BUYING (and keeping) A CAR – From Walking on The Lot to Driving Away (4-part series) Part 2 – Financing

Part 2

FINANCING TIPS AND TRICKS: After you’ve picked out your car, your next step will be with the “F&I” department: Financing and Insurance. This is the last opportunity dealers use to make more money off their sale to you. If you’re not careful, F & I can stand for fleecing and infuriating! Here’s how to get out with the best deal you can.

1. A LITTLE BACKGROUND OF THE INNER WORKINGS OF F&I
   • Very few dealerships do their own financing. F&I people take the estimated price of the car, the actual value of the car and your credit history and shop the deal to several different financiers, such as banks and credit unions. These include major national lenders, manufacturer financial departments and, depending on the dealership, some local lending institutions. These vendors each quote an interest rate and relevant fee information to the salesperson or sales manager.
   • Car dealers usually have long-standing business relationships with these lenders, which may include incentives for selling a loan from a specific lender. Because the lenders are competing for the dealer’s business, not necessarily for yours, those incentives are for dealers, and not for consumers. While the dealer knows that lower interest rates make you more likely to buy a car, in this transaction, you’re not the customer. You’re the product. The dealer is trying to sell your business to a lending organization while making as much profit as possible on the transaction.
   • It may be convenient to handle the financing of your vehicle with the dealer once you’ve agreed to a sale. However, because of the background detailed above, you can see how you may end up paying a premium for that convenience. Come talk with us at the credit union before you reach that point. We can help you identify price ranges and terms that are best suited to your budget while also getting you pre-approved. It will shorten the process for you, give you buying leverage and minimize your susceptibility to aggressive sales tactics.
2. TAKE THEM FOR A RIDE!
   • Make no mistake, financing is profitable for dealerships in many ways. If they know they can’t turn a profit from financing, they’re more likely to push harder to find profit elsewhere. Unless you come in armed with a pre-approval, you’re almost always better off if you make financing the last part of your transaction with the dealership. This doesn’t mean, though, that you don’t want to think about financing until that point. Discuss your plans with a representative at the credit union, including the type of vehicle you’re thinking of buying. Figure out what kind of rates they can offer. By doing your research ahead of time and knowing what financing options are available to you, you can let the dealer think there’s still money to be made in the financing, which may strengthen your negotiating position on other parts of the transaction, like the price of the car or the value of the trade-in.
3. DON’T PITY THE SALESPERSON
   • Most of the time, your salesperson only benefits from the price of the car, the warranty and some high-markup items, like undercarriage treatment and upgrades. The financing department representative, the one responsible for getting quotes and delivering them to the salesperson, is the most likely recipient of any kind of commission on the financing. In these instances, it’s also very likely that the salesperson with whom you’re dealing has little or no control over your financing. He or she might be able to go back to the financing department and ask them to attempt to negotiate a better rate, but this negotiation may not have much success. In any case, someone at the dealership profits from getting you a loan, and it’s not necessarily you.
4. MIND THE GAP
   • “GAP,” or Guaranteed Asset Protection insurance, is automobile insurance that covers the difference between the total amount of the loan and the value of the car. It’s protection against the worst-case scenario, that your car is totaled, and you owe more than it is worth. Your comprehensive insurance coverage will only pay out the value of the car, leaving you on the hook for the remaining interest and finance charges. A dealer may require that you purchase GAP insurance as a condition of financing your car. The cost of the insurance is almost always paid up front as part of the financing charges.
   • GAP insurance is designed for long-term, high-interest or low-down payment financing. If you are buying a car without putting a lot of money down, or if your credit history is not stellar, consider getting GAP insurance. But, as with any other purchase, shop around. Because most financing arrangements require GAP insurance, dealerships maintain institutional arrangements with insurance agencies, expecting you to purchase it without much thought. It’s one of the last chances they must seek profit on the sale, and they rely on you not to notice. You may be able to find better rates on GAP insurance (and other insurances like Mechanical Breakdown coverage and loan Payment Protection) from your credit union, a broker or from another lending institution.
   • While you might not think so at first, the credit union offers this type of coverage and has a strong track record of protecting members’ purchases. Over the years, we have saved members thousands of dollars on their claims and helped keep debt scenarios from turning into nightmares.
5. STAY STRONG TO THE END
   • Financing is among the easiest places for dealers to make money because it’s almost always the last stop in the car-buying process. They are counting on you to be both committed to purchasing a car and exhausted from making a series of decisions. High-pressure salespeople use this fact to their advantage.
   • When it comes time to talk financing, frequently the license plates are off your old car and you’re sitting down with a sales manager. While it may seem counter-intuitive, this is the best time to walk away and get a second opinion. See if your credit union can offer you a better rate, lower fees or a more flexible term. Ask them to commit, as much as possible, to a price on an offer sheet, then tell them you’d like to take some time to think about it. If you come back with a cashier’s check in hand, the sales manager may hem and haw, but at the end of the day they’d rather make the sale than make a little extra on financing.
   • This is an especially important step if your history with credit is complicated. A giant lending corporation won’t see the steps you’ve taken to solidify your financial position. They don’t have the same relationship with you that your credit union does. They see you as a risk number and an interest rate they can justify. Always give your credit union a chance to beat the dealer’s offer – your credit union works for you, not for a commission.