Tell Me how to survive the dealer FINANCE room                     Home  |  Car Buying | Contact Us

(Updated Jan 20th, 2017)

DO NOT get ripped off!!!


You have now followed our advice and got yourself a great deal on a car.  Congratulations!  But don’t rest just yet as only half of the car buying game is over.  A great deal can turn into a terrible deal in a matter of minutes.  


The Finance room at a dealership is where they make the highest percentage of their profit.  Why is that?  Because once you make the decision to buy a car, you become excited and emotionally attached to your purchase.  That is a prime opportunity for the dealership to sell you add-ons and packages.  Do not fall for it!  There are a few things to keep in mind before you enter the finance room:


1) In many cases, the person you will sit with is not only the finance person but a well trained salesperson who usually gets a nice incentive to sell you extras.


2) Just about everything you can buy in the finance room is greatly overpriced and is something you can buy later and at a lower price, regardless of what they tell you.


3) Dealers also make money by setting up the loan for your purchase.  You can lose a lot of money here if you do not do your homework ahead of time.  Fortunately, we will tell you what that homework is!


The BEST way to explain to you this part of your car sale is to walk you through an example.  There are many variations of it but this one will cover a lot of what you will see.  We will break down the example and give you the knowledge you need.



Step 1-Have you have agreed on an out-the-door price?


Before you sign anything, have you seen the full purchase invoice with the “out the door” price?  If you followed our buying advice you will have already completed this step.  But have you seen everything in writing?  If not, then do not go any further.  


Make sure that your salesperson shows you this BEFORE you agree to move to another room.  Why is that?  Because this is where they like to throw on “mandatory” packages and charges.  Some invoices will already have a typed-in option package which can have many names: Appearance Package, Pro-Pack, Protection Package, Etching fee, advertising fee, etc.  These are all just fancy terms for overpriced options and dealers fees that you do not need.  


If you do want these, you can certainly get them cheaper later on.  Or you can negotiate them.  Many salespeople will say that they cannot take these off the invoice and they are mandatory.  That is not true.  You can insist they be removed, or tell the salesperson you are not going to pay for them.  If they still say they are mandatory, you should consider canceling the deal and walking away.  In many cases either they will remove the options or more likely they will cross off the charge but keep them on the car.  As a last resort, you can negotiate a lower price.  Regardless, you MUST know your final “out-the-door” price before going into the finance room.


Step 2-How are you financing the car?


Did you know that dealers can make a nice profit by arranging the financing?  There is little to no profit if they give you a manufacturers promotional financing package, such as 0%-1.9% low advertised rates.  They can tell you that you do not qualify for that rate but that they can get you CLOSE to it with another bank.  When they are able to get your loan to another bank, that is where they make money.  There is a set rate for the dealer, or a “cost” with that bank.  Lets say it is 2%.  The dealer will get a percentage of your loans total interest charge above the 2%.  So obviously the higher the rate, the more the profit they get.


Here is what you do:  Before you go in to buy the car, check rates in your local area and consider getting pre-approved at your local bank.  Use www.bankrate.com to see what banks in your area are offering.  You can get pre-approved for a rate and an amount quickly.  Some banks will give you a blank check up to a certain amount.


If you know the lowest rate you qualify outside of the dealer, you will be in a much better position to bargain.  You can then tell the dealer that they will need to beat that rate in order to get your loan. You should consider the rate on the loan just like you do the price of the car.  It is negotiable, there is a true “cost” to the dealer, and you can shop it around.  Obviously the better your credit score the more leverage you will have.  If you go in without doing your homework, you are at the mercy of the dealer.  Again this is where you may need to threaten to cancel the deal if you are getting pushed around.  


Some numbers: Total interest on a $30,000 car, 5 year term at 3%=$2,344

Same loan at 1%=$768, 2%=$1,549, 4%=$3,150  5%=$3,968  

So while you may think a 1% difference on the loan isn’t a big deal, it will cost you about an extra $800 over the life of the loan.  


Step 3-What extra add-ons do you want?


This is where a big sales pitch can come from the finance person.  They may put a sheet in front of you with a whole bunch of different packages, prices, etc, and show you how they are “discounted”.  They know you are excited about your purchase and will want to protect it.  The more you buy the more they say you will save.  Don’t fall for it!  Here is some common ones:


Window/parts etching with theft registration: a waste of money, the car may already be etched and have stickers on it anyway.  Dealerships that offer this tend to have all their cars done at once.  So when you refuse this it will not be taken off of course.  Just say no to this and the fee for them to register it.


Dent/Window/Rim/Tire/Fabric/Carpet Protection packages: They sound good, if anything happens they will repair or replace.  But you would probably need at least 2 issues in order to just break even on this.  And there are a lot of exclusions and situations where you aren’t covered.  There is a huge profit on these, don’t go for it.


GAP Insurance: This is a big area of confusion for people, you came to the right website!  When you drive your car off the lot, it instantly depreciates, because it is no longer “new”.  In simple terms:  A new car can be $30,000 but that same car considered “used”, even with only a few hundred miles, could be worth $28,000 or less.


If you were to get in an accident and total that car, your insurance company may pay you what they think a comparable car is (for example, $28K), not what you owe on your loan ($30k).  Call your insurance company to find out what would happen. GAP insurance makes up the difference so that in most cases you would be covered for the full amount ($30k).  Odds are extremely low of you ever needing this, but it does happen.  You can insure yourself against a lot these days so this is another instance.


Sometimes GAP insurance is already included in a car loan for free, especially on a lease, so find that out as well. If it is not and you do want it, call your insurance company and ask how much they charge for it.  It could be very low $50-$75.  Dealers will try and charge you $400-$800 for this and through some 3rd party company as opposed to your own.  All that aside, lets say there is a $2,000 difference between your loan and the cars value.  Is it worth paying $500-$700 to insure that $2,000 for a very unlikely event?  NO!  And that difference shrinks over time as you pay down your car.  Is it worth $50-$75 from your insurance company?  Possibly.


Lost key insurance: Just another form of insurance, if you can get the price down low enough it may give you some sense of security, but most people don’t lose their keys so this is a big profit maker. Or if you lose your key, you can get another one for probably close to what you paid for this.


Maintenance plans: Might be worth it if you plan to take your car to the dealer anyway.  These can include oil changes and other maintenance items.  


All-body paint protector: can be an actual clear wrap they put on the paint.  You can Google this but it is no recommended.  If you did want it, someone else can do it a much lower price.


Manufacturer accessories: As explained above, a lot of times they try to make these mandatory as part of a protection package.  You can always buy these later at a discounted price.  But if the price is reasonable (search online ahead of time, there are a lot of sites out there), they are not a bad idea and can be built into your loan. These can include all weather mats, trunk tray, wheel locks, mud guards, running boards, etc.  These are all a personal preference.  Do not overpay!


Step 4-The warranty add-on


This is the single biggest item for a dealer to profit on.  It is a key area that you must do your homework ahead of time if you want a warranty.  There are many websites, consumer magazines and experts who say the warranty is not worth it.  We go against the grain on this one and disagree with them on some instances and we think the warranty can be a good idea.  Read our page here on why we think there is some value in getting a warranty, especially if you plan to keep your car 5-7 years and then sell it:  Tell Me The Best Way to Maximize Car Value Page including a warranty


If you get a warranty, there are a few things to keep in mind:


1) It MUST be a warranty from the manufacturer.  Just like the loans where dealers get more money from 3rd party banks, they also get a lot more profit when selling 3rd party warranties.  They will tell you over and over why their 3rd party warranty is better, including fancy brochures and other advertising books.  DO NOT FALL FOR IT.  It almost all cases, the manufacturer’s warranty is better, more convenient, easier to use and covers more.  We never recommend a 3rd party warranty.  They can always sell the manufacturer’s warranty, but many dealers do not like to, and won’t even offer it to you unless you ask.  


2) A warranty can have anywhere from a 100-500% markup for a dealer.  The initial price they may  offer you could be something crazy like $2500-$3,500.  You can buy a manufacturers warranty from any dealer, and well after you buy the car, sometimes up to when the original warranty expires.  And depending on the brand, you can also buy them online for a huge savings.  After offering this crazy price, they will then offer to save you money with a big discount.  A discount on a complete rip-off is just a slightly less rip-off, do not fall for it!


3) Your BEST strategy here is to get quotes online or from other dealers BEFORE you buy your car. Take your best price in with you to the finance person.  Tell them they need to beat (or meet) the price and you will buy it now.  Otherwise you will just buy it from the other dealer.  Remember also that if you buy it online from an out of state dealer, there is usually no sales tax charged.  Buying it from your dealer means they have to charge tax, so keep that in mind.  But including it in your total loan is a nice option for the right price.  


4) Many of these warranties include roadside assistance.  Cars today usually come with that during the initial warranty period.  The extended warranty that has this means you can cancel services such as AAA if you have it.  Some insurance companies now though offer roadside assistance free, although the benefit may not offer as much as the warranty would.  


Our Conclusion


Remember, everything is negotiable and just about everything can be bought later when you have more time to think about it and are not so emotionally attached to the situation.  Do your homework,  and feel free to email us with any questions you have!  When negotiating, dealers like to put numbers in front of you and say that this is their “cost”.  Do not believe that.  If you leave without getting anything, it does not look good on the finance person.  So they will want to keep lowering the price to get you to buy something.  In the end, offer a very low price if you really want something. If they say no, then just say you will do without it.  


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