You’ve agreed to a deal. Fantastic. Hand me the keys. Well, not quite yet. We’ve got some paperwork to do. This will take some time. Even if you’re paying cash, there is still quite a bit of paperwork to go through. If you’re financing, there is of course the loan paperwork as well. Are you going to be on title by yourself or with someone? If there are two of you, both will of course have to fill out credit applications. Hopefully you knew your credit score ahead of time and the payments will have been figured pretty close to what they should be. If they pull your credit and find out it’s not so good, your payment may go up. The finalization of all that will take place in the finance managers’ office, not there at the salespersons’ desk. In most stores, the salesperson will help fill out all the preliminary documents then turn it in to the finance manager for printing and preparation of some other documents as well. Once they call you in to the finance office, the manager will typically get the title work out of the way before starting with the loan paperwork. Normally they will then show you a menu of some additional products available for purchase. If you buy any of these, of course they will affect your payments. These will include, as well as other things they may offer, extended warranties, exterior protection, key replacement, window etching, service contracts, road hazard protection for tires along with a few others. Every store is different in how they present these options. You’ll have these presented to you if you’re paying cash as well. They are all optional. Are they worth it? I’ll cover that on another page titled “Aftermarket Products”. I’ll give you my opinion, and that’s all it is, an opinion. Someone else may think differently, but my common sense is pretty good and I’ll let you know what I think of the most popular items. It is the finance managers’ job to sell and they do make commission usually on each product. Nothing wrong with that, but some are more aggressive than others. At times, it might feel like they are beating you over the head to get you to purchase something. Just say no if you don’t want something. I do suggest however, that you do at least look at what they have to offer. Many people go in there with their minds made up to just say no. Again, I’ll go over some of these on another page.
Stores make commission on interest rates. Many lenders allow dealerships to mark up the interest in order to make a commission on the higher rate. Every state has different rules about how much a dealership can mark up the rate. That’s why it’s important for you to shop around for rates before going to the dealership.
EXAMPLE:
You’re financing $25,000. The finance manager sends your deal to 3 institutions. They get an approval back from all 3. Lender 1 has the best rate. They’ll do it at 4.9%. This lender allows the dealer to mark up the rate up to 2%. The finance manager shows you your payment for 60 months to be $494 at 6.9%. You had already agreed to that at the salespersons’ desk so you think it’s all good. Had they given you the approved rate of 4.9, your payment would be $471. Not a big deal. But, $23 a month over 60 months is $1380 in extra interest. The dealer would then receive all or a portion of that back to them as profit. Or perhaps they want to sell you an extended warranty for $1200. You say no thanks. They say, what if I could keep your payment the same and include the warranty. Good deal huh? Well, then they give you the interest rate you actually qualified for and they make their money on the profit of the extended warranty. Not illegal but sneaky. That’s why you should walk in armed with a good idea of what rate you are eligible for. If you know your bank would give you say 5.25%, the dealership would rather you go directly through them so then they give you the 4.9%.
It’s obviously more convenient to go through the dealerships’ finance department but not mandatory. You can always go to your bank or credit union but may not drive home with the car. You have to take the paperwork to your institution and come back with a check. Also, it’s quite possible that the dealership works directly with your bank or CU and at the push of a button they send the paperwork to your institution.