Car shopping can be an exciting time. And when you finally go to a car dealership, you may be tempted to just get your auto loan there. But this may not be the best financial decision. In fact, you could end up paying far more than what you should for that new vehicle. Here are 3 reasons you should avoid car dealership financing and get your auto loan in advance.
Packed Payments: A Sneaky Way To Add On Extras
In many cases, car dealerships will add in extra ‘perks’ into your auto loan that will end up increasing the overall amount you owe. These products include gap insurance, extended auto warranties, rust or fabric treatments, etc. The problem is that salesmen will avoid mentioning that you don’t actually have to pay that $30-50 per month. It’s a misleading practice that deprives customers of the option to choose what they want to pay for.
Car Dealership Financing Markups
Did you know that the interest rate the dealership hows you may not actually be the one that the bank initially gave? The salesman is interested in getting as much profit from you as possible. And this means they will find any way to squeeze money out of you. When they do your auto loan paperwork, they usually receive approvals from several banks. And the one they choose may or may not be the lowest of the bunch. What’s worse, they will frequently add an extra 2-4% extra onto your interest rate so that they can take from the profit. So, what may have started out as a 7% interest rate from the bank is now 9-11% because the dealership marked it up. This is called a dealer reserve and is a totally legal (albeit disadvantageous) practice.
Spot Delivery- Just Don’t
This practice tends to be more common in used car dealerships. It occurs when a dealer allows you to take your new car off the lot without actually being approved for a loan. The understanding is that you will be approved for financing later. However, the problem arises when a customer isn’t approved for the previously agreed upon terms or is denied completely. They are then either forced to take on the new terms (which are usually outrageously bad) or return the car. Some are even threatened with a police report if they don’t comply. It’s an overall stressful situation and a truly unhealthy practice for dealerships.
So, What Should You Do?
Avoid car dealership financing at all costs! The best thing you can do for yourself is to obtain financing from a lender or bank before heading down to that dealership. This way, you can avoid the hassle and stress of negotiating with pushy salesmen.
And if you’re browsing around for auto financing, visit BlueSky today to get started with our financial partners for the best deals on the market!