Car Buying Guide - III

For this car buying guide edition, let's get into an area of the car buying process that can really cost folks big... financing your car.

Every car dealer has a F&I (finance and insurance)department and you can bet the house they are going to try very hard to get you to allow them to handle the financing for you (and sell you other high profit items too).

Simply based on my experience in the business and subsequently talking with people on the subject of getting your best car deal, I probably shouldn't be surprised at the amount of people that think car dealer financing is just this innocuous process that takes place at the dealership that ties the deal together, and allows them to sign up for their payments and get on down the road.

Wrong!

Car dealer financing and what goes on in a dealership's F&I (finance and insurance) department was a no brainer for me when thinking about some of the most common mistakes people when it comes to car buying.

Let me make this perfectly clear to you... A dealer's F&I department can be an excellent source of profit for the dealership!

But, let's back up one second. For some reason, there is a great many people that don't consider the financing or the cost thereof, part of the cost of ownership puzzle, or part of getting a good car deal.

If you don't... then do, or you'll make many a car dealer very happy to see you coming.

I guess it's because you don't actually 'see' this money leaving your checking account each month. After all, it is hidden inside your car payment (basing your buying decision based on monthly payments is another topic for BIG mistakes).

Take the time to have a look at the impact of interest rates and what you'll be forking over, over the length of your car loan. And if you are car financing with a bit bad credit on your side, the financial implication can be very, very hefty.

Take a moment to consider this... and just to give yourself a wake up call, plug in a $20,000 loan for a car for 5 years at a modest 4% interest rate.

You'll note that your payment comes to $368.33. Now change the interest rate to 8% and you'll see your monthly payment change to $405.53. A difference of only $37.20 month.

Hey, that's only one night less a month to go out.

Right?

Well, take your 37.20 times your 60 month loan and the difference between the two interest rates is a hefty $2232.00! I don't know about you... but twenty-two hundred dollars is worth me taking the time to get my financing options in order.

Shop your interest rate! Let me say that again. Shop your interest rate!

Start by getting (and knowing) your credit score.

Even if you have some difficult credit, shop your interest rates. Sure, they'll probably be higher, but there is no reason for them to not be competitive relatively speaking.

Here's the part about car dealer financing and what I am constantly amazed at when discussing this with people...

Many people don't realize that when they get quoted and interest rate from a car dealer's F&I person, they are being quoted an interest rate with a bump of a point or two... or three added on to what the dealer can actually get the money for.

That's right. Even you of immaculate credit ratings.

If the dealer can get you to sign the financing contract at 8% and they can get the money for 6% they have just made a nice dime on you... whether it's due to ignorance, laziness, or whatever, it doesn't matter. And the numbers used here don't matter... just pick a rate.

If I loan you money at 'x' interest rate when I can get the money for 'x' minus 'y' interest rate, then I am going to make some money on financing you!

Knowing how much you qualify for and what that interest rate will be over the term of the loan is a must when car buying!

Besides saving yourself money on your car deal, having this knowledge during the car dealer financing part of the car buying process will allow you to tell the car dealer to beat what you've got. And you never know... they may be able to; saving you even more!

But if they can't... or won't... you can move forward with the rest of the deal with confidence knowing that you took the time to keep your financing costs as low as your possibly could.

Money saved. Good job!

Fast forward to all the details in my complete car buying guide.