You are finally done buying a car. You have found the exact brand, model and color that you are looking for. Now comes the hardest part: signing the papers. If you do not have your financing before you visit the dealer, you must apply for financing for the dealer. The seller and the financial manager try to sell you everything, from extended guarantees to floor mats. You must be prepared for the endless sales pitch that is coming soon. In this post, I’m going to delve into negotiating a car loan, one of the most important areas that you must master when trying to take advantage of our 5 tips for buying a new or used car from a dealer.
Here are 5 great tips to help you negotiate the best deal:
1. Always negotiate the price.
This may sound simple enough, but it can even be difficult. A trick that is often used by car dealers is to help you negotiate payments. You get the following questions: “How much do you want to pay per month?” Or “What do you want your payment to be?” Car sellers enjoy negotiating payments as opposed to the actual price of the car. That’s because they want to set the price based on the maximum monthly payment that you are willing to pay. If you fall for this tactic, you end up paying much more for your car. Negotiate the price, not car payments!
2. Keep your credit period as short as possible.
Dealers have devised creative financing programs that allow borrowers to lower their monthly payments. They do this by extending the number of years on the car loan. Today, borrowers can finance a car for up to 7 years. This is absolutely ridiculous! A car is a value-reducing asset and loses its value every year. The best loan period is 4 years or less. The maximum is 5 years. Under no circumstances should you ever take out a car loan for more than 60 months, otherwise you would very well notice that you are getting a car loan upside down.
3. Skip all extras.
Finance managers will try to persuade you to buy every available option. They sell you insurance against holes, rust protection, textile protection, extensive guarantees, paint protection, and car alarms. Many of these are useful items, but the dealer layout is ridiculous. They earn huge profits by deterring customers from these products. You can get extensive aftermarket guarantees and car alarms. Rust protection is not essential for modern cars. You can apply for Scotchgard and paint protection yourself for a few dollars. Gap insurance is sold at most credit unions for a much lower price.
4. Say no to high-interest loans.
Your credit rating will determine the interest rate that you will receive. Just because your credit is not good doesn’t mean that you have to take out a loan with a ridiculously high-interest rate. People with good credit receive loans with one-digit APRs. People with average credit can get loans from 10% to 12%. Persons with bad credit are offered loans of 15% or more. Many people with bad credit accept loans with interest rates of up to 24%. Never take out a loan with exorbitant interest rates. No matter what your credit situation is, it’s never worth paying extortionate rates just for the right to own a car.
5. Keep emotions out of your decision.
Buying a car can be an incredibly emotional decision. After you’ve taken a test drive and got a hint of that new car, it can be difficult to leave. If the dealer does not want to negotiate, you must be prepared to walk away. Remember that they do not please you by selling you a car. You pay money for this car. Do not allow your feelings to get stuck in a bad car loan that you will regret for years.
Do you have any horror stories from when you negotiated your car loan? Do you have additional tips for negotiating a car loan?