Prev NEXT  


How Car Financing Works

Dealer Financing

car window etching

­You're in the "Finance and Insurance" office setting up your financing with the business manager. Your guard is down now that the deal is done, and you're really excited about driving home that new car. Make sure you're not so euphoric ­you forget to use good judgement for things like:

Interest rate, term of the loan, down payment, rebates, and monthly payments: Remember you can negotiate that interest rate (see the next section to arm yourself for this step). Make sure every element is spelled out on your contract and is correct. Don't sign until you're satisfied that all of the numbers have been filled out correctly. Also, make sure the interest rate you are agreeing to doesn't change during the term of the loan, and ask about prepayment penalties. Remember that the bottom line is how much you're paying for the car, not what your monthly payment is. You may be getting a really low monthly payment, but how long will you be paying it? Almost any payment level can be reached if the loan term is long enough. Make sure there is no "subject to financing" or "subject to approval" statement on the contract (see Spot Delivery warning in the next section).

Extended warranties: The business manager will always offer you the extended warranty on your new car. Some experts are of the opinion that the warranties that now come with new cars are comprehensive enough that you don't really need the extended warranty. If you feel you do need it, explore other sources for those warranties so you can compare. You will be able to get a better price (usually half of what the dealer charges), and sometimes even a more comprehensive warranty, by buying one through online sources or through some banks or credit unions.

Rust protection, undercoating, fabric protection and paint protection: The rust protection, as well as the undercoating, is usually already applied at the factory, so there is no need for you to have it done again (and pay for it twice). Check the car's factory warranty to make sure it has a Rust Perforation Warranty.

You can easily apply the fabric protection and paint protection yourself. The fabric protection is usually no better than you could do with a can of fabric protector you can buy at the store, and you can protect your paint with any polymer sealant car wax. Even the paint protection the dealer applies has to be reapplied every six months.

If these things are already on the car, then negotiate the price down to something reasonable. Since there is usually a 100% markup, start at 50% of the asking price for each item. If they won't budge, then feel free to walk out on the deal.

Alarm systems and window etching: Sure, you want to protect your car from car thieves, but with the amount of money most dealerships charge for the system you could hire a guard to watch your car. You can get an alarm system installed at most reputable auto shops that's just as good as the one the dealer would install. This can often save you over $500.

Window etching is when they etch the Vehicle Identification Number (VIN) on all of the vehicle's windows to deter car thieves and help in the recovery of a stolen car. Having the numbers etched on the windows forces the thief to replace all of the windows in order to disguise the vehicle's true identification.

Many insurance companies will give you better rates if your vehicle has VIN etching. Many police departments also recommend it because it makes it easier to trace your car. Now, with that said, do you need to pay the dealership hundreds of dollars to do it? Not really. There are companies that sell the supplies to do it yourself for about $20 or $30, and it only takes a few minutes.

If the car is already etched, it's the same deal as with the other add-ons. Negotiate the cost down to something reasonable. Sure, they took the time to etch the windows and deserve payment for that, but you know the cost of the supplies and how long it takes to do it. Make your offer based on that information.

Insurance: You will almost always be offered life and disability insurance while you're financing at the dealership (often at banks and credit unions, too). Do you need this insurance? Maybe. The idea is to protect your investment in the event that something happens to you. The thing to remember is that there is no requirement that you get it even if the business manager tries to imply that there is. You should also be on the lookout for this insurance being added without your knowledge. You can get much better rates elsewhere for this type of insurance, and banks and credit unions sometimes include it free of charge if you finance your car with them.

Read on to find out about additional ways that the dealer may try to up your total cost.