Reasons Not to Finance a New Car Purchase at the Dealership

Many people finance a new car purchase at the car dealership because it’s so easy. You go in, browse around, find something you like and then the salesperson eagerly helps you get the “best” deal on financing so you can afford that new car. And of course, they do this to secure the sale. If they can get you to get the financing the moment you decide on what you want, your mind is geared toward buying and you’re most likely to agree to whatever terms they present you with.
But they’re also selling you a product. Financing through a dealership isn’t so much as a service to you as another way for the dealership to make more profit. They have many ways of getting the most money out of you while still coming off looking helpful, as if they got you the best deal possible. Many consumers aren’t even aware of the tactics used to get you to finance through a dealership thinking that you got a great deal.
One of these involves the salesperson’s ability to raise and lower your APR according to how much you pay for the car. The interest rate you’re offered might be lower than you expected, which can make you happy and more open to buying the new car that moment. But because you’re getting that lower interest, the price they’re going to give you for the car itself is going to be much higher. Using this tactic, they intend to get the same amount of money out of you, if not more, but that lower APR blinds you to that momentarily.
To avoid this kind of bait and switch, you can negotiate the price of the car you want before they start talking interest rates. You might not get that super low APR, but it wasn’t going to benefit you anyway considering the hiked up purchase price of the new car. If you are offered a low APR, be sure you check the terms of the agreement. Usually loans with those super low rates are fast payback loans. You might only have 2 years to pay it off in full, which means much larger monthly payments you might not have counted on.
If the car dealership begins negotiating your monthly payment, you definitely don’t want to finance with them. They’re negotiating your monthly payment just to see what they can get out of you, and your interest rate is all but forgotten. Talk APR, not monthly payment.
Another thing some car dealerships do is to try to convince you that they can lower your APR if you purchase add-ons or extras for your car. Then the amount of your loan “qualifies” you for that APR. This is much like lowering it raising it as they tinker with the price of your car. Many dealerships will try this, but it’s just a tactic to get you financing a new car purchase through them even though you’ll be paying more money for it.