Open Mike - So youre financing a car....

As promised last week, I am here today to discuss how to make sure you are not being taken advantage of while you are financing a new (to you) vehicle. Purchasing a car from a dealership can be a very stressful situation. You want to make sure you are getting a great deal. You are questioning the credibility and honesty of the sales person. You are wondering why they need to disappear to ask a "manager" behind closed doors permission to do anything.  You're excited. You're nervous. Am I presenting myself as a buyer who knows what they're talking about? Am I coming across with too much bravado? Are they seeing right through this smokescreen? Maybe you brought a "subject matter expert" like your dad, your friend who works at an auto body shop, or the person with the biggest muscles you know....Whatever your tactic is to make sure you arent being taken advantage of - heres what you need to know. There are 3 ways the dealership and sales person you are working with are making money on your deal.  First - the price of the car. Second - the add-ons they talk you into. Third - the loan they place you in.

Lets start with the first issue - the price. 
The dealership will do everything in its power to drive up the price. They will offer you GAP insurance, they will offer you a fancier warranty then whats included, they will offer you an upholstry cleaning package, they will offer you satellite radio, they will give you the navigation system - Before you know it your car loan is $4-5k more then the sticker price.  And guess what - it is all still within the budget you gave them. Wait whats that? You'll also pay off the $4000 I owe on the car loan of the car I am trying to trade in? Wow, you think, I just got a great deal - look at how much they threw in for me. You know what the sales person is thinking? Wow, I just sold a great deal - look how much I got them to take! The time of purchase is the ONLY time you are going to be able to dictate how much you owe on your vehicle. Most add-ons, if you NEED them, (which the vast majority are spur of the moment, are WANTS) can be purchased separately for far less. Keep the BALANCE on your auto loan down as much as possible because its not changing once you sign the paperwork.

Second issue - the ADD-ONS.

GAP insurance - the dealership scares the BEGEEZUS out of you that if you are ever in an total loss that you NEED this to make sure you dont wind up with a large bill to pay and no car. GAP insurance generally runs upwards of $800-1000+. Does it serve its purpose? Absolutely - but what most people do not realize is that GAP only covers the CAR itself and not any of the add ons youve opted for, and only pays the difference between what insurance pays out on the vehicle and what the vehicle is worth. Great youre thinking, my car is paid off. Yes it is. But is the loan? Remember the upholstry package you took? Remember the crazy great warranty? Remember the $4k from the last loan you had you rolled into the new loan? The navi system? The satellite radio? The pet monkey they threw into the deal? None of that is covered by GAP insurance and so your add-ons will leave you with a deficiency balance your GAP will not cover.

All the ADD-ons they throw towards you are impulse buys that chances are you will never use and never think about. They add to the balance of your loan. They add to your monthly payment. They are more expensive then if you bought them independent of the sale of the vehicle. Most importantly, if you didnt want or need it before you went to the dealership - why do you now? Because you've been sold. Don't get sold. Make your own decisions.

One more thing about GAP insurance. It only follows your ORIGINAL loan - if you refinance your loan at any time you do not have GAP insurance any longer. But guess what? GAP insurance is an insurance policy and any unused premium should be refunded to you, and most people are not aware of that. There is over $1 BILLION DOLLARS in unclaimed but owed GAP insurance premiums due to the customer. You dont get it back automatically. You must pursue and request it back. Make sure you do not leave this on the table - in a lot of cases its literally HUNDREDS of dollars.

3rd - The Loan -

This is the ONE area that the average consumer really buckles down and tries to negotiate and make sure they are getting the best deal and the reality is this is the LAST place you need to be stressing during a vehicle purchase. The car loan is one of the easiest loans in the world to refinance and interest rates dont dictate monthly payment all that much in most cases.

You have 2 loans put in front of you - tell me which one is the better deal.

$22000 for 5 years at 5%
$19000 for 5 years at 7%

The $22000 loan at 5% is $415 a month
The $19000 loan at 7% is $376 a month

Well duh, Mike - the $19000 loan is less, of course its less money. THAT IS MY POINT, PEOPLE! Without all the ADDONS that YOU DIDNT NEED, a smaller loan with a higher interest rate is less money. And guess what else - YOU CAN REFINANCE THAT LOAN DOWN TO A LOWER RATE!! The loan you get at the dealership is not your FINAL LOAN, unless you make it that way.

To sum it up - the main points are dont let the dealership drive up the price of your loan with impulse buys, and dont sweat over the interest rate on your original loan. Keep your principal balance low and refinance your loan if you dont like the one offered to you at the dealership.

If youve gotten this far you can take the time to read a quick SHAMELESS PLUG - Did you know State Farm has a bank? We do auto loans as good or better then anyone in the industry but we also provide a feature called PAYOFF PROTECTOR for free. Its like GAP on steroids and costs NOTHING - You can get it on a refinance or purchase with us, and it covers the ENTIRE LOAN, not just the car - any add ons youve financed, and any money from your previous loan that youve rolled into a new loan. Were the only institution I am aware of with this benefit and BEST OF ALL - if you are in a total loss and have STATE FARM AUTO INSURANCE - your comp and collission deductibles are waived as well.

I hope this has helped everyone who walks into an auto dealership with high anxiety and puts you in a better position to walk out with both a great new car and the most affordable loan possible.

Any questions, feel free to email me or call me. You dont need to be a client of mine for me to help you make a few good decisions.  Stay tuned next week for the next topic - Your kids, their love of sports, and your bills

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www.linkedin.com/statefarmmike/

Michael.mccormick.k2og@statefarm.com
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