Car dealers refer to buyers as either "price buyers" or "payment buyers" and they want you to be a payment buyer. The reason is simple. If they get you focused on the monthly payment that you can afford, then they can "pack" into the deal as much profit as possible and simply get you a longer loan. If you say you can afford $400 a month, they know that if they can keep you focused on that number, it'll be easier to get you to stretch the loan from 3 to 4 years and that can mean an extra $4,800 for the dealership. A price buyer, however, keeps their eye on the ball and then it's just a matter of you deciding how long you want your loan to be. As a car dealer said to me one time, "a payment buyer is a sucker buyer."
Dealer-Arranged Financing -- Get the "Buy Rate"
When a car dealer arranges financing for a consumer, the interest rate charged the consumer will often include a "kickback" payment to the dealer that the consumer ends up paying through a higher interest rate. The lender quotes the dealer the lowest interest rate the buyer qualifies for, which is commonly referred to as the "buy rate," and the dealer then quotes a higher rate to the buyer. The difference between the dealer-offered rate and the "buy rate" is called the "yield spread premium." Most dealers never tell their customer what the "buy rate" is or how much extra profit the dealership is making for arranging financing. If you finance through the dealer, you want the "buy rate." If the dealer won't show you what it is, then you are probably paying a higher interest rate than you have to.
Taxes, Title, and Doc Fees
Legally, a dealer may add to the contract a "documentary fee" (or something like that) for processing documents and performing services relating to closing of the sale, as well as taxes, license, and title fees. However, the documentary fee is illegal if it exceeds the limit in your state. It is different in each state but, for example, in Ohio it is $250 and that's one of the higher limits. What the dealer doesn't tell you is that the "doc fee" is pure profit for the dealer. You can negotiate it down. Also, make sure the taxes and title fees are being calculated right. You should always read all documents carefully to avoid paying more than is necessary for a vehicle. Question any number that you don't understand.
There is No Three-Day Right to Cancel
When you buy a car, new or used, there is no such thing as a 3 day right to cancel the deal unless the dealer writes it down on the sales contract. Nothing else counts. Dealers may say they have a money-back guarantee, or a "no questions asked" return policy, but if it is not in writing, it does not legally exist. Before you sign anything, ask about the dealer's return policy, get it in writing, and read it carefully so you don't waste your money.
Don't Camp out
It doesn't take 5 minutes for a car dealer to run your credit and figure out what you can afford. If it takes longer than that, be suspicious. Selling cars is all about control, so don't let the dealer control you. Often, the only reason they are letting you sit in that room is so they can control you better. Part of the sales theory is that the longer it takes you to get the deal done, the more emotionally invested you are in getting to the end of the deal and the more likely you will stay even longer to get it done. And the longer it takes, the less attentive you are likely to be to the details in the paperwork when they get you to the finance office to sign the papers. And that is where the car dealer makes the most money off the customer. Don't camp out on the dealer lot and don't let them take you prisoner either. Never let your own car keys out of your hand until you have the keys for your new car in your hand too. Without your car keys, you're a prisoner.
Don't Be Afraid to Leave
If you feel any pressure to "buy now before you lose the deal" then get up and leave. Sales people know that if you think there is someone else thinking about buying a particular car then you'll be more likely to think that car is desirable and you'll be more likely to buy it, which is why they tell it to you in the first place. If you feel any hesitation about buying a car, then trust your instinct and get up and leave. There are lots of car dealers and lots of cars. The odds are that if you don't buy that car tonight, it'll still be there tomorrow. And if it isn't, well there will likely be one just like it for sale somewhere else anyway. Stay in control when you are at the dealership. That's how you will make your best deal.
Get it in Writing
Whatever the dealer's salesperson promises you, make them write it down. Nothing counts if it is not in writing. If they say they will give that used car a tune up if you agree to buy it, stop and ask them to write that out on a piece of paper. If they say they'll put new tires on it, ask them to write that down too. If they say you'll get a 6 month warranty, have them write that down too. Get it all and get it all in writing. Then, when you get to the finance office and they want you to sign the sales contract, pull out all your slips of paper with the written promises and make sure that each one of them is written on the final sales contract too. If it isn't, then it does not count. If they won't write it down, then don't buy. It's that simple. A car dealer will do what they have to do and they don't have to do anything that isn't written down. If the won't write it down, then there's a reason and you should be plenty worried.
Don't Sign an Arbitration Agreement
An arbitration clause kills your right to go to Court. If the car dealer is afraid to let you go to court, then you should be afraid of the car dealer. Think about arbitration this way: it's a secret process where no one finds out what the car dealer did to you. And how tough is arbitration on your legal rights? Well, if you sign an arbitration agreement to buy a car and on your way out the door, the salesman comes after you with a baseball bat, you can't sue him. You have to arbitrate. And your recovery may be limited even if the other side is at fault or commits fraud on you. And you may have to pay for an attorney even if the law says you don't have to. It's like playing with a stacked deck, which is one reason the game usually takes less time to play too. Less time in the process may sound good, but a bad result is still a bad result. Arbitration sucks. Period.
Additional resources provided by the author
There are lots of sources of advice about buying and leasing motor vehicles on the internet. Here's a few things to watch out for so you don't waste your time or your money.
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