Navigating automobile financing can be one of the biggest financial headaches you'll encounter. But, unless you want to walk everywhere, it's something you'll have to deal with. The biggest hurdle is figuring out the angles and understanding the entities that stand to profit from the transaction. Let's go through some of the more challenging parts of automotive financing by addressing some of the questions about your automobile financing your dealer hopes you won't ask.
1. When should I tell the dealership I already have financing?
Maybe later in the car-buying process rather than earlier. By doing your research ahead of time and knowing what financing options are available to you, you can let the dealer think there's still money to be made in the financing, which may strengthen your negotiating position on other parts of the transaction, like the price of the car or the value of the trade-in.
2. How do dealerships make money offering 0% financing?
If it were honestly a losing proposition for the manufacturer, they wouldn't keep doing it. This might invite you to ask how they could possibly make money on the financing. The answer is two-fold: volume and selectivity. The volume part of the money-making strategy is simple. 0% financing gets people on the lot and encourages them to think about buying a specific brand of car. Selectivity is the other side of volume. Not everyone who comes to a 0% financing event will qualify for that rate. Because most people who get to the point of discussing financing have decided to purchase a car, they'll settle for a non-zero rate when it's presented to them.
3. Does my salesperson benefit from financing my car purchase?
This really depends on the dealership. Most of the time, your salesperson only benefits from the price of the car, the warranty, and some high-markup items, like undercarriage treatment, upgraded tires, and other products.
4. What steps can I take to avoid being railroaded by last-minute financing charges?
Financing is among the easiest places for dealers to make money, because it's almost always the last stop in the car-buying process, and they expect you to be both committed to purchasing a car and exhausted from making a series of decisions. Make sure you try to scout out other financing possibilities before you resort to financing through car dealerships since they are for-profit. Remember, it's always best to get pre-approved at your credit union first. With low rates and no hidden fees, it's the easiest, and smartest, place to finance your next car.
Buying a new car can be fun! Just keep these tips in mind to keep the stress at a minimum. Happy shopping!