Car Dealer Tricks: No Payments For 6 Months

on Oct 20 in Car Dealerships tagged Car Dealer Tricks by jasonl

When it comes to selling cars, dealerships are willing to try any and all sales tactics and gimmicks. They’ll copy programs from different industries, disregarding tremendous differences between businesses. While dealerships are to be commended for their creativity and ingenuity, sometimes the sales tactics end up costing consumers.

The “No payments for [blank] months!” sales gimmick doesn’t work in a consumer’s favor – at least when it comes to buying a car.

One example of a bad-for-consumers sales gimmick is the concept of “No Payments for [blank] Months!” The concept, borrowed from the furniture industry, seems solid enough. The dealership sells you a car and promises that you won’t have to make any payments for some period of time (let’s say 6 months).

Here’s how it works:

The dealership sells you the car for a price that includes 6 months worth of car payments. After the financing is approved, the dealership gives you a check for the amount of your first 6 payments. In effect, it’s no payments for 6 months.

Here’s why it’s bad:

1. You pay more interest, finance charges, and sales tax with this “deal” than you would if the dealership discounted the car for the same amount that they’re giving you to make your first 6 payments. Granted, you’d have to make the payments yourself, but you’d save money in the long run.

2. You can’t negotiate the price. Dealerships will be quick to tell you that you’re not going to get a discount if you decide to take them up on their ‘no payments for 6 months’ offer. While these deals sometimes work out to be very good, most of the time you end up paying more for the car than you otherwise would.

3. You need more time to get into an equity position. If you buy a car but don’t make payments for 6 months, you effectively create negative equity. After all, the car is depreciating as you use it, but you’re not paying anything to cover some of your depreciation. At some point when you do start paying, you’ll have already lost months of value before you ever make a payment.

Mitsubishi tried this promotion a few years ago, and all it got them was a large number of customers that would never buy a Mitsubishi again. The promotion was “no payments for 12 months,” and people clamored into dealerships to get a new Mitsubishi. However, after 12 months had gone by, these people had experienced a full year of depreciation without ever making a payment. As these people tried to trade-in their cars, they found out they were FAR behind in terms of reaching an equity position. In other words, they were stuck with the cars for a very long time.

Save the “no payments” deals for the furniture store (where they belong).

Dealer Financing Basics: What To Expect

on Nov 19 in Financing tagged car dealer tips, Car Dealer Tricks, Financing by jasonl

When it comes to buying a car from a dealership, it’s important that you know about some of the things they are going to offer you in the finance office. Here’s a basic explanation of each.

First, they’re probably going to try to sell you a vehicle extended warranty or service contract. Both have saved people lots of money, and they’re a good idea in some instances. However, they are usually overpriced at the dealership, so make sure you shop around.

The finance office will also offer you GAP protection (also called Gap Insurance). It’s usually fairly inexpensive (about $5-10 per month). GAP protects you if your car gets totaled – if your car is totaled, your insurance company will not pay you what you owe on your car – they’ll only pay what they think the car is worth. If you’re in a situation where your car depreciates faster than you can pay it down (which is a situation about 90 percent of Americans find themselves in, especially when they buy brand new cars) and your car gets totaled, you can end up with a large difference between your loan amount and what your car is worth. In other words, if you’re financing, you should seriously consider GAP insurance.

The finance manager may also offer you a security system of some type. You’re not likely to get a decent security system at a dealership, new or used. If you want one, you’re better off going to your local Best Buy, Circuit City, etc. They have good security products their and they often offer free installation. They’re also less expensive than the dealership.

The finance manager will also offer window etching, and it is a total rip-off. The dealership will etch either your VIN number or some identity number into each piece of glass on your car – it’s a great concept, but the value of the product is only about $30-$40. Unfortunately, dealerships charge anywhere from $99-$800. It’s a bad deal and I suggest you avoid it unless you can get it cheaply (or free).

The finance manager may also offer you a “clear bra” or clear hood protector. This is a good idea – if it’s a quality product that’s correctly installed, it will protect the front of your car from damage. But, like most things the dealership will try to sell you in the finance office, it’s probably overpriced. I’d suggest you negotiate the price with them, but a “clear bra” is definitely worth buying.

The dealership will also offer you something called credit insurance. The basic concept is this: if you die or you become injured or disabled, credit insurance steps in and makes your car payments for you or pays your loan off. This is a bad deal. If you really want this type of credit protection, call your local insurance provider and get it from them – they’re going to give you a much better deal than the dealership will.

The bottom line with all these products, and any other deals they might offer you, is this: You should consider everything the finance manager offers you – 90 percent of it is valuable and worthwhile. Just remember that most of the products he or she offers you will be overpriced. They’ll probably try to charge you much, at least much more than you can get elsewhere, so your strategy should be to tell the finance person, “I want it, I really like the idea, but I want to sleep on it, so can I call you back next week?” This gives you a chance to shop around, and you’ll most likely get a better deal somewhere else.

As always, take your time when buying a new or used car. Do your car research, get multiple used car financing quotes, and feel free to contact us with your questions.