How Car Financing Works

Buyer Beware

Here are some things to watch out for when you're purchasing a car at a dealership:

  • Spot delivery: Many of us have never heard of spot delivery. What happens is that the dealer takes your down payment, tells you the amount that your monthly payments will be, and sends you home in the car. What hasn't happened is a final contract. Before your permanent tags and payment book are sent out, you may get a call saying the financing they thought you were going to get didn't go through (as if they didn't know your credit score when they sent in the paperwork). You'll have to either bring the car back or sign a new contract, sometimes pay more on your down payment, and always have a higher monthly payment. It can be a nightmare! ALWAYS make sure you are signing a completed contract and every detail is approved and included accurately. Watch for the "subject to financing" statement.
  • Additional Dealer Markup (ADM): These charges can include many of the items we mentioned above such as rust proofing, undercoating, VIN etching, as well as dealer prep and other fees. Dealer prep can be $500 or more for something that takes the dealer two hours to do. Always negotiate these costs if they're included in the deal. None of them are written in stone -- even though the dealer may want you to think so by preprinting them on the form.
  • Credit reports even if you're paying cash?: Don't let people run your credit report unless you think you're going to be financing with them. Every time your credit report is run, your credit score can decrease. Some dealerships may say it's their policy to always run a credit report on potential buyers -- even those paying cash. Don't let them. They will sell you a car without it.
  • How much is the total financed amount?: Make sure your down payment, trade-in, and rebates are being applied to the sale price of the car accurately. According to 'Lectric Law Library: Auto Dealer "Swallowing" Of Customer Downpayments, Trade-Ins, And Rebates, there have been many instances of these dollars disappearing (usually into dealers pockets).