PREPARING TO BUY A NEW VEHICLE
When you step into a dealership to buy a new car, you may feel some uncertainty if you are taking the right steps and if you have all the right information. Here are a few ways to make your car buying experience a pleasant one. By following these simple steps and recommendations, you will find that you can do away with a lot of the anxiety of purchasing a vehicle.
Get Pre-approved
Stop by the Credit Union first and get your pre-approval for your auto loan. Getting pre-approved will help you determine your buying power and let you know what your rate and payments are. This will allow you to negotiate as you will know your bottom line.
Know Your Rights Regarding Financing
Don’t allow the dealer to pressure you into their financing. Who you want to finance through is your choice. If they state you have to use their financing to be able to buy the vehicle and they will not accept financing from whom you choose, they may be using deceptive practices within their financing process or financing the vehicle at a higher rate. If they won’t back down on demanding that you must use their financing to purchase the vehicle, then simply walk away and report them to us or the Better Business Bureau.
Do Your Research
Currently, you have information at your fingertips. First, research what the new vehicle is worth and if there are any specific rebates that you may qualify for. Kelly Blue Book and Edmunds are good tools for determining the value of the potential vehicle and allow you to see a history of vehicle pricing in your area for the specific make and model. We also offer a service to help you find a vehicle. Visit Member Auto Center to find your vehilce!
Shop Your Trade-In
If you have a trade-in, it’s a good idea to know what your vehicle is worth before heading to the dealership. You can pull values on your car online through websites such as NADA, or you can take your vehicle in to get appraised. Getting your vehicle appraised and having a written offer can help you negotiate when you are ready to visit the dealership. Carmax and Texas Direct Auto are examples of dealers that will give you a written offer on your vehicle. This will also help you determine if you are upside down on your vehicle, which is when you owe more money than what the vehicle is worth.
Negotiate The Price of The Vehicle
Negotiate the price of the vehicle before you consider any additions to the vehicle or mention a trade-in. As a reminder, you should not negotiate based on payments, as you will already have that information from your Credit Union. Negotiating based on payment will not usually get you the best deal. For example, the dealer may offer financing for longer term to bring the monthly payment down a little, but in the end you pay more for the vehicle because you are paying interest on the vehicle longer So in most cases it is best to go straight into negotiating on the price of the vehicle before discussing anything else.
Do Not Settle
Remember that this is a big investment, and you deserve to get what you want. There may be attempts to upsell you or possibly switch you to another vehicle that is not what you wanted. You and you alone know what you want. We recommend you visit our Member Auto Center to search for vehicles from preferred dealers and get car buying advice. This will help you avoid time and money at the dealership.
The next stop is the finance office. This is where the dealership may offer you additional products and services for the vehicle that is outside of your budget. Remember to stick to your plan. You already have your pre-approval from the Credit Union and will only need to sign title documents at this point. Here are some tips to get you across the finish line.
You Can Refuse a Hard Inquiry on Your Credit
The dealership may insist on gaining your social security number and signature to run a credit application to offer you financing options. However, remember that the dealership will sequentially send your personal information to multiple financial institutions to get approval - potentially sending your personal information to institutions you do not do business with. This means you will have multiple hard inquires on your credit report that could potentially lower your FICO score. You do have the right to refuse they run any hard inquiries on your credit to avoid this.
Dealer Markup
When it comes to a loan, the dealer will do what it can to give you options to finance the vehicle through them. When the dealership sends out your credit application, they are looking to see which financial institution will accept the application and make an offer. The dealer is offered a “Buy Rate,” which is the interest rate the financial institution is willing to offer to finance the vehicle. The dealer will not disclose this rate but will show you the “Sell Rate”. This will be the rate the dealership offers you plus their commission. So basically, a financial institution can say they will offer 4% and the dealership will tell you 6% to earn that extra 2%. You can ask to see the lender approval, but dealerships may be hesitant to show you the document.
Zero Percent is Not Always What It Seem
Another way a dealership may get you to run a credit application is to tell you they can possibly offer you zero percent. Typically, when this is offered, you end up forfeiting a rebate that would have provided better savings. Here’s an example of how this works. We will use a vehicle being sold for $25,000 for 60 months with a possible $3000 cashback bonus. Option 1: Dealership offers the vehicle at a 0% finance option on a car, for which you will forfeit the $3,000 cashback bonus, essentially paying $25,000 for the vehicle. Option 2: If you finance with your credit union, let’s say at 1.99%, and accept the dealer’s $3,000 cashback bonus instead of the 0% financing, the total amount you would pay on interest over the life of the loan would be $1,285 in this scenario. Adding the interest on the $25,000 car, you would normally end up paying $26,285, but when you then subtract the cashback bonus of $3,000 you would end up paying $23,285 for the vehicle under the cashback option instead of the $25,000 under the 0% financing option.
Loan Packaging
The finance office will offer you standard mechanical breakdown protection that was offered at the Credit Union. The biggest difference is the pricing on the coverage. Cy- Fair FCU will provide you with a protection plan that has a zero dollar deductible. Usually, the dealership will try to offset the cost of their policy by offering one that covers less time and mileage or offering one that has a deductible. Guaranteed Asset Protection (GAP) is another product they will typically offer at a marked-up price that can be purchased cheaper at the credit union. Additionally, always review your purchase order for any unwanted add-ons, such as phantom footprints or nitrogen in your tire. Some dealerships may even say that certain add-ons are a lender requirement. Remember, any additional products and protections that are offered are completely optional and not required.
As a reminder, Cy- Fair FCU will be there alongside you through the journey to make it simple and easy. There is no commission that we make with you getting into your new vehicle. Your loan consultant will be your go-to person for any questions that you may come across.