by Ali Koomen

Created on: February 05, 2008   Last Updated: November 07, 2008

Here are five things you need to know about financing a vehicle that the dealer wished you did not know!

1.DO NOT involve a trade-in. There has never been a vehicle sale involving a trade-in that the dealership did not get the better end of the stick. Stay far away from dealerships that advertise: "Push pull or tow all trades at least $4,000." If the blue-book value of a trade-in is a thousand dollars and they are "offering" four grand for it, the other three thousand will be recovered somewhere else in the deal, either via unneeded add-ons, higher interest rates or on the price of the new vehicle. Unscrupulous dealers can add previous loan amounts to the new loan, making the new car "upside down" (more owed on it than the vehicle is worth) before it even leaves the new car lot. The best way to come out ahead on a trade-in is simply to sell it via the want ads.

2.DO NOT be a "payment shopper." When a buyer tells a salesperson, "I cannot afford more than $300 a month for my payments," the salesman has learned everything he needs to know. Any particular payment can be reached by subtracting options, increasing interest rates, extending the life of the loan, selling the buyer a lease. Instead, know what the MSRP for the vehicle is, decide what a fair price is ahead of time and don't mention payments until the deal is being worked.

3.DO NOT use the dealership's regular financing. The finance officer makes commission on any amount above and beyond the percentage rate a buyer can qualify for and the rate signed at. The amounts offered by your bank and the dealership could vary by as much as three or four percentage points. On a standard sixty month, $30,000 loan, the difference in interest paid between a 6% to a 10% loan is close to $4,000. DO visit the bank or credit union ahead of time to get honest quotes. Armed with the finance rate qualified for and the amount of loan a lender is willing to give, a buyer can make a more informed decision. There's no sense in looking at $40,000 vehicles if a lender is only willing to extend a $25,000 loan. Using this information, a buyer can stay in correct price range and when pushed to move into something bigger simply inform the salesperson "I already have my loan and it is not to cap out over $25K."

4.DO attempt to qualify for special financing direct from the manufacturer (GMAC, Ford Motor Credit, etc.) It is possible to save hundreds of dollars over the life of a loan, when used correctly. Be cautioned in that in order to qualify for these fantastic percentage rates the buyer must have an immaculate credit rating (In most cases, the Fair Isaac Score must be 810, or higher.) Make certain there is not a balloon payment due. Also watch for low rates that shoot to 14% after the first twelve months. A savvy way to use a loan like this is to take the low rate for as long as it is offered (usually twelve to thirty six months) and refinance the loan with a different lender right before the interest rate changes.

5. DO NOT buy disability or life insurance on the loan. The dealership makes a lot of money on these types of insurance policies and will resort to high pressure tactics to get make the sale. These policies are all completely unnecessary and costly, a regular insurance agent can help with an add-on to a current home policy, accomplishing the same thing for significantly less.

Forewarned is forearmed. Research ahead of time, because an educated buyer is less likely to be taken advantage of.

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