Depending on your point of view, car dealers are an annoyance or in the worst case, certainly not your friend. We all need autos so what’s the best way to buy a car? Educating yourself should be your top priority before buying a new or used vehicle.
A word about car dealers . . . .
Sure, the dealer needs to make a profit, however, some auto sales staff can be overly aggressive and may even gouge unsuspecting buyers. So take control of the buying opportunity and be an educated and sharp shopper.
Dealers just don’t sell cars; they sell financing and insurance products. The market has become so competitive that just selling cars isn’t enough for the dealer to survive. The “real money” is not in selling the car but in selling the related insurance products. In fact, dealers frequently make more profit from the sale of related insurance products such as Mechanical Breakdown (if your car breaks down), credit life and disability (If you die or become disabled the insurance pays the loan), and GAP (if your car is totaled, you won’t owe the lender a deficiency balance).
Let’s start with terms you should know.
Manufactured Suggested Retail Price (MSRP). This is the retail price of the auto. Who pays retail at the dealer? Nobody does. The dealer starts high then will offer the buyer a “discount” so the buyer feels he is getting a deal.
Dealer invoice. The invoice is the dealer’s cost from the manufacture. Invoice typically includes an additional 2% or 3% called holdback. A holdback is an extra rebate from the manufacture to the dealer. The manufacture refunds the dealer for the holdback after the car has been sold. You won’t see holdback listed anywhere on the invoice and the dealer certainly won’t tell you about it. Simply, holdback is more profit to the dealer. Frequently, you will see dealers advertise cars “at invoice or $100 above invoice” which includes the additional 2-3% profit from holdback.
Can I see the dealer’s invoice? No, most dealers don’t share this information. The credit union can help, so call us.
Other incentives
There is a whole list of other incentives or dealer credits including reserves for interest and flooring costs, advertising and others. These all contribute to the dealer’s profit. Don’t try to negotiate these items. Your salesman won’t know.
Pre-approval. Pre-approval means that members are pre-qualified by the credit union to buy the car before walking into the dealer.
KaiPerm Tip: When you are pre-approved, you become a cash buyer. And that’s a good thing. The dealer knows you are serious and won’t have to worry whether you qualify for a loan.
Buried, upside down or negative equity. These terms refer to the value of your trade-in. Being negative means that you owe the credit union more than the value of the vehicle. If your trade-in is being financed, you’ll need two pieces of information before going to the dealer; your loan payoff and what’s the value of your car.
KaiPerm Tip: First, always negotiate as if you do not have a trade-in. Frequently, it is better to sell the vehicle yourself; if you are uncomfortable then call KaiPerm. We’ll let you know what your car’s trade-in value is – so you can negotiate better with the dealer. Remember, that your family treasure “Old Betsy” may not be worth as much as you think. So be realistic as to your trade-in and its value.
Rebates. A rebate is a refund from the manufacture paid to you either as a down payment or separate check. Check the manufacture’s website in advance to see if the vehicle you want to buy is eligible for a manufacture’s rebate.
How to finance
If you must finance a depreciating asset (like your car), it’s wise to put down at least 20% of the sales price. The down payment will lower your monthly payment. It also means that you won’t owe more on your car is worth. Plus, a down payment will allow you to have room in your budget to pay for maintenance, gas, insurance and tires, etc. Try to keep the loan repayment at 48 months or less.
KaiPerm Tip: A good rule of thumb is to make sure your monthly payment is no more than 10% of your gross income. In some cases, KaiPerm will finance 100% of the purchase price.
Get pre-approved and avoid dealer financing. Dealers frequently won’t guide you to the best interest rate you can get. The dealer’s “finance and insurance” man will sell you payments and not the interest rate. The higher the interest rate the more money the financing company makes. And the dealership often receives a kickback from the financing company for sending a high rate loan to them. On the other hand, if the interest rate is too good to be true then be wary. The dealer may offer you a low interest rate then try to sell you a car at full MSRP. The dealer may not be able to lower the sales price because the manufacture is offering such a low interest rate. Avoid the hassle and finance at the credit union.
KaiPerm Tips:
· Get pre-approved before you buy. Pre-approval will also “slow down” impulse buying which dealer’s love to see and where consumers typically have buyer’s remorse.
· Do your homework. Find out in advance what your trade-in is worth. Search out how much will my new car depreciate. How reliable and safe is the car that I want to buy? And make sure to call the credit union with help on determining dealer invoice.
· Buy insurances/add on protection products from the credit union. We offer good quality products and far lower prices on Mechanical Breakdown Insurance (MBI), credit life and disability and GAP insurance.
A final word . . . . .
· Do business with KaiPerm; your trusted auto lender and source of reliable information. We’ll help make your auto buying experience much more fun.