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Auto financing -- avoid these pitfalls

  • Story Highlights
  • When getting financing at car dealer, negotiate the interest rate, author advises
  • Do research on all issues of financing, don't let dealership rush you
  • New cars and trucks come with warranties, so probably don't need another one
  • Alarm systems, other after-market items cheaper to get on your own

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By Michael Royce
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New Cars, Used Cars, Kelley Blue Book Values at AOL Autos

(AOL Autos) -- Congratulations. You've successfully negotiated the purchase price of your new or used car or truck. You've made a great deal.

Plan and research how you'll finance your new vehicle before you step foot on a car lot.

Plan and research how you'll finance your new vehicle before you step foot on a car lot.

Next you're ushered into the dealership's business office -- also known as the "F&I Office" for finance and insurance. You're introduced to the business manager, a pleasant well-groomed woman (or man) who congratulates you on your purchase.

She reassures you that you made a wise decision and that the tough part is over so now you can relax. You sit and breathe a welcome sigh of relief.

As you go through the formalities of signing the various forms and agreements, she casually explains to you your financing terms, your interest rate and other details. Along the way, she offers you several "extras" that will add "mere pennies a day" to your monthly payments.

Among these items might be an extended service warranty, paint and fabric protection, rustproofing, undercoating, alarm system, window tinting, and maybe even life, health, or disability insurance.

You're relaxed. The negotiating is over. And these extras sound really worthwhile. Besides, you like this business manager. She's nice and sincere. So you agree to the interest rate and financing terms.

You purchase the extended service warranty. You even purchase the paint and fabric protection. AOL Autos: Best looking cars of 2009

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BAM! You just put a small fortune in her purse. Why? Because the biggest secret that the dealership doesn't want you to know is this:

The business manager is, in reality, a salesperson working on commission. And...most of what the business manager offers you is negotiable.

Of course, you probably didn't know that. Most car buyers don't. And certainly no one at the dealership is going to tell you.

The plain fact is: Car dealerships often make more profit from the financing of the vehicle and the sale of "extras" sold in the business office than from the actual sale of the vehicle itself. AOL Autos: Most affordable 2009 vehicles

So what to do? No worries, my friend. Here are some tips for dealing effectively with the car dealership's business manager:

1. Don't let your guard down. Just because the business manager may seem friendlier and nicer than the car salesman, it doesn't mean the deal is over once you enter the business office. It isn't.

The deal doesn't conclude until you drive the vehicle off the dealership's lot. So despite how friendly the business manager may seem, remember that she's there to make as much money as possible for herself and the dealership. AOL Autos: Best cars for your money

2. Arrange your financing before you go to the dealership. Since the business manager works on commission, she may try to trap you in a higher-than-necessary interest rate so she can maximize her commission.

Avoid the dealership games by arranging your financing before you set foot in the dealership to buy. Apply for an auto loan at your bank or credit union. Apply also online. Then compare all of the loan offers you've received and choose the best one.

Once at the dealership, compare your best offer with the dealership's offer and decide which is the best deal for you. AOL Autos: Cars with best resale values

3. Try to negotiate the interest rate. If you were unable to qualify for financing from any bank, credit union or online financier, then you'll probably be stuck with dealership financing. And your auto loan will probably have a relatively high interest rate since you are considered a "credit risk."

Nonetheless, if you feel that the interest rate that the business manager offers you is unreasonably high, tell her so and ask her to lower it. AOL Autos: Best car deals this month

4. Think twice about the "extras." Each "extra" you purchase means another commission to the business manager. But do you really need these extras? Probably not. For example, you'll certainly be offered an extended service warranty.

All new cars and trucks come with comprehensive warranties so you don't need to buy another one. As for paint protection, you can apply it yourself by buying any inexpensive over-the-counter polymer sealant car wax. You can apply fabric protection yourself by buying a can of Scotchguard.

You may be able to purchase window tinting, alarm systems, pinstriping and other after-market items cheaper on your own. Rustproofing is usually applied automatically in the factory so you certainly don't need to pay twice for it. (Check your vehicle's factory warranty to see if it includes a rust perforation Warranty. Most do.)

And by all means, decline any health or life insurance that you may be offered by the dealership.

5. Go to the experts for answers. Don't count on the dealership to give you straight answers about financing. Remember, they may say anything to get you to finance your vehicle with them on their terms.

So for the real facts about monthly payments, interest rates and other important financing details, ask your bank or credit union for the truth. They'll be happy to take the time to explain it all to you in an easy-to-understand no-pressure atmosphere.

6. Take the time to learn. Be sure to do all of your research and get the necessary facts before you go to the dealership to buy. Remember that they want you to be hurried and confused.

So don't fall for that trap. Take the time to do your research. It'll pay off big time in the long run.

© 2009 AOL, LLC. All Rights Reserved.

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