I am constantly searching the web for good articles and information that I can pass on to the consumer. Here’s a good one on smartmoney.com that exposes tricks of the trade in the auto industry to help you get the best deal on the lot. Now, when I post links to these articles that doesn’t always mean I agree with everything in there. As usual, I have a few thoughts on this particular article. The author works hard to expose all tools a dealership has in an effort to eliminate all profit margin for them. Hey, a dealer is in business to make a profit, and I’m ok with that. But I also think you as the consumer need to be informed when making a major purchase.
Here are two major points I picked out that are near and dear to the debt free way of life. The top two profit centers for the dealer are the service department and the finance center. According to the author’s research, when you finance a car through the dealer they often add interest or points for originating the auto loan. Since they are not required to disclose how much they make on the loan, you are likely paying way more than you have to. And that’s before you take a hit on the interest that accrues over the life of the loan plus the depreciating value of the car.
Leasing a car causes much the same trouble for you. You pay a lot in interest disguised as low monthly payments, and wind up with no equity in a car you don’t own anyway, then end up owing the dealer for mileage and other hidden costs. But the dealer makes more money when they sell leases. Is it any wonder why the dealers push leases so much?
My advice? Paying cash for a car can save you tons of trouble in the form of interest, fees, and actual price you pay. Most dealers will try to focus you on the monthly payments when making a deal with you. They won’t talk overall price because when we think in terms of monthly payments we don’t look at the big picture and how much we will pay in the long run. Paying with cash allows you to negotiate the exact price you need. It also gives you the power to walk away when you don’t get the exact price you need.
Do your research. Expect to pay a fair price. It’s ok for the dealer to make a fair profit. It’s also ok for you to negotiate a deal. Look for a win-win deal and stay away from financing or leasing. You’ll be glad you did.
Matt Wegner is a personal finance, small business and leadership coach focused on teaching his clients the tools for L.I.F.E. (Living In Financial Excellence). Learn more money saving tips at www.financialexcellence.net.