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4 rules for negotiating the best deals on auto loans

[Sep 5, 2011.]


Writing on the Fox Business website, Emily Driscoll offered some useful advice about what you should and shouldn't say when you're on a dealer's lot and looking to change your vehicle. Some of what was suggested was common sense (like not showing you're too excited when crawling all over the car of your dreams), but a couple of Driscoll's points about auto loans are well worth repeating here.

Auto loans and interest rates

If you're a regular reader of this blog, you'll already know that it's a very good idea to arm yourself with competitive quotes for auto loans before you set foot on a dealer's lot. Whether you get these from your bank, a credit union or Rebuild.org (or better yet all three), you are likely to be in a much better negotiating position when the salesperson comes up with the dealership's own quote.

Driscoll's point is that you shouldn't reveal what rates you've been quoted elsewhere. After all, the dealership might have been prepared to undercut the best rate you've been quoted by 2 percent or even more. But dollars to the free donuts and coffee in the showroom, the salesperson's only going to undercut your cheapest quote by the tiniest margin if she or he knows precisely the rate that has to be beaten.

Auto loans and monthly payments

Before you set off for the dealer's lot, you should have a very clear idea of how much you can afford in monthly payments. But that's a secret you need to keep to yourself.

If you reveal your monthly payments budget, the dealer is incentivized to focus on that and then fiddle the figures so you get the car you want for that amount. That may sound good, but the salesperson may end up delivering your supposedly perfect deal by extending the length of your loan rather than offering you a competitive rate. And that could prove expensive for you.

Auto loans and scams

Doubtless, there are car dealers across America who are pillars of the community and models of integrity. Trouble is, there are a whole lot who are not. And all your careful negotiating practices will get you nowhere if you fall for one of the many scams that seemingly respectable dealers sometimes perpetrate. In particular, you need to watch out for "yo-yo selling."

The Center for Responsible Lending describes what this involves:

The buyer is either convinced to enter into or unwittingly placed in a conditional sale agreement rather than a final sale. After the buyer drives the vehicle home, the dealer later claims to be unable to fund the loan at the agreed-upon terms. The buyer is required to return the car and renegotiate an often more costly loan. Often, the buyer is told that their down payment is non-refundable and/or their trade-in has already been sold.

Negotiating auto loans

To sum up:

  1. Get quotes for auto loans from other sources before visiting a dealership

  2. Once there, don't reveal the details of those quotes, and especially don't disclose the interest rates

  3. Also, don't reveal to the salesperson your budget for monthly payments

  4. Make sure you sign a final (as opposed to a conditional) sale agreement

Happy bargaining!


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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