There’s More to a Car Deal Than Price

car buyer dealsAs automobile consumers, we tend to focus on price or monthly payment as the most important factor of any deal. However, there are other factors that should be considered as well.

Add-on costs

When you buy a brand new car, you always take the trip into the F&I (Finance and Insurance) manager’s office to sign your papers. But while you’re being held captive there, you’re presented with the “opportunity” to purchase a variety of expensive “add-on” products such as extended warranties, credit insurance, gap insurance, paint sealant, fabric protection, rust proofing, or security systems. These are all high-profit items for the dealer and are usually not worth the cost. If you choose to buy them, any deal you might have gotten on the price of the car is seriously eroded.  A good deal can turn bad in the blink of the eye.

Dealer fees

There are always a variety of fees when buying a car. Some are added by the dealer, others are charged by the finance company (if you need a loan or lease), and others are official fees and taxes required by the state/county/city where you live. Of course official fees are what they are — they can’t be negotiated out of a deal and don’t affect the deal, although if you negotiate a good price on your car, you pay less sales tax. And you can’t negotiate fees imposed by a bank or finance company because dealers don’t have the authority to do so.

That leaves us with dealer fees. The most common is what is common called a “doc” or documentation fee, which can be several hundred dollars and varies by dealer. It’s an administrative fee charged by dealers to pay for the work that goes into filing for tag and registration, finding and applying for financing, and other related admin work. Some dealers will let you negotiate it out of a deal, but most declare it non-negotiable.

Other ways that dealers try to make extra profit on a deal is by adding a “reserve” on top of the interest rate charged by their bank or finance company. Say the dealer’s finance company charges 2.5% APR interest on loans or leases. A dealer can add another 1%-2% on top, making a customers actual interest rate as high as 4.5% APR. This is extra profit for the dealer. Since we don’t know what the dealer’s wholesale rate is, we can’t realistically negotiate it down. But we can shop around at our own banks and credit unions to see if we can beat the dealer’s rate, and either go with the better rate or use that information to get a better rate from the dealer.

Lease acquisition fees

If you lease, there’s always a lease “acquisition” fee. It’s like “points” in a home mortgage and is a form of administrative fee charged by the lease finance company. You can’t negotiate it out of the lease because the dealer is not authorized to do so. However…dealers often add their own “padding” on the finance company’s fee, and that padding can be negotiated down or out, assuming you know what the “normal” acquisition fee is. It’s easy to find out. Just go to the car manufacturer’s web site and look for the details on their lease deals. You’ll nearly always be able to find their acquisition fee in the fine print of the advertised deal. For example, Honda Finance charges $595 as a lease acquisition fee. If your dealer is trying to charge you $895, he’s attempting to make an extra $300 on your lease deal. That $300 is up for grabs.

Free scheduled maintenance and roadside assistance

A number of car companies are now providing free scheduled maintenance with new car purchases or leases. Such maintenance is not inexpensive and can contribute to making a good car deal better. Free roadside assistance is also a good perk in any car deal. Compare those costs to those of AAA for a similar service and you’ll find you’re getting a worthwhile value in your deal.

0% APR interest

The cost of financing often surprises car buyers, even when rates are relatively low, it can a significant extra amount to the overall cost of the purchase. For example, when buying a $25,000 car with a 48 month loan at 5.0% APR, the cost of financing over the life of the loan is $2635, or 10.5% of the cost of the car (not 5% as many people mistakenly believe).

Therefore, if you can get a 0% APR promotional loan deal, you save a substantial amount of money. However, to get these special rates you must have a good credit score. If you don’t know your score, you should, before you visit a dealer.  If you don’t know your current credit score and rating, you can get it quickly and easily online. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com!

Sign-and-drive lease

Car companies sometimes offer special “sign-and-drive” lease deals in which the customer makes no down payment and doesn’t pay the normal first month’s payment, and makes no security deposit — and gets an attractive low monthly payment. These are nearly always good deals because not only is the first month’s payment being made by the company, but the lease is usually based on a discounted lease price, high lease-end residual, and a low month factor.

Summary

Car buyers should look beyond price and monthly payment amount when shopping for good car deals. Other factors can turn a good deal into a bad one, or make a good deal into a great deal.

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