By the time you get to finance, you have likely been at the dealership for 3 to 4 hours and you are ready to go. They count on this and the fact that you are willing to rush through the signing process.
You have already invested some significant time though, so what is another half hour. Take an extra 30 minutes and review some key details of your loan contract.
Annual Percentage Rate
One of the first boxes on your sale contract will be the Annual Percentage Rate. It will be high up on the page, so don’t just skip down to the signature line at the bottom. Assuming that you got financing directly from the dealer, you need to look at this number.
One thing that most people do not understand is that dealers make a tremendous amount of money on the back end of a loan, often more than they make on the vehicle itself. Here is how it works.
Your dealer will submit your financing offer to their banks but you never see the actual offer. What they do is take the interest rate offered by the bank and add a few points. If the bank offers you financing for 6 percent, they will right your contract for 8 percent. The extra interest money goes right into their pocket.
Take a look at that number and then send the contract back. Say that you want a lower interest rate and 9 times out of 10, you will get it. Cutting your rate back 2 percent could save you 1500 dollars over the course of a loan.
Total Sales Price
This will be close to where the APR is. The Total Sales Price will be the amount that you will pay after you have completed paying off the loan. It includes the principal, down payment and the interest over the life of the loan. Pay attention to this number because dealers hate for you to look at it.
Dealers like to get you preoccupied on your monthly payment. That is very likely the first question they will ask you when you start negotiating. “What do you want your payment to be?” If you focus on this number, you may not realize just how much you are paying.
They might get your payment right, but if you will be paying 40,000 dollars for a car with a sales price of 25,000 dollars, is that a good deal?
Debt Cancellation Agreement
If you are like most people, you will be behind on your loan for the first few years. This is typically because people like to put as little as possible down and sign up for long loan terms. That is a discussion for another article though.
Because you will be upside down, a Debt Cancellation Agreement or GAP policy is likely a good idea. If you were to wreck your vehicle and it was a total loss, your insurance would pay off the fair market value of the vehicle. What is left on the loan would be your debt, unless you purchased a GAP policy. In that case, GAP would pay off the difference.
So, GAP is likely a good idea but you do not necessarily need to pay what the dealer is charging. Yes, they are taking a cut of the GAP premium as well. If the price for this policy seems high, negotiate it down. Anything over 500 dollars is subject to scrutiny.
Other Charges
On the itemized list of charges will be a section called Other Charges. This is where a dealer will list things like service contracts and dealer add ons. If you have negotiated for dealer add ons to be removed, pay attention to this section.
In addition, you should be careful about the price of extended warranties. Yes, your dealer takes a very big cut on them. The price of an extended warranty can be negotiated down but it is usually a better idea not to purchase one at all. If you are buying a vehicle with a factory warranty, purchase your extended warranty when the factory one is about to expire. That will keep you from having to pay interest on a warranty for three years before it even goes into affect.
If you forget to check this section and then later realize that you paid 2000 dollars too much for an extended warranty, here is a tip. You almost always have 30 days to cancel a warranty and get all of your money back. Keep that in mind if you make a mistake and as a negotiating tactic with a dealer. You can often negotiate a cheaper vehicle price or interest if you agree to get an extended warranty. Take the better deal and then cancel the warranty.
