Wondering why you are so vulnerable to the sales tricks of car dealerships?
Recent media stories about the high cost of zero interest car finance and the pitfalls of dealership finance offers are a good reminder that we need to educate ourselves before we head out to buy. An understanding of these common dealership finance tricks could turn out to be a faster the process of purchasing your next motor vehicle and an efficient way of dealing with finances.
- Cash price versus finance price
Car dealerships use the lure of low or no interest loans to bring buyers through the doors. Dealerships have to make up the cost of these rates elsewhere, and consumers often end up paying considerably more than the cash price. For instance, the sticker price may be non-negotiable for finance, terms may be restrictive, or there may be a substantial balloon payment to make at the end of the loan. Before you sign up for the finance deal, ask for a separate, itemised purchase invoice and a loan offer contract. Compare these with the cash price. Shopping around for the car and securing personal or car finance with a brokerage or bank will generally deliver a better deal.
- What is that car REALLY worth?
Before you walk into a showroom, you need a clear understanding of the true market value of your target car. The sticker price and the actual value of the car you are looking at may be very different. The only solution is research and more research. Check out the variations in a year, models, inclusions and individual cars. Go to car valuation sites like Drive.com.au’s value checker or Redbook’s car value assessment tool before you visit a dealership.
- Understand the difference between a loan and a lease
Beware of signing a lease agreement when you really want a loan. A lease means the finance company provides a car to you for an agreed term at a fixed price per week, however, at the end of that term, possession of the car is resumed by the finance company. If indeed you are able to purchase the car at the end of the lease, you will need to come up with a large lump sum and may not be able to negotiate price. In short, if you are looking to purchase a car, do not enter a lease agreement.
- Beware of insurance add-ons
Add on insurances are offered with your car finance deal, but are usually poor value for the cost and may not really be necessary. Your dealership may propose Loan Protection Insurance. This means the insurer contributes to your car loan in the event of your serious illness, injury or death. Shortfall Insurance covers the gap between the market value of your car and the purchase value, in the event that the car is written off. You may also be offered “Mechanical Breakdown Cover”, also known as an “Extended Warranty” which covers the cost of an unexpected breakdown, repairs, and parts. Before you sign up, it’s important to understand what period this covers that is not in the standard warranty, as well as any exclusions and conditions that may be applied. Often the benefits of an extended warranty are less than the cost and it just offers a repeat of the existing warranty
- Manufacturing year versus model year?
A major component of resale value is the age of the car, so understanding the manufacturing year versus the model year is important. Your dealer tells you the car is 2016, you check the compliance date and they’re right. The manufacturing year (MY) is the critical issues here – check the VIN number to be sure that it’s not classified as a 2015 model.
- Finance approval without the paperwork
Dealerships providing finance may give you the car before the finance process is complete. You may find you take your new car home only to discover that the finance approval has fallen through. The dealership can come to the rescue, but at a higher rate of interest. The solution here is clear, always complete your financial arrangements before you jump into the driver’s seat.
- Your ‘suddenly sliding’ credit rating
You are about to close the deal with the dealership at a fantastic rate when they suddenly “discover” your bad credit rating and you are now up for a higher rate. Don’t fall for this trick. No one can access your credit rating without your consent. Free credit reports are available online and are an important tool before your start your search to understand what kind of interest rate you can secure. Rating services such as Veda can provide a report in 10 days, or your financier can organise an instant report.
- Thorny contracts
Reading the fine print is not the highlight of most people’s weekend. When you are buying a car, it’s essential or you may all the promises don’t end up in the contract. Always ask for fully itemised sales invoice with all inclusions or costs before you sign. “Mistakes” invariably favour the dealership, so be vigilant and check the contract. Review each item separately – the car you are buying, the trade-in, and finance and don’t waiver your right to a cooling off period.
- Trade in Tricks
You secure a great deal on the new car, only to discover the trade-in value of your old vehicle is less than a week’s groceries. Alternatively, you have been promised a fantastic trade-in but then find the dealership won’t negotiate the sticker price of the new car you are after. Both these scenarios are common tricks to build higher margins into dealership sales. If you have to trade-in, ask specifically for prices on both and split the transaction. To secure the best value, sell your car privately and buy through an expert car buying service.
- Beware Balloon Payments
Advertising and dealerships often focus attention on a low monthly repayment, while the very fine print has a large “balloon” or residual payment at the end of the loan. It is important to determine whether you will actually be able to afford the lump sum proposed. To ensure that the deal provides genuine value, total the cost of the initial, monthly and residual repayments and compare with a cash price, or car finance alternatives.
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