Understand Your Personal Finances Before Heading to the Dealership

Amanda Garland

Car salesmen are in business to make money. They seek to sell you the vehicle that makes them the most money possible. Sure, they want you to be happy, or rather excited about your purchase, but with their paycheck dependent on completing the sale, their focus is going to be on getting you to spend more money.

There are several subtle and not-so-subtle ways car salesmen go about trying to get you to part with your hard-earned cash. When walking into a car dealership, below are some innocent-sounding questions sales personnel will likely ask, and if you are not prepared, answering one of these questions wrong could cost you a lot of money.

What is your budget?

This seems like a simple enough question, harmless even. While you should definitely have a number in your head, you might want to reconsider sharing it. If you know your max budget is $20,000 and you tell them this, you are almost guaranteeing that every vehicle they show you will have a price tag exceeding your budget by several thousand.

A crafty salesperson may even present you with a real clunker that is well within your budget in an attempt to convince you that you need to re-evaluate your budget or your expectations. Don’t fall for it. Just an extra $1000 or $2000 over your budget will end up costing you a lot more over the life of the car once you calculate increased tax costs and loan interest.

Instead of telling them the number in your head, tell them the type of vehicle you’re looking for. For instance, you could say something like “I’m looking for a used SUV with under 30,000 miles and a leather interior.”

Do your research ahead of time to get an idea of what features you can get in a vehicle that is in your price range.

If you absolutely need to give them a number, cut a significant amount off your budget. If the top end of your budget is $20,000, tell the salesperson your budget is $15,000. That way, when they show you those higher-priced vehicles, they are still within your budget.

And when you complete the sale, the salesperson is happy because they believe they got you to spend more than you wanted to.

What do you want your monthly payment to be?

This is similar to the budget question, but potentially a little more insidious.

By getting you to focus on a monthly number the sales staff can distract you from the total number.

For instance, if you say you want a payment of no more than $350/month, there are several ways they can finesse the numbers to get to this dollar amount.

The first would be convincing you to put more money down. “Well if you put down an extra $2k today, I can get you down to a payment of $348.” Sure, the monthly total works for you, but the total cost of the vehicle did not go down any plus you’ve now got to shell out an extra $2,000.

The second adjustment they can make to get you down to your monthly total would be to extend the duration of the loan.

A $20k vehicle loan with a 3% interest rate for 5 years comes out to $359/month. The same $20k with a 4% interest rate for 6 years gets you a payment of $313/month. The monthly payment amount sounds great, but now you are paying for a year longer at a much higher interest rate.

This lower monthly payment actually costs you more over the long term.

While you should have an idea of what you want your monthly payment to be, this number should be based on the total price of the vehicle. Focusing too much on the monthly payment could result in a purchase that is not only over budget but includes a loan that will leave you underwater for several years.

Instead of giving the salesperson a monthly payment total, simply state that you would like to focus on the total value of the vehicle. Ask for the purchase price and don’t let them distract you with a “cheap” monthly payment.

How are you financing this?

This is an innocent enough question but has the potential to cost you thousands of dollars and damage your credit score. The reason the dealership is asking this question is not because they doubt your ability to pay, it is because they want the chance to sell you a loan.

The potential damage to your credit score comes in when the dealership runs your credit.

Even though you are working with them to obtain the loan, they are not underwriting it. Using your social security number, they will submit your information to several lenders. Each lender that receives the loan information does a hard pull on your credit. The more hard pulls you have, the bigger the hit your credit score will take.

If you end up shopping around at several dealerships over the course of several weeks or months and let all of them run your credit like this, then you are potentially doing major damage to your credit score.

Another thing to keep in mind is that by going through a lender you already have a relationship with, you can often qualify for a better interest rate. The dealership will shop out the loan to any lender, which will likely land you a higher interest rate than you could have found on your own.

On a $20k loan for 5 years, the difference between an interest rate of 3% versus 4% is over $500.

But what if you are buying a new car and are looking at utilizing the dealership’s 0% apr offer?

While you likely won’t find a bank to lend you money at 0% apr like the dealer is, you should still take the time to read the fine print. Many of the 0% apr offers require a certain purchase price and down payment amount.

For instance, they may require a minimum loan amount of $20k and a down payment of $2k. That means the total purchase price of the vehicle has to be at least $22k.

The other consideration with this offer is that it cannot be used with any other offers. On new vehicles, the dealership often offers cash incentives and rebates worth thousands of dollars. Often this means you are better off taking the incentives and rebates even though it means carrying a loan with an interest rate.

For example, a $22k vehicle with $20k financed and a $2k down payment at 0% apr for five years costs you $22k (not including TT&L). The same $22k vehicle with $3k in cash and rebates, the same 2$k down payment, and financed at a rate of 3% for five years, results in a total cost of $20, 328. This is nearly $2k less than the total you would pay using the 0% apr offer.

Plan Ahead Instead

When purchasing a new vehicle, the experience seems filled with so many pitfalls and traps it makes you dread even walking in the door of a car dealership.

While technology is making things easier, even offering options for purchasing a vehicle that doesn’t require you to leave home, the big-name car dealerships aren’t going anywhere anytime soon.

By knowing the pitfalls to avoid and doing research ahead of time, you can end up saving yourself time, heartache, and a good chunk of money.

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A Texan and new mom, writing about things I am most passionate about; personal finance, parenting, and the events that shape Texas.

Dallas, TX

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