Five Car Loan Mistakes that Cost You Money!

[Thomas Rogers]

A very good article, even though I suspect most know these common mistakes by heart.



The mistakes described in the article are summarized in this list:

1. Negotiating the monthly payment rather than the purchase price.



2. Letting the dealer define your credit worthiness.



3. Making the wrong choice between cash rebate and low interest-rate loan.



4. Rolling negative equity forward.



5. Financing the cost of add-ons that you can buy separately.

The entire article is still good read. Knowledge is power...

 

[Mark K 2]

In my younger days, I broke all five rules.

 

[Jimmy Lavoie]

In my younger days, I broke all five rules.

Me too

 

[Thomas Rogers]

Justjimmy, Mark,



Hopefully you didn't break all 5 rules when purchasing the same car or truck. LOL.

 

[Mark K 2]

Hopefully you didn't break all 5 rules when purchasing the same car or truck. LOL

Yep, I did. I broke all five when I bought my brand new 1988 Ford Tempo. But, the damages weren't too bad and I learned my lesson. It was my first dealings with a dealer and my first new car.

 

[Jimmy Lavoie]

1, 4 & 5 for me when I bought my ST.

 

[Richard L]

I agree with all of them, but I am not sure about #2? I have never bought a car from a dealer without have pre-arranged the financing at the lowest rates I could get. When I bought my 2003 Sport Trac, I had a check in my pocket from a bank willing to finance my purchase at a very attractive interest rate. The dealer asked what the rate was, but I would not tell him. I told him to get me the best interest rate he could get me and I will decide if I want to take it, or to use the check in my pocket. It took him a little over an hour but he got a bank to finance my ST at nearly 1/2 % lower than the company I had prearranged my financing through, so I took the dealer arranged financing. At that time, Ford Credit was not offering any financing for under 6%.



Item: 4. Rolling negative equity forward, is a problem my oldest daughter and her exhusband have done several times over the years they were married. I have constantly advised them against doing that, but they just would not listen. The stranges part is that she is an Accountant and should know better without me telling her.



She has given me some very good Taxes, and realestate advice, but still rolls upside-down car loans into a new car loan...:banghead: The good news is that I think my advice may have sunk in...She recently bought a new 2010 Honda Civic without rolling any old upside-down car loans on top of the Honda loan.



I also understand now because of the tight credit, that some dealerships and finance companies are not allowing consumers to roll negative equity into their new load.



I never had that problem when I was young because no finance company would allow you to roll negative equity into your new loan? That has been something that only started about 15-20 years ago and by then I was old enough to know better, and had the financial resources to avoid that pit-fall.



The biggest mistake I ever made buying a car was not shopping around for the best financing rates. After I got burned once when I was about 25 years old, I never made that mistake again.



...Rich

 

[Kevin Palmer]

I agree with the list and as mentioned above, was guilty of them in my younger days...

 

[Thomas Rogers]

Richard L,



Regarding #2, I think what they are advising against is going into the dealer without financing already arranged and in-hand from some other lender. Sounds like you do that. It's a good thing to do. Lenders will cut you a check good for n days, and you use it or not, and if you don't it doesn't cost you anything. Having just such a check in hand when negotiating gives one more variable and option to consider. You might get a bette rate from a third-party, or a slightly higher rate, but then be able to avail yoursel of a mfgr rebate that you would otherwise not get with mfgr financing.



TJR

 

[Kevin Lang]

You forgot Rule #0 -- don't get a loan.

 

[Tom Schindler]

My inherent distrust of anyone that has somethig to goin by me giving them money ALWAYS made me shy away from almost anything.



I will go through the rules and my resonings why I avoided them...

1. Negotiating the monthly payment rather than the purchase price.

If I am buying a vehicle, I want to know what I am paying for the vehicle. If I am leasing/renting the vehicle, I need to know the monthly payment.

2. Letting the dealer define your credit worthiness.

I know my credit worthiness. Asking me my credit score is like asking me what size of bra my wife wears. You just don't ask such questions while "shopping".

3. Making the wrong choice between cash rebate and low interest-rate loan.

0% intrest sounds awesome, but if it sounds too god to be true... When I purchased my Trac I wanted 0% intrest. That was until I did the math. 0% interest would have cost me $1300.00 MORE than paying the interest.

4. Rolling negative equity forward.

Without even thinking about it, this is just silly. I am sure there are cases where this MAY be needed, but if I already am making payments on the vehicle I drive, why the hell would I need a new vehicle?

5. Financing the cost of add-ons that you can buy separately.

I go to the dealer to buy a vehicle. Not to buy a service contract, scotch guard coating on the seats, paint sealant, or anything else. I am buying a vehicle. That is what I am paying for. Nthing more, nothing less.



I have the attitude of a salesman will say anything to get you to spend money. I have no reason to trust ANYONE with a vested interest in me giving them money. I will do my own research on my own. When it comes time to buy, I will buy what I want. I will know more about the product that the salesman sells than he/she does. If they piss me off in the first 30 seconds of the visit, I will lead the salesman on for hours to "make him pay for it", but still not buy fom him.



I am a straight shooter when it comes to buying a vehicle. Don't play games with me. I have the money, you want the money. Beg for it.





Tom

 

[Bill V]

IMHO, #5 ("Financing the cost of add-ons that you can buy separately") deserves an asterisk in the article. There are some items which you can buy separately, but which still may make sense buying with the vehicle and financing.



For example, on the ST, I'd point to the factory tonneau cover. Yes, you can buy it separately. But in general, if you bought it as a factory-installed option, you could get it at substantially less cost. (If I remember correctly--it's been 8 years since I've shopped for a new ST.) In that case, it still makes sense to buy it that way--regardless of whether you then pay cash for the upgrade cost, or, if it works properly into your personal budget and finances, rolling it into your loan.

 

[Tom Schindler]

Bill



The factory Tonneau cover is a factory item. You could also buy a vehicle without wheels and tires and buy them separdly, but that would be silly.



The article is refering to things like, service plans, paint sealant, scotch guard for the seats, oil changes for life, etc. and not factory items like wheels, tires, mufflers, and tonneau covers.





Tom

 

[Kevin Lang]

Caymen, the quote doesn't say that, which is the point in question. If they had said "dealer addons" instead of simply "addons", we would have less room for interpretation. An article like this should be precise anyhow.

 

[Kevin Palmer]

0% interest sounds awesome, but if it sounds too god to be true... When I purchased my Trac I wanted 0% interest. That was until I did the math. 0% interest would have cost me $1300.00 MORE than paying the interest.

I tried to explain this about a year ago here and basically got seriously YELLED at...



Yes,,, ZERO is ZERO, but that does NOT mean it is the best deal based on other options at the time of the purchase.

 

[Gavin Allan]

Huh?



All things being equal, how do you pay MORE with zero interest loan?

 

[Tom Schindler]

Huh?



All things being equal, how do you pay MORE with zero interest loan?

Simple. If you take a $3,500 rebate on a vehicle, you are getting $3,500 of free money. If you finance a certain ammount of money, you would need to pay $3,500 in intrest to break even.



Here is a short example. For some people it doesn't make a difference, for people like me, it does.



Purchase price of the vehicle, tax title, out the door is 20,000.



You get 0% for 3 years.



20,000/36=555.55 per month. Interest paid, $0.00



You pay 6% interest for 3 years.



20,000-3500=16,500



16,500*.06=990.00 per year of interest.



19,470/36=540.83 per month. Interest paid $2,970



In my case, I would have saved $530.00 by paying interest and getting the rebate.



On top of that, I have the incentive to pay off the loan sooner and saving even more money. If I pay it off in 2 years by simply paying about 200 more a month, I will save close to another $900.00.



For some people, this doesn't work out for them. When I pay my car off, I start my next car payment right away. I put $200 to $250 a month into a savings account. Without any interest paid in my account (to keep the math simple), I save 3,000/year to use towards my new vehicle. When the time comes and I buy a vehicle, I can put a very large down payment on the vehicle, have a super low payment enableing me to double up the payments saving me even more money.





Tom

 

[Les]

I can put a very large down payment on the vehicle, have a super low payment enableing me to double up the payments saving me even more money.

Tom, as long as you keep a vehicle, you should be able to pay cash...:grin:

 

[Bill V]

Caymen, the "factory" tonneau cover is available both as a factory-installed item and an aftermarket part. But it's cheaper as a factory installed item. That's the point I was trying to make--not only is it cheaper that way, but if you have the desire to finance it and the financial ability to do so, you can do so.

 

[Tom Schindler]

Tom, as long as you keep a vehicle, you should be able to pay cash...:grin:

That is very true. But then again, I have to buy my wife a car too.





Tom