Wednesday, March 7, 2012

Watch Out for the Back End of the Car Buying Process

Many people think that the negotiating for the purchase of a car is complete once you and the salesman agree on the price that you are going to pay for the car. Nothing can be further from the truth. You still have to work on what are called the back end of the process. The back end of the sales transaction is the part when you go to the Finance and Insurance department. Even if you will not be financing you car, you will still have to go to the Finance and Insurance department to sign all of the paperwork.
The back end is the place where car dealerships make profits from less obvious places. These include financing, credit life insurance, extended warranties and other add-ons to the deal. Not that any of this is bad or shady, you as an educated car buyer need to be aware that you need to be on your toes even after coming to an agreement with the salesman about the price of the car.
When you finance your car through the dealership, they are generally working through a bank of the credit division of the make of car you are buying (for example, Ford Motor Credit). The dealership can essentially "mark-up" the interest rate that you will pay so that they can make more profit on the deal. For instance, if the bank approves your loan for 6%, the dealer might mark it up to 8% so that they can get a commission from the bank for bumping up the interest rate therefore making more money for the bank.

If you feel that your credit deserves a better rate than they are offering, let them know. If they have marked up the interest rate, the interest rate becomes negotiable. Or you can tell them that you can get a better rate at your bank or credit union. Knowing that they might loose the deal, they might lower the interest rate for you.
Credit Life Insurance
This is an insurance policy taken out by the borrower that pays off a specific loan if the he/she should happen to die during the term of the loan. There are many different schools of though about this. Generally, if you have enough life insurance to pay off the loan if you were to die, you should decline. I am not sure how negotiable the pricing of this is, it is generally just a yes or no decision.
Extended Warranties
This is essentially an insurance policy on you car as a safeguard against expensive unforeseen repairs. It covers repairs or regular maintenance for an agreed upon time period. This warranty starts at the end of the standard manufacturer's warranty on the car. Again, there are different opinions on the value of an extended warranty. If you do decide to purchase the warranty, remember that the price that you pay is negotiable just like the price of the car.