Beware of these hidden financing pitfalls when buying a car

While many buyers believe that fighting the car salesman is the best way to get a low price, it’s actually the dealership’s CFO who can make or break a good deal.

“The finance office is where the dealership makes their money,” says Tony Chapman, former general manager of several Southern California dealerships.

Buyers often spend hours haggling over $ 200 off the price of the car with the seller, says Jesse Toprak, founder and president of, a car buying and ownership management site. Then they walk into the finance office and buy an overpriced extended warranty for $ 2,000, no questions asked.

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Navigating the finance office artfully means knowing what to expect and planning ahead. Here are five mistakes these industry veterans are revealing and how you can avoid them.

1. Let the dealership increase your interest rate

Looking at your credit history, a CFO looks for any tiny problem, like a late payment from three years ago, and circles it with a big red pen. “Now the person is scared of not being eligible for a loan,” Chapman says. Meanwhile, the CFO increases the interest rate by 2-3 percentage points, which costs the car buyer hundreds of additional dollars over the life of the loan.

The best defense? Get pre-approved for a car loan from your credit union, bank or online lender. Then use your loan as a bargaining chip to unlock the low rates that dealerships can offer.

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“The biggest mistake I saw from consumers was not arranging their own financing in advance,” Toprak explains. “Then they walk blind.

2. Negotiation of your monthly payments

In a tactic called “wrap up the payments,” dealers ask buyers to accept an inflated monthly payment, then top up the contract with products they claim to be discounted or free. Common add-ons are extended warranties, anti-theft devices and paint protection packages.

“It’s illegal to wrap payments,” Chapman says. “But the dealers do it all the time anyway.”

If you are asked what monthly payment you are looking for, tell the dealership that you are a cash buyer and only negotiate on the price of the car. Check pricing guides such as Kelley Blue Book or Edmunds before heading to the dealership to find out the current market value of the car you want to buy.

3. Buy overpriced extras

Before putting in place the sales contract, the CFO offers a dizzying array of products and services – many of which are scams, Chapman says.

For example, the prepaid maintenance plan, which promises to save money on oil changes, charges people too much for maintenance that they often don’t fully utilize. A Chapman dealer received a check for $ 8,000 each month for unused service.

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Another popular offer is the extended warranty, which Chapman says is overpriced, sometimes in the hundreds of dollars. “All insurances and guarantees are just legalized gambling,” he says, and the chances of something wrong with your car are slim.

“Taking delivery of a car is an emotional experience, and a lot of people let their guard down,” Toprak adds. A simple way to say ‘no’ to the CFO is to say, ‘Thanks, but I won’t keep the car long enough to need the warranty, so let’s get on with the paperwork. There is no going back to that.

4. Extension of the loan

To make cars more affordable, dealerships offer 72 and 84 month auto loans. Although this reduces the monthly payment, you will pay significantly more interest over the life of the loan. And because you’re paying less each month, you’ll likely be upside down on the loan, getting more than the car’s worth, for longer.

The only time such a loan is considered is when it has a very low interest rate and you are absolutely sure you want to keep the car until the loan is over, Toprak says.

5. Pay dummy fees

When you buy a car, you should only have to pay the price of the vehicle plus sales tax, registration fees, and documentation fees or “administration fees”. But dealers in many states charge additional fees to increase their profits.

Doc fees, in particular, can be a nasty shock. While a few states cap fees from $ 75 to $ 300, many states allow dealers to charge unlimited amounts. For example, found that the average documentation fee in Florida is $ 799, and in Virginia, $ 599.

Find out about these fees before agreeing to a deal. Ask your salesperson for a cost breakdown and a “door-to-door” price. Question contract fees that seem excessive or redundant.

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