Financing A New Car
For most people, paying cash for a new car isn't even a possibility. Even if you do have the cash, you don't want to deplete your
savings. So financing a new car is the only choice. In any case, you probably shouldn't even attempt to finance your car with a car
dealership to begin with. Although it's fast, it's high pressure and the loans are often front-loaded--which means that the payments in the
beginning are mostly interest. This makes paying it off early not even worthwhile; the dealership gets their money first and laughs all the
way to the bank!
Even if the loan is not "front loaded," there are other ways that the dealership will get more money out of you than if you get your car
financing elsewhere. It's important to remember that the finance manager at a car dealership works on commission. This means that he
will try to get all sorts of things added on to your car's price. Things like an extended warranty, undercoating, alarm system, etc.
He will try to upsell you on those things AFTER you've agreed to a price with the car salesman.
Remember this: The Finance and Insurance (F&I) department at car dealerships is often a bigger source of profit for dealerships than
the sales department. This is how it works: The "finance manager" sends your credit info to the lender (bank) that they deal with,
and the bank returns a table of interest rates based on the term (number of payments.) The finance manager then takes the lowest interest
rate and marks it up. This markup is the dealership's profit on the financing and they are NOT required by any law to reveal how much they
have marked it up.
This is called the Retail Installment Sales Contract (RISC). And incredible though it may seem, but a 0% loan rate offered at a
dealership can often be beat by a 8% or higher rate gotten elsewhere. Because they have more in their magic "Bag 'O Tricks" than meets the
eye: Often manufacturers will offer a Factory-to-Consumer Rebate on certain models if they notice that these models are not moving as fast
as they would like. So they give the dealers an incentive to sell these by offering this rebate. But know that the rebates usually
don't apply if you get the 0% interest rate. Because that means that you'll have shorter terms and so the overall price will be lower--so
there's no need to offer a rebate...
Here's where you can save with a 8% or higher rate over the 0% interest rate: Take the Factory-to-Consumer Rebate elsewhere (like to
your own bank) and finance the car there. Apply the rebate and you'll likely pay less for your 8% loan than for the 0% loan at the
dealership!
Financing a new or used car should be done at anyplace other than the dealership. Ideally, arrange financing BEFORE stepping onto the
dealer's lot. This puts YOU in the driver's seat. ;)
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