Dealing with Car Dealers: Five Tips for Keeping a Car Loan under Control

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It's a feeling somewhere between confusion and panic. It comes from sustained exposure to car dealer mumbo-jumbo, and it causes people to just want to sign the papers and get out of there. The result: car payments much higher than the buyer intended.

Car Dealers Have To Make Money Too

Another way to think about this is that car dealers have several ways to make money. If they offer an attractive price or interest rate, they'll strive to make it up in the other areas. There is a cure, and it's called advance preparation. There are many variables involved in making a deal on a car--base price, options and extras, trade-in value, and car loan terms, among others. Here are five tips for cutting through the smoke and staying on budget:
  1. Make the Car Payment the Bottom Line. Car buyers should do their homework in advance, understanding what they can afford to pay, what their trade-in is worth, how long their loan term should be (no longer than the expected life of the car) and what competitive interest rates are. They should run this all through a car payment calculator and see what monthly payment results. When all is said and done at the dealer, if the monthly car payment doesn't come in under this target (and extending the term of the loan to hit that targeted payment doesn't count), it should be no deal.
  2. Beware of Car Loan Gimmicks. Dealers love to offer come-ons like no money down and no payments for a year. These can result in a higher interest rate on the car loan. Car buyers need to focus on the overall eventual expense and not on any temporary gimmicks.
  3. Don't Give Dealer Financing a Home Court Advantage. Too often, people finance through the dealer by default. Car buyers should make dealers compete like any other lender, by knowing what car loan terms they could get elsewhere before walking into the dealership.
  4. Be Picky about Extras. Dealers have several ways to jack up the price of a car, one of which is pushing shoppers to buy a package of "options," like a "leather sport package" when they just want one feature like air conditioning. Buyers should decide in advance exactly what they want, and not agree to pay for extras just because that's the version of the car the dealer happens to have on the lot.
  5. Beware of Extended Warranties. It's funny--once the car salesman convinces shoppers that a car is wonderful enough to buy, the finance manager sets out to destroy their confidence in its workmanship and staying power. The paradox of an extended warranty is that it implies the buyer intends to own the car for a long time and expects to have trouble with it. For most people, those two conditions would be mutually exclusive, so an extended warranty may not make sense.
A little online research and a few minutes with a car payment calculator will help buyers keep the discussion on their terms and walk out with car payments which fit their budgets.

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