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Tuesday, May 10, 2016

Car Buying | What you need to know before buying from a dealership!


Spanish Coches Vintage Dealership


There is no-one behind that curtain... 

The Big Scary Floating Head of Auto Lending.


Few things can be as nerve wracking as buying a car from an Auto Dealership. The sales person takes you test drives, tells you about the car, but doesn't tell you the hidden things that are wrong with it.

So let's deep dive into the topic, and set you up for success. Hopefully you read this, and avoid the many pitfalls of the experience. Making you a winner in the end.

Buyers, Seller, Lender, Other Parties


Let's get the parties straight:

  • Buyer: You
  • Seller: Dealership
  • Lender: The Bank(s)

The lender is not the buyer or seller. The lender is not involved in the sale of the car in any way. The lender simply receives an electronic application and makes a decision (Yes/No/Yes with conditions).

The lender then receives a contract weeks later, and that's when they find out if they are your lender.

The dealer is the one negotiating with you, therefore, you are negotiating with them. You are not a victim, a passive party, an innocent party... you are negotiating a sale with another party.

The reason I make this distinction right up front, is that many people go into a dealership with a "hand out"mentality, hoping to get approved for a car. Because they go in with this mindset, they are not in a mental or emotional position to bargain or negotiate. Then when things invariably go against them, they feel taken advantage of.

You are the buyer. Let that sink in... warm your blood... empower you... YOU are the buyer. The dealership needs you more than you need the dealership. There are 100's, if not 1,000's, of dealers near your home, and you chose this one or two.


The Walk Away 


Now that you know you are the Buyer, you are empowered. You must feel the freedom to walk away from the deal at any moment. Read every line of every paper. Never take a person's word for anything. If you sign a contract the Lender and Courts will hold you accountable to what you signed, not what you were "allegedly" told.

Use this to your advantage. Negotiate rates, terms, price, and products. Take days, weeks, to make a buying decision. It's better to walk away from a deal that you are not 110% sure about, than sign a deal you get stuck with, and don't want.


Terms & Condition


Being a buyer, you are responsible for the contract you sign. You are responsible to read, read, and read before you sign. Did the sales person tell you the payments would be $350.00, a lot can change between the sales person's desk and the finance manager's office. Make sure the paperwork you sign says what you thought it would. If you disagree, don't sign.


The Car History - AutoCheck or CarFax

You are only you, the Buyer, are responsible for checking the condition of the used product you buy. Many dealers buy a car at Auction in the morning, and sell it that afternoon, without so much as lifting the hood.

Generally, you cannot cancel the sale or return the car if it breaks down after purchase (even if it's 10 minutes after purchase and you haven't left the lot yet). So let me ask:

  • Would you buy a toaster at a garage sale, without asking to plug it in to make sure it works?
  • Would you buy a house without asking for a home inspection? 
  • Why would you buy a car without taking it to you mechanic for a look over, FIRST?

As the Buyer, you not only have a right to ask for an inspection, you have a responsibility to. If you buy the car and then have it inspected, it's too late. You need to have it inspected first. Any dealer worth buying from will let you take it to your mechanic before you sign anything that says you are "buying" the car. If they don't let you take it to your mechanic, run away from that dealer, don't buy from them.

You can pull your own car histories from Auto Check or Car Fax. It's great if the dealer will do this for you, but it's not required by them. And you don't need them to do it. You can go the websites and pay for the histories yourself. Wouldn't you rather pay a little, than get stuck with a big mess?

But let's be clear. These histories are not a guarantee that nothing is wrong wit the car. The only things included in these reports are public records. Mechanics, Dealer's, Inspections, Registrations, and Insurance items may all appear.


  • If the previous owner did oil changes in their home driveway, it may not appear. 
  • If the previous owner had an accident, but paid out of pocket for repairs instead of involving insurance companies, it won't appear.

These do not offer any assurances. They are; however, an indicator of things that you may need to know.

Price vs Value

The Kelly Blue Book or NADA value is NOT what you car is worth. Rather, they are an indication (an average) of what other people have paid for a similar year, make, model, and miles. Purchases change the values provided by KBB and NADA.

This means that there is no such thing as the car being "worth" more or less than you paid. These do give you an indication of what other people have paid. Trulia.com does a great job of showing you if the price is over or under the average.

Use this to your advantage. There are only two people who can establish the value of this vehicle. The Buyer (you) and the Seller (dealer/private party). Once you come to a price that they agree to sell it for, and you agree to buy it for, that is the new value.

Negotiate.

The Buyer's Order/Purchase Order

Once you agree to buy the car, you will be asked for sign a Purchase Order, or Buyer's Order, or Invoice (goes by many names). This is not a loan contract, yet. This is an agreement to buy the car, and it's fairly binding, so do not sign lightly. Read it all first. Make sure you agree.


The Loan: Dealer vs Pre-Approval

You don't have to use the dealer for financing. You can go to any numbers of banks and third parities to get the financing on our own. The last purchase I made, I used a bank's pre-approval. I went to the dealer with a blank check, and the only thing we had to discuss were the sales price and products.

The upside to a pre-approval is that you don't have to be stuck there forever playing the finance game, where they pretend they cannot get a better deal, then magically come back with one.

The downside, if you are a good negotiator, you may get a better deal with the dealer's financing.
Little known fact: The Dealer actually has some say in the final Annual Percentage Rate (APR) you receive. The bank sends the dealer a "spread" of x-y percent for this credit tier, and the dealer sets the final APR. So you CAN negotiate APR if you are pushy about it. The dealer's won't give it up easily, they make money on the difference.


Aftermarket Products

The dealer sells products that go with your loan. I wrote more about Guaranteed Asset Protection (GAP)(here) and Warranties (here). Since you can read more at those links, it is sufficient to say that you should make sure you understand what these are for. Only buy what you feel is worth it.

The banks DO NOT, (are not allowed to) require any of these add-on products to finance the loan. If the dealer tells you they are required, you should probably run away and report that dealer to your local Attorney General. Buy somewhere else.


The Retail Installment Sales Contract (RISC)

Otherwise known as The Contract. Once you sign this, there is no turning back. The RISC outlines the purchase, trade-in, down payment, add-on products, and most importantly the terms and conditions of the loan.

There is a section right up top called the Truth In Lending Act (TILA) Disclosure. This will cover the total amount financed (opening balance of the loan), APR, payment, payment start date, everything. Read all of it, you will be held to everything you signed (not what you are told).

Returning the Car (Canceling the sale, Unwinding the Deal)


There are exceptions, lemon law rules, state and county requirements... but the for the most part you cannot return a car after purchase.

In most states around the country there is "No Cooling Off Period", which means that you cannot cancel the sale or loan. You cannot cancel within 3 weeks, 3 days, 3 hours, or even 3 minutes. The ink could still be wet on the paperwork and you cannot cancel.

Some dealer's offer a return policy, some states require one. Most lemon law's only cover brand new vehicles and not pre-owned (used) cars. Even then, most lemon laws cover a defectively made product, so you are going to file the dispute with the manufacturer (Ford, Honda, Etc.), not the dealer.

In rare instances, you can either find a reason to force the contract to be voided (such as an undisclosed deferred down payment), but it's not likely. I'd give you a 15% chance of that working. In some instances you can apply enough pressure on the dealer through media, social media, that you can get the to unwind, but again... not likely. I'd give you a 10% chance of that working.

If you asked nicely, and they didn't try to make you happy, they probably won't back down with pressure, they will get more firm and rigid.



The Insider

The Insider is a BIG fan of Dave Ramsey:

  • Go read/listen/watch Dave Ramsey and he'll teach you how to do it right!
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