Is An Auto Loan for You?

Posted by Mohamed Rias | 4:13 AM | 43 comments »

The automobile is certainly a wonder of twentieth century technology. It has made its place in our American history. Though not as well known, a whole industry had to be created to effectively market this fairly expensive luxury to the general public.

The franchise system was used to lock in big profits for the auto manufacturers. Your local Ford or Chevrolet dealership is part of this system. If you want to buy a new Ford or Chevy you have to buy it from one of these dealerships.

The automobile dealership is basically a franchise granted to a car dealer by the manufacturer. These dealerships are exclusive franchises. This gives the car dealer many marketing advantages. Car dealers will use their proprietary knowledge to inflate the cost of your car purchase. Certain marketing practices could potentially cost you hundreds, even thousands of dollars that you shouldn't pay.

Although the car dealer may be reputable, the industry of car sales has adopted selling methods, practices and techniques that cause unsuspecting car buyers to pay more than they should for a new automobile.

These front-end charges are unnecessary and should be avoided:

Car Buyer Mistake #1 --

If you are charged a large amount of money for "set-up and prep charges", then beware. The truth of the matter is that the car was inspected before it left the manufacturer. The car was insured in transport to the dealer and if there was any damage during transport, that would have been paid by the trucking company. The total preparation to sell you the car really amounts to a quick car wash. Prep charges can run up to $800. You should pay nothing for any prep charges.

Trade-in Trickery --

Dealers hate to take trade-ins. They either have to sell them on their own lot or dump them at a car auction. It generally costs a dealer $600 to handle your trade-in. The dealer will pass this cost along to you. And even though the salesman says he can get you "top dollar" on your trade-in, you are really only getting the amount the dealer knows that he can sell the car for at an auction.

There are also other questionable charges that occur at the back-end of a car sale. You can avoid losing hundreds of dollars by being aware of these dealer tactics to make more money.

Dealer Periodic Maintenance:

Don't fall for this one. The dealer will charge you $40 per hour or more for every scheduled visit back to the dealer. You can get the same quality of service at Jiffy Lube for $20. The dealer is simply trying to assure more business for his dealership by selling you this option after you purchase your new car. If your car ever needs to be fixed, you may want to have the work done somewhere else anyway.

Vehicle Undercoating:

Even though the dealer might insist that you need this option, the truth is that the body of the car will begin to rust before the undercarriage will. Unless you plan to keep the car past 5 years, and you live near a coastal area, you can skip the undercoating and save $200 or more. All cars have a protective coating on the underside of the vehicle included standard anyway.

Credit Life and Disability Insurance:

You will be offered this insurance if you finance your car through the dealer. It seems like a good deal. It pays off the car if you become disabled or die. And you can just add it to the monthly payments, right? Yes, but don't buy this either. The total cost of this insurance will run you $1000 over the life of the loan. Save your money.

And always get your car loan from the bank, not the dealer. This will give you confidence when you walk into a dealership knowing that you are already pre-approved for the car of your choice. Don't buy a car just because of a rebate or low interest incentive either. These don't really save you all that much and you can pay less for the car you really want by knowing the following information about car dealerships:

The dealer's markup on a new car is between 18%-20%. This little bit of information will allow you to save money because you will know what the dealer actually paid for the car. You can negotiate a better price when armed with this information.

If you do buy a brand new car, expect the car to depreciate immediately by 20% when you drive it off the dealer's lot. This is because it is now a used car.

In the next year, your car will depreciate by another 10%. The second year it will have depreciated another 20%. So if you buy a 2 year old car in good shape and have it checked out by a certified mechanic before you buy it, you can save up to 50%.

These are tips that could save you or someone in your family a lot of money on your next car. Be a wise consumer. Always ask questions and know your options. It's the best way to keep more of your money

43 comments

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