Since I am in the loan business and know most of the in's and out's of what happens behind the scenes at car dealerships, I figured this would be perfect for a finance section.
So, if you are in the market for a car feel free to ask questions here on the buying process. Where can I get the best rate? What are all these terms banks and dealers use? How to get the best deal on a car? What are some good long lasting cars?
All these questions can be answered here through my personal advice and also your fellow CAGers.
How do banks and dealers calculate my interest rate?
- Most of it is based off of your credit score and also the term of the loan.
- However, what most people do not know is that with some auto loans, they will increase the rate you were approved for and pocket the difference.
- Example: I am approved for 2.99%, dealer will contract at 4.99% and pocket 2% of the loan
How to avoid that: get approved for your loan before hand!
- This is the only way to go when getting a loan so you know your rate and the dealer does not have a chance to increase it for their benefit.
- another thing that is taken into account can be LTV. LTV stand s for Loan to Value. This is the calculation of how much the car is priced over value. This means that the moment you drive off the lot you are upside down a certain amount. If the car is too much upside down, lenders may charge a higher interest rate to protect them if the car ever gets totaled. When buying a car you do not want to pay too much over the value, obviously, so do your research with NADA values and understand that getting as close to 100% is where you want to be.
- You can also put money down to help LTV, and it is why some lenders or dealers require it.
What kind of products will a dealer offer?
- Dealers offer many different things that can make them a lot of money.
- Examples are Service Warranty, Gap, Maintenance, Security, Life insurance, Disability, Tire protection, and perma plate.
Should I buy these extras for my car?
- This answer all depends on you. Things like a warranty, gap, and even maintenance can be beneficial to you, however, it all depends on price.
- All extra products are negotiable on price and something that many people do not know.
- Also some state laws regulate these products while others do not. For example. Colorado requires that gap does not exceed either 2% of the amount financed, or it can be a flat $300. Honestly there should be no reason to pay more than $300 on gap as there are many third party companies you can get gap for that price even if the dealer won't do it. Remember that everything is negotiable no matter what they say.
If anyone has anything else to bring or questions regarding an auto purchase feel free to ask.