Readers can send in questions about the car buying process and get answers from an industry insider!
We discovered in yesterday’s column that paying a higher interest rate than necessary on your car loan can cost you hundreds, if not thousands of dollars more than necessary over the term of the loan. This can wipe out the great deal you just negotiated on the selling price of your new car.
As an ex-Internet Manager for a major car dealer, I found myself educating my customers on the do’s and don’ts of borrowing money to buy a car. Most of us have learned about car loans by going through the process of getting one and not by attending classes, school, or formal training. So we can relate to Vernon Law’s observation, “Experience is a hard teacher because she gives the test first, the lesson afterward.”
Let me give you the lesson first! Here’s what I learned after walking hundreds of customers through the car loan process and seeing first-hand the many mistakes that buyers made.
A Big No-no
One of the biggest mistakes that customers made was doing nothing about their car loan prior to walking in the front door of their local car dealer. They didn’t check their credit rating or contact a bank or credit union to see what interest rate they qualified for. Instead, they left it to the car dealer, who marked up the interest rate on the loan. This often added hundreds, and in some cases thousands of dollars to the cost of the deal. (See yesterday's column to see actual figures.)
True, one of the benefits of buying a vehicle from a major dealership is it’s a one-stop process. You can find your car, test drive it, apply for a loan, receive approval, do all the paperwork--including for the DMV--and drive off a few hours later in your new vehicle.
However, you pay dearly for the work car dealers do to make the purchase process as easy as possible. And this makes many consumers lazy and ill-prepared when they begin shopping for their next vehicle. “Lazy?” you’re saying to yourself. “How does that make me lazy?”
The short answer is this: Despite the large purchase price of most new vehicles, buying a car is all too often an impulse purchase. You drive past a dealership, stop in to look at that new model that just came out, and find yourself driving it home a few hours later. No preparation. No forethought. No comparative shopping. And no thought given to what interest rate you should pay on your car loan.
This worked fine for many buyers when the economy was booming. They could afford to pay a premium for services performed. However, most buyers no longer have that luxury.
Tomorrow: What buyers should do to lower their loan costs before they walk onto the sales lot of their local car dealer?