Auto Tips
Purchasing a vehicle can be one of the most taxing times in your life. Why? As with most things in life a little home work and preparation can go a long way. Dealers have several terms for people who come in and buy on impulse or unprepared. They call them 5 pounders or whales. These terms are there way of saying that they are going to make a lot of money off of you. We created this website so that it a little easier for you to do your homework, know what to ask, and how to approach buying a car.
1. Know how a dealer makes money
2. Determine what type of vehicle you would like.
3. Arrange Financing
4. Warranty or Not?
5. Choose your dealership.
6. The Big Dance
1. How Does a Dealer Make Money?
We could discuss this for days but I realize you are reading this because you want to buy a new car so I will be succinct. Dealers make money in several ways they are as follows:
On trade -in: The dealer will low ball your vehicle value during your negotiation. They will use the books (NADA, Black Book, and Blue Book) to value your vehicle. The books values can vary greatly from book to book, region to region. If you accept an offer that is lower than your cars value, the dealer will make money when he sells that vehicle. The amount of money is determined on how he disposes of the car. He can sell it to a wholesales, or he can clean the car up and sell it on his lot. Either way, he will make money on this trade.
On the Purchase price of the Vehicle: The Sticker Price is a suggested price by the manufacturer. The dealer will make some money on this, although this is one area that you have some control. Always negotiate down toward invoice price.
On Financing: The dealer’s Finance and Insurance office (F&I) will make money on every transaction. The F&I office exists so that the dealer can arrange financing on behalf of the customer. Each dealership has relationships with several financial institutions. These include Credit Unions, Banks, finance Companies, and Captive Finance Sources. Captives are the financing arms of the manufacturers. The dealer will send your application to each financing source and wait for what is called a call back. The call back is either an approval, decline or counter offer. Inside each of these decisions there is various information and stipulations on the term of the deal. The important thing to know is that the lender will let the lender know at what rate they will buy the loan. This is called the buy rate. The lender will then mark the loan up to this rate. So in the case that the lender will buy the rate at 11% and you were approved at 9% the lender will make 2% on the value of this loan. This is really important because why pay more than you have to. That is why if you have financing already lined up. You have significant leverage at the dealership.
On Warranties: The F&I office also will offer to sell you additional insurance products for your car. These include Extended Warranties and Gap Insurance. The dealer typically marks these products up several hundred dollars over their cost. Additional products sold include dent and ding protection, clear coating, alarms, and a litany of other products.
2. What Type of Vehicle Would you like?
This is such a silly question right? Well It is important to think about this, the last thing you want to do, is go to the dealer and say I do not know. The dealer’s job is to get you to drive off in the most expensive car that they can get you approved for so they can make the MOST money! Review consumer reports of vehicles you are interested in, look at reliability information on these vehicles, the internet has an amazing amount of information on it. Also, look at Craig’s list and see what certain cars are being sold for. Look at dealer websites and get a feel for what you might expect to pay. All this information will serve you well when you start negotiating.
3. Arrange Financing!
Your in luck, This website has the link to every credit union in the United States. Why a Credit Union? Well Credit Unions typically have the best rates on vehicles. They are fantastic in terms of customer service and they love to help their members? Members? They call their customers members because credit unions are non profit. You have to join a credit union prior to getting a loan. This is simple enough as typically you can open an account for as little as $5.00.
In lining up your financing ahead of time, you will know exactly how much you can afford and thus when you are shopping for a car, you can negotiate a better deal and since you won’t be paying more for your loan if you went through the F&I office you can afford more car!
4. Warranty or Not?
This actually depends on how what type of vehicle you are buying. If you are buying a new vehicle they typically come with bumper to bumper coverage for 36,000 miles or 36 months whichever comes first. Bumper to bumper simply means that everything is covered on the vehicle with the exception of named items. This type of policy in the Insurance Industry is called Exclusionary coverage because it’s easier to tell you want it doesn’t cover than what it does.
So if you are planning on keeping the vehicle after the 36000 miles or longer than 5 years and want comprehensive coverage on your vehicle, then a warranty is probably a good idea.
If you are buying a used car, I would always look at a warranty. If your budget is tight and an expensive car repair would hurt your finances, I would look at a warranty. There are several companies that sell these warranties online and they are just as good as what you would get from a dealer. However, be leery of any warranty company that offers warranties for just a few hundred dollars. Remember what your Mom and Dad taught you, if it appears too good to be true it probably is. One of our Partners www.WarrantyElite.com offers an outstanding product at a reasonable price.
5. Choose Your Dealership
There are over 20,000 dealerships in the United States Today. These dealers range from small independent dealerships to large corporate owned and operated dealerships. Most all of them are advertising their cars on the internet. Check with your friends, your lenders, and even your better business bureau about the dealerships reputation. When you are making a purchase this large, you should know who you are doing business with.
6. The Big Dance
Now that you have Researched Your Options, Found Your Car, Arranged Financing and Decided on a Warranty; you are now ready for the Big Dance. When you arrive at the dealership, stay focused on the task at hand. When you arrive you will be greeted by a sales person. They will ask lots of probing questions trying to find out if you are trading a vehicle in or ask you what type of payment you want, or if you are financing. Do not answer these questions. Answering any of these questions will provide them with information in which they will structure the deal so they can optimize their profit.
When they introduce themselves, you should indicate that you would like to see the vehicle you have researched. When they ask if you are financing a vehicle, you simply tell them that you haven’t decided yet. This way it allows you to negotiate the best price on the vehicle first. Same applies for when they ask if you are trading in your vehicle yet, you tell the dealer that you haven’t decided, but that you would like to agree on a price on the vehicle in question.
Once you agree on the price on your vehicle, then you can begin to negotiate on the value of your vehicle. Remember if, you do your research, you will know what it is worth by the same books that they use. Finally when you agree to a price for your vehicle and the one you are purchasing, you will be brought back to finance to close. When they ask how you would like to pay for the vehicle, tell them you have already arranged financing. The dealer will then tell you that they can get you a better rate. This is where you tell the dealer if they can get you financed at X Rate and X term you will listen. Make sure that the rate and term are the same or better than your prearranged financing if you decide to entertain their offers.
Remember If you go into the dealership understanding how they operate and make money and having done your homework ; you will come away a winner!!!
