Automotive Loans: Negotiating a Loan with a Dealer

(1/8/2013) Traditional car buying can be an intimidating process involving much negotiation. After identifying a car to purchase, there is usually a series of back and forth in which the buyer and dealer eventually settle on a purchase price. But what many car buyers don't understand is the next step in negotiation — Finance and Insurance.

When you rely on a dealership for auto financing, you'll meet with a Business Manager to sign the paperwork and get the right to drive the car off the lot. As a matter of course, the Manager will often present the loan details, including interest rate, financing terms, and a wide variety of extras to include. The surprising truth? All of these details are also negotiatble. In fact, the Business Manager is a salesperson working on commission, who benefits with higher rates and more extras.

The trick to negotiating the best car loan then is to remember that negotiation doesn't end with the purchase price. There are a few tactics to remember:

    • Understand (and Avoid) the Extras. Every additional item purchased with the loan adds to your loan amount. Good business managers will stress that each extra only adds a few dollars a month. But the fact is most of these, including paint and fabric protection, rustproofing, undercoating, alarm systems, window tinting, and extended service warranties, may not be necessary — the manufacturer has already done it, or you can do it yourself simply and cheaply with materials from an auto or home supply store. Purchasing them at the dealer may end up costing you more in the long run. At the least, understand what each of these are before going to the dealer, and identify which (if any) you feel are important enough to add to your car and the loan.

    • Negotiate Interest. Simply because most borrowers don't realize the auto loan terms offered at the dealership are negotiable, most don't try. But if you feel the interest rate the Business Manager offers is too high, ask for a lower one. It helps to do research before hand on common interest rates, as well as your credit and what you can qualify for.

    • Know the Terms You Want. The more you decide ahead of time, the more you can ask for to obtain a loan satisfactory to you. Know generally how long you'd like the loan to be (ideally 4 years or less), and typical loan origination fees to expect. Always ask for a bottom line as well — the total interest and principal that will be paid each month, and over the life of the loan.

    • Find Financing Elsewhere. For the most part, financing at a dealership will feature higher interest rates to cover commission and the convenience for borrowers. Instead, apply for an auto loan at other places, like your bank or at an online lender, and avoid the entire process all together.

For Additional Reading:

Car Negotiation Tips:

Inside the Finance and Insurance Room:,0,2712386.story

Can't Afford Your Car Much Longer? Negotiate to Keep It:


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Amy Lillard A frequent contributor to ERATE® since 2006, Amy Lillard is a freelance writer specializing in turning complex information into useful tips and tricks for readers. For questions or topic suggestions, contact Amy at [email protected].

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