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The Simple Guide to Car Financing – When You Visit a Dealership



Before you go through this page, please read the page  The Simple Guide to Car Financing.

Dealerships don’t provide financing for the sake of it. It is part of their profiting process, where you’ll up paying more for dealership finances. This is called the RISC (Retail Installment Sales Contract).



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So how does this work? It works through the interactions between the “Finance and Insurance Department (FI)” with the dealership. The FI department manager sends your credit info to loaners, where the interest rate is marked up. The extra markup is what a dealership makes during the financing process. And that markup isn’t something they’ll disclose to you! So you have to be aware and pedantic with numbers as you are negotiating!

It all Starts with Incentives…
Every now and then, you’ll see advertising for an awesome car that offers no interest. Or sometimes, they’ll offer you rebate of thousands of dollars! And that’s basically what triggers the temptation to buy the car.

So let’s see how a situation like that normally advances…


Factory to Consumer Rebating.
There’s nothing peculiar about this type of offer. The words are literally what they mean. Through this offer, a manufacturer offers you a rebate if you buy a certain car from them. And there are many reasons why factories offer rebates.

To start, a car may be on so low demand that the factory wants to get rid of their stock fast. So they offer you an incentive to buy the car for cheap.

Do note that rebates have nothing to do with dealership profits, and so you shouldn’t worry about negotiating those with the salesperson. But, make sure that the dealer doesn’t try to use the rebate to lower the car’s price. Simply accept the rebate, and use it for your down payment.

0% Interest Rates (APR).
This is one of the best offers you’ll ever find. Because you don’t pay excess money for the car you’re buying. But, there tends to be a catch to that deal. And this has to do with the terms of the car. 0% interest means short terms, and so you pay more each month to cover the loan. Shorter loans may be 1 to 1.5 years, instead of normal 4 to 5 year loans. Regardless, this means you’re going to pay the loans off hyper fast.

But, before getting a short loan, there are a few factors you must consider…

  • Besides the short term, you must qualify to get the loan. If your credit score is less than 680, you’ll never get the loan.
  • You may be limited in the car features you can get.
  • You can’t get a cash rebate with 0%. You have to choose between one and the other.

Recent College Graduate Programs.
(Recent = 2 years or less).

If you’re a new college graduate, you can take advantage of this program to get a discount on your new car. You might be able to save $400 on that new purchase. But, do note that each car manufacturer provides different rules on discounts. For example, some dealers force you to choose from dealer stock. Some manufacturers might exclude some models from the offer. So if you’re going to use this program, make sure to ask about details.

Be sure to visit the website of the manufacturer that offers the deals. And read up to get as much information as possible.

Dealer Financing With the Business Manager.

At the FI department, don’t be hasty to set up your finances. And be aware and on-guard for the completion of the deal. Make sure you ask about important pieces of information, such as “loan terms – down payments – rebating – monthly payments – interest rates.”

Do note that the interest rate you can get is negotiable. Also, ensure that all elements in your contract are spelled out correctly. Never sign a contract unless you feel satisfied with the calculations and numbers in it. Also, ensure that the interest rate of your loan isn’t going to change through the loan’s terms. Get information on prepayment penalties too.

Remember that your pedantry is all about your total car payments. After defining monthly payments, interest, and contract terms, you want to know the total out-of-pocket expenses for the car. For example, you might have a low monthly payment, but with a long contract period, you may end up paying over the car’s original price.

And finally, ensure that your contract has no clauses of “subject to approval/financing.”

(Extended Warranties): Some business managers offer you to get extended warranties for your car. But you might not need those warranties. The original warranties that come with your car may be enough, covering all major aspects of car damage. Regardless, make sure to compare warranty packages, and explore sources for a comparison process. With a comparison process, you might sometimes pay 50% less on warranties, by purchasing one through a bank/credit union. Or, you can get similar discounts by purchasing online (not recommended).

(Paint, Fabric, and Rust Protection – Undercoating): Those tend to be pre-applied at car factories, so you don’t need to do them again (paying for nothing essentially). But, do check your car’s warrants, and make sure there’s a “Rust Perforation Warranty.”

You can easily do paint and fabric protection on your own. You can get the necessary cans for fabric protectors at any store. As for paint, just get polymer sealant car wax and apply it. And you will do this often, since dealership paint protection is usually redone every 6 months.

If those are already in your car, then negotiate down prices to something that is better. Usually, such services have a 100% markup, with an asking price being 50% lower. If your dealer won’t negotiate on those, simply walk out on your car deal. You’ll find better dealers elsewhere.

Window Etching and Alarms: While we all want to protect our cars from thieves, getting an alarm system from dealers is not worth it. Dealers overcharge for alarm systems, where you can better buy one at an auto-repair ship. Often, you will save lots of money doing so, usually up to $500.

As with window etching, this is a tactic that helps in identifying cars if stolen. The car’s VIN (Vehicle Identification Number) is etched on windows, forcing thieves to replace them after theft. In the event they don’t do so, the car will be quickly detected.

We recommend you get a VIN, as this allows you to get better rates from insurance companies. Also, getting a VIN makes it easier for police departments to find your car. Now, we recommend you don’t get the VIN at a dealership. Because again, they overcharge for it. But, you can head to a company that sells supplies for that. And you can do it yourself. This will save you hundreds of dollars.

But if the car already has etching to it, then treat it as other add-ons. Don’t overvalue the etching, and try to negotiate for a reasonable price drop. While they might argue for more, you can use your knowledge of etching to negotiate down the price of the vehicle. Thus, we recommend you learn of etching prices in the market.

Insurance: We all want insurance, and most likely, you’ll need to get one. But as with anything in a dealership, business managers will try to overcharge you on insurance. You can get your life insurance and disability insurance at a cheaper place. So we recommend you ask around in banks/credit unions, and compare insurance offers.

Beware of insurance being added without your knowledge to your purchase contract. Also, take into consideration that insurance is not mandatory. So don’t let business managers convince you otherwise.

But there’s still more to be aware of. We’ll talk about that below…

Beware of the Following.

  • Spot delivery:This is when a dealer accepts your down payment, informs of your monthly payments, and then gives you the car to go home. Unfortunately, this all tends to happen without a final contract… And as a result, you may find yourself paying more interest or higher monthly payments than normal. Thus, before your payment book and permanent tags are sent to you, sign your final contract. And read every detail accurately. And finally, watch for statements that say “subject to financing.”
  • Additional Dealer Markup (ADM):This includes many of the previous items. Examples are rust proofing, VIN etches, and dealer prep. The dealer prep can be close to $500, only taking the dealer 2 hours to finish. So make sure you consistently negotiate such costs in the contract. Because none of those costs are solid, even if a dealer prints you some kind of statement.
  • Credit reports? Some dealers like to run credit reports. Make sure you never do so, as this can drop your credit score, thus disqualifying you from certain advantages. This applies especially to cash payers… because credit doesn’t matter if you’re paying in cash. If your dealer insists on a credit report, walk out.
  • Total Payment Account. Make sure every dime you pay is accounted for in the contract. And every dime you receive in discounts (and rebates) should be mentioned too. This includes down payments, and trade-ins.
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