EchoBay Expert: I'll be purchasing a new car this month at a dealer and I don't want to make any amateur mistakes in negotiating the car financing. What's the worst mistakes I need to avoid when getting this car loan?
Loyal Reader: There are several mistakes you need to avoid when you are negotiating car financing. The biggest mistake most people make is negotiating based on the monthly payment rather than the price of the car.
If you answer with a number when the dealer asks what you would like your monthly payment to be, you might as well just hand him your wallet and all your bank account information. The dealer can make the payment on the car whatever you need it to be. He can do this by extending the term, raising the price of the car, increasing your interest rate or a combination of all three. Always negotiate the price of the car, you can calculate your car payment after the final price of the car is agreed upon.
Another common mistake is not reading the loan documents before you sign them. Not all loan contracts are the same and you should always read the fine print before you sign on the dotted line. If you do not, you could end up paying for junk fees that the dealer has added in such as promotion funds, document preparation fees, paint sealant, etc.
Do not ever agree to purchase the car before you have been approved for the loan. If it is going to take a few days for approval, then you need to drive your old car off the lot. If you take the new car home, the dealer is in a much stronger negotiating position on car financing now. This can make you feel obligated to buy the car when he calls to tell you that you've been approved at a higher rate.
Fourth, be sure to negotiate the price of the new car and the trade in value of your old car separately. If you discuss this as one number, it is too easy for the dealer to hide the price of the new car and therefore charge you more and to hide the price of your trade and not give you a fair value. Always discuss this separately.
Finally, be informed about your credit score and history. Your credit score can make a dramatic difference in your interest rate. By knowing your credit score ahead of time, you can prevent the dealer from charging you a higher rate because he has discounted your score.