Comparison rate shopping and thorough evaluation of any deal you’re offered are the foundation of any car finance deal. But there are some less commonly referenced and costly mistakes people make during the financing process. Before you sign any financing agreement, here’s what you need to avoid.
The Price Negotiation Trap
When you’re looking at financing offers, it’s easy to get drawn in by the promise of a lower monthly payment amount. But that small savings per month may cost you hundreds or even thousands of dollars over the life of the loan.
If you let the dealer know what you can afford to pay each month, you’re going to lose valuable price negotiation power. The car dealer may push add-ons and other things you don’t need if they realize they’ve got a cushion between the car’s cost and what you can afford to pay.
Aim to negotiate each area of the deal, such as the purchase price, your trade-in’s value and the loan agreement, separately. By focusing on the different deal aspects individually, you can squeeze the most of the deal in your favor. Make it clear to the salesperson that you will only discuss one part of the deal at a time to avoid giving them an advantage during negotiations.
If you are going to trade in your old car, establish the market value prior to visiting the dealerships. Sometimes you can get more money going through a private seller or using a car buying business, such as webuycars.com. Compare prices before selling your old car to confirm you’re receiving the highest possible price.
The Credit Score Slide
You need to know your credit score before you start visiting dealers, according to Bankrate. Use the score to decide whether you can apply for financing at places more likely to offer you a favorable rate than a dealership, such as a credit union or your personal bank.
Even if you want to use dealer financing to take advantage of a rebate or other incentive program, you should apply for pre-approval at other places to get an idea of the right rates for your creditworthiness. By knowing your score and what type of financing terms you can get elsewhere, you can make an informed decision about any financing the car dealership offers you on the spot.
Rolling Add-Ons Into Your Financing
While you may want particular add-ons, such as electronic enhancements and a car alarm, rolling those features into your financing isn’t the best way to go if you can pay for them individually. You’ll end up paying more interest if you inflate your loan by adding unnecessary features into it.
Some add-ons, such as an extended warranty, may be available and cost less if purchased outside the dealership. Research the add-on features you want before going to the car lot to estimate the price and decide whether to get them from an outside source after you buy the car.
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