Do you understand the finance part of buying a car? If not you are not alone. In fact many corrupt dealers rely on your lack of financial expertise to increase their profits by adding hidden or extra charges that you will not notice in the fine print. There are two ways to help avoid this. First is to do your homework and learn how the financing process works before you visit the dealer showroom. The second is to have a command financial advisor or someone at your base legal assistance office review the contract before you sign.
Knowing exactly how much vehicle costs and the additional products included, and understand all financing terms and charges can also help you avoid getting taken.
You are even more susceptible to corrupt dealership practices if you have a low credit score, no co-signer, bankruptcy or repossession on your record.
Although some reputable firms specialize in helping people get conventional car loans despite these problems, albeit at a higher interest rate. But beware if the signs on the lot say “No Credit No Problem.”
Avoid the salesperson that continues ask how much you can afford a month. Focusing on monthly payments is a trick to distract your attention from the actual cost of the vehicle and long-term financing. The best way to avoid this is to know in advance how much car you can afford. You can find online calculators to help you figure out the payments for a given interest rate and vehicle price. This will help you know your real price range and avoid getting caught in the “monthly payment” distraction.
The offer of low interest rates can be very enticing. But don’t forget that the advertised rates normally include the phrase – “upon approved credit.” These rates often reflect the rate a buyer with very good credit would get if they choose a 24 or 36 month loan. Most young servicemembers are not likely to be offered these attractive rates and would likely not be able to afford the shorter loan period.
In addition, interest rates are only one of several factors that affect your cost for a vehicle. There are additional finance costs that have an impact on your actual costs. Be sure to ask to see all of your financing options, and the real cost of all payments.
Some dealers use sub-prime financing sources or “carry their own paper.” This normally means the dealer will charge or pass along certain fees that are rolled into the loan. These fees often hide the real cost of "low" interest rates.
You might be surprised to learn that low rate loans might not result in overall cost savings if the sales price and fees are inflated elsewhere in the deal.
Word to the wise – read the contract carefully, think in terms of overall cost, and avoid fly-by-night dealerships who prey on inexperienced car buyers with poor credit.