Auto Buying and Financing: Drive Your Best Deal

Auto Buying and Financing: Drive Your Best Deal

Many consumers approach the process of buying and financing a new vehicle with fear and trepidation. Yet, it does not need to be this way! A little research and careful pre-budgeting can help put you on the road to car-buying/financing success!

When choosing a vehicle, work backwards. Before visiting the dealer, realistically determine what monthly payments you can afford (factor in additional expenses such as the cost of gasoline, auto insurance, and routine maintenance and repairs). Never impulsively purchase a desired type of car or truck, and then try and “cram” it into your budget. Let your finances guide your vehicle selection!

In order for you, the consumer, to stay in the “driver’s seat” when applying for an automobile loan, comparison shopping is key. Call banks, finance companies, credit unions, and other direct lending sources to find the lowest APR. This rate will vary based on whether you plan to purchase a new or a used car, and the loan term (for example, 24, 48, 60 or more months) requested.  Most lenders provide consumers with APR quotes over the telephone.  The Internet can be a great source for determining the interest rates charged by local lenders. With automobile loans, the terms “interest rate” and “APR” are generally synonymous. APR quotes assist potential car buyers to compare lenders and loan terms. Always pre-shop APRs!

Finding the Right Car for YOU

There are a variety of ways to locate the “perfect” vehicle for your lifestyle and financial situation. Many consumers still prefer the traditional method of visiting dealerships and seeking assistance during normal business hours, while other shoppers (including one of the authors of this guide!) prefer to initially peruse lot selection on Sundays or after dealerships have closed for the day. Classified ads and weekly used vehicle guides are viable sources as well.  Increasingly, consumers can utilize dealership websites to check inventories and compare asking prices. Additionally, online search engines allow Internet users to locate new and used vehicles of a certain make and model within a specified geographic area. Auto magazines and Internet websites can also be good resources for comparing/contrasting the features and the mechanical reliability of different models.

Once you have found the (potential) vehicle of your dreams, how do you determine a fair sales price? The Internet offers many reliable websites which list average retail and wholesale prices, along with trade-in values. Keep in mind that with used vehicles, variables such as mileage, model year, options, and overall condition affect a vehicle’s value. Before visiting dealerships, take notes to guide you in the bargaining process. When trading in a vehicle, many experts generally recommend that a car shopper inquire about the price the dealership will allow for their trade-in before discussing the sales price of the new vehicle. Don’t let the prospect of driving a shiny new car cloud your judgment and make you less vigilant in establishing a fair trade-in price!

A “Primer” on Car Buying Jargon

“Talk the Talk”
Destination Charge:  This is the assessment the dealer passes along to the buyer for the expenses associated with shipping a new vehicle from the manufacturer to the dealership.
Document (Doc) Fee:  An add-on fee that some (not all!) dealerships charge for preparing the loan and title documents ($100-$500).
Finance and Insurance (F&I) Office:  This is the office or cubicle where you actually sign the documents to “close” the auto deal.  Whether you are paying cash or financing your purchase, you will pass through this office before being “handed the keys.” Be prepared for the F&I person to try and sell you additional items such as extended warranties, credit insurance, and optional equipment.
MSRP:  The “Manufacturer’s Suggested Retail Price” is the price set by the maker of the new vehicle as the established retail selling price.
Retail Price:  The retail price is the asking price of a new or used vehicle.
Sticker Price:  The sticker price is found at the bottom line (literally) of the window sticker.  This is the highest price quoted and includes charges for all options and delivery charges.
Sticker Shock:  A feeling of surprise experienced by a consumer who finds an unexpectedly high price on the bottom line of a vehicle’s window sticker.
Upside Down:  When you owe more on your auto loan or credit contract than the value of your vehicle (negative equity), you are considered “upside down.”  Consumers who make little or no down payment when financing an automobile oftentimes find themselves in this situation throughout the first few years (2 or more) of their loan’s term. 
Trade-In Value:  The amount of money or allowance the dealer will grant in a vehicle trade-in.
Wholesale Price:  A below trade-in allowance that the dealership offers you for your trade.  The dealer justifies this lower price by noting that they will not be selling your vehicle at their lot, but rather shipping it to an auction for subsequent sale.  A wholesale price quote is commonly given to consumers who trade in older vehicles.