Buying a car is a hellish experience. Aside from the cost (nearly $50,000 for an average new car these days!) there’s the exhausting battle of wills you must engage in. No matter how well you prepare, walking into a dealership sometimes feels like walking into a battle, because everyone there is trying to take advantage of you—even if you know exactly what car you want.
Unless you’re paying cash, the trickiest part of the car-buying experience isn’t dealing with the salesperson. It’s dealing with the finance people. The finance manager at your typical car dealership is often the highest-paid person there—and for good reason. They’re the ones who really work the angles to ensure the dealer gets as much money out of you as possible. They have a long list of subtle tricks they use to get you to sign a contract that might not be the best deal you could get—or even the deal you thought you were getting. Here are the tricks you should look out for after the salesperson hands you over to the finance people.
Drawing your attention to the wrong number
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Car salespeople are forever trying to do one basic thing when you’re financing a new car: Focus on the wrong number. The number they typically want you to pay attention to is the monthly payment. They’ll ask you what your budget is, then feel you out to see how high you can actually go, then work backward from there to come up with a deal that hits that monthly number but gets them the most profit over the long term. Common tricks include the infamous Four Square, where the salesperson jots down numbers, talks fast, crosses stuff out, and guides you to see that monthly payment and nothing else.
Even if you defeat the Four Square and negotiate an out-the-door price on the car and a financing deal you can live with, that monthly number can still haunt you. One trick to watch out for is a monthly number that’s just slightly off what you expected—it’s close to what you negotiated, but not exactly right. That means it’s time to go through that contract with a fine-toothed comb, because something’s been altered. They may have added fees or something else into the total price, and when it’s amortized over several years the extra payment is small and they simply hope you won’t notice.
Messing with the trade-in value
If you’re trading in a vehicle as part of your transaction, the salesperson might proudly inform you that they’re going to value that trade-in at the same amount you owe on it. Which is great—as long as it’s true. What the finance guy might do is value the trade-in at a lower amount, then roll the extra money owed into the overall principle of the loan—and since they get incentives to write loans, the bigger the better (for them). This is probably illegal in your area, but that doesn’t stop them from making an “honest mistake” sometimes.
Add-ons that increase the price unexpectedly
You’ve negotiated your deal and you feel pretty good about the price you got for the car and the terms you’re getting for the financing. Then you sit down with the finance person and suddenly the price and payments are higher—because a long list of features and options you assumed were included in the price were not, actually, included. Now you have to choose between paying more for the car you thought you were getting, or starting the process over to get less car than you want.
Interest rate markups
If you finance your car purchase through the dealership, you should still look for financing elsewhere, if only to know what the available rates are. Because dealerships often mark up their interest rates to make the deal better for themselves. They call their lender and get a rate of, say, 6% for your car deal. But when they present the financing numbers the rate is 8% because the finance folks have marked up the rate—the dealer gets to keep that extra 2% charged on the loan. Always ask if the rate in the contract is the dealer’s “buy rate” or if they’re packed on some extra points without telling you.
“Yo-yo-ing”
This is a lot less fun than it sounds. It works like this: You negotiate the deal and buy the car. You take the car home. You love the car. Then a few days later the dealer calls and tells you that your financing was denied, so you have to come back in and re-negotiate the deal. Often, if you inspect the paperwork the finance people handed you, you’ll find fine print that states the sale isn’t final and that the dealer has the right to cancel the sale if they need to. They’re banking on a version of the sunk-costs fallacy to drive you to negotiate against yourself and pay more for the car.
All you can do to defend against this is to get outside financing and read your paperwork carefully. Look for language that allows the dealer to cancel the sale—keywords like “conditional” or “not final” are often hints about this. If you see anything you’re not certain about, ask directly—and if you don’t like the answer, walk away.
Bundling multiple negotiations into one
Buying a new car isn’t one simple transaction—you’re probably doing two or three separate things in parallel. You’re trading in a car—essentially negotiating a sale price for your old vehicle; you’re negotiating a price on a new vehicle; and you’re negotiating financing terms.
What finance people at dealerships love to do is bundle those negotiations into one huge, messy deal. This way, if you push back on one aspect of the deal they can just make up for it in another. For example, let’s say you decide you’re not getting enough value for your trade-in and you push to get $500 more for it. The dealer reluctantly agrees—and adjusts your financing terms to claw back that $500. The more confusing and interconnected the bundle is, the harder it is for you to figure out if you’re getting what you actually want. The only real defense is to insist on separating these negotiations so you can see clearly what each one looks like.
Adding “standard” things without asking
Sometimes you sit down with the finance folks and suddenly the price you negotiated is higher in the paperwork—because they’ve gone ahead and added “standard” stuff like gap insurance (covering the value of your car if you total the car and your insurance doesn’t cover the remaining debt on the loan) or extended warranties. They’ll often argue that the price you negotiated is still in effect—it’s the cost of the car, not the extra services. They’ll also often imply that these are required fees of some sort instead of add-ons.
Gap insurance and warranties might be a good idea—but you should be aware of their costs before you’re presented with a contract. And dealers will sometimes add these in even if you already have your own insurance—which is almost certainly going to be a better deal for you overall.