The Negotiator Magazine

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Many customers are drawn to particular dealers by advertisements that indicate either zero percent or low interest rate financing. When they get to the finance department at the end of their vehicle negotiation, they find that only Bill Gates and Donald Trump would qualify for the advertised rates. The dealer uses the bait-and-switch approach to induce customers to agree to interest rates well above the advertised rates. Unscrupulous dealers will even quote moderate interest rates, and have customers sign loan agreements providing for rates several percent higher. Before you sign any loan agreement, you should be certain the APR (annual percentage rate) is what you think you will be charged. If you don't see any APR listed, demand a written document containing this critical information. Federal truth-in-lending laws require parties engaged in commercial loan activities to provide customers with this information.

Vehicle buyers must also be careful to focus not only on the proposed interest rates, but also the number of months over which their payments will have to be made. When a dealer tells a customer that they will have to pay $350 per month and the customer says this would be too high, the dealer may offer to reduce the monthly amount to $295. The customer feels comfortable with this figure and agrees to the loan. What the customer may not realize is that the $350 per month figure was based upon a sixty month payment schedule, while the $295 figure is based upon a seventy-two month schedule. Under the first arrangement, the customer would pay a total of $21,000 ($350 x 60 months), while under the second arrangement the customer will pay a total of $21,240 ($295 x 72 months). You should thus be careful when different monthly payments are being discussed to focus on the total of months for which payments will be due. Never be embarrassed to take a calculator with you to the dealer, so you can actually multiply the monthly payments by the number of months covered to be sure you appreciate the total amount you will have to pay the dealer.

Whenever you think dealers will refuse to provide you with the advertised interest rates, you should consider alternative financing. What rate would you have to pay for a vehicle loan if you borrowed the money from your credit union or a local bank? You may be able to get a loan from one of these agencies for one-half of what the dealer is going to charge you. This could save you several thousand dollars over the term of the loan. If you obtain this information before you actually purchase the vehicle, you can use it when you negotiate the loan terms with the dealer finance department. If their rate appears high, let them know the better rate you can get elsewhere. If they refuse to give you as good a rate, sign the vehicle purchase agreement, but get your loan from the credit union or your bank.

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July 2005