Credit problems make your purchase even more difficult. Most sub-prime banks have tightened their guidelines and that makes it much harder to get financed if your credit score is less than 620. Interest rates will be higher, the lower your credit score is. This is a fact, based on the market. Most customers with lower scores are more motivated to buy if any dealer can get them financed, and they are called “get-me-dones’. Call the internet or special finance manager at the dealership to get “pre-approved”, not pre-qualified, before going into the dealership. Most dealers will need your signature to run your credit, so have them fax the credit application to you, fill it out, sign it, then fax it back. Never sign a blank credit application, or the dealer will fill it out themselves, and that can cause temptation for the dealer to exaggerate your information in order to get you approved. Pre-approved means the dealer has sent you application to its lenders and received an actual approval amount or payment that that bank will give you.
If you can, give the special finance manager a vehicle listed on their website, that you are interested in, so the dealer can send your application to the lender. Ask the special finance manager for the actual interest rate, term (length of loan period) and payment before you go to the dealership. Giving you this information commits the dealer to those numbers, so they don’t change when you come in. Maybe you should call a couple or three dealers with the same information so as to compare the numbers. Contacting more dealers will cause more inquiries on your credit bureau, and thus lower your credit score. Some special finance managers will send your application to all their lenders, which can really hurt your chances of purchasing. If you get a special finance manager that doesn’t have much experience, and they send your application to 5-10 lenders, and all the lenders turn you down, it is very difficult to get another special finance manager that does know what their doing to get you approved later. Quiz the special finance manager as to his experience and ask him/her to proceed cautiously when sending out your application.
With credit issues or lower scores you will need stips when you come into the dealership. Stips are your current paystub, proof of residence (a current utility bill with your name on it, at the address on your application), your driver’s license, proof of full coverage insurance on a current vehicle, or you must be able to get insurance from an agent while you are at the dealership. You should calculate your income before you fill out the credit application, by dividing your year-to-date income by the number of months that have passed for the year. If it is before April 1, you will need your W-2 form from the previous year, plus your current year-to-date paystub, and average them out. Don’t overstate your income, because if it proves lower once you get to the dealership, it could affect your approval, as you may now qualify for a lower payment than the vehicle you wanted would have had. If you have been on the job for less than 90 days, or have an unstable job history (with several short jobs of less than a year each) you may want to wait to make a vehicle purchase when your stability is better. If you have credit issues, you can work on getting your credit score higher during this waiting period. One thing you can do to work on your credit is to go to annualcreditreport.com and get your free copy of all three credit bureaus. Sometimes one of your credit bureaus can have a much higher score than the others. If the dealer has run your credit, ask the dealer what the score is for each bureau. Different lenders run different bureaus, and the dealer can submit your application to lenders that run your most favorable bureau. After you get your free copies from annualcreditreport.com, look for incorrect information and contest it with the creditor. If it is older (more than 3 years), it may come off your credit report because the creditor doesn’t contest your claim.
If you are getting turned down because your score is too low, you have to much bad credit in the past, the best thing to do is find a buy-here-pay-here car dealer that will finance you and report your loan to the credit bureau. They will probably report to only one bureau, but that’s ok. Make sure they report monthly, not at the end, if you pay on time, but every month. This way you can establish your car credit and get bank financing next time. If they don’t report, don’t buy from them, keep looking for the right dealer.
Remember, always ask the dealer to provide you with a Carfax or AutoCheck history report. This report shows service the vehicle has had done, where the vehicle has been registered, such as maybe the vehicle came from a moist climate such as the northwest U.S. or Florida, so you would look for rust on a vehicle from the east coast, and most of all tells you if the vehicle has been in an accident. The dealer will provide the report for free. There is a link on this sites home page to Auto Check where you can run a free vin # check.
You can take the vehicle to your mechanic for inspection, most dealers will let you, unless they have something to hide. If you mechanic finds items that need repair, make the dealer fix these items before you buy, not after. There is a website that tracks vehicles that have been in a flood.
The information above is just a small part of what really goes on when someone tries to buy a vehicle, but gives you a good start in preparing for your visit to the dealer. I will be setting up a forum so you can ask questions in real-time that I will answer. Keep an eye out for a link to my forum. Meanwhile, good luck, don’t get pressured by the dealer and go slow when purchasing a vehicle.
