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Information on mortgages, home equity loans, and consumer credit to help you use the power of financing to your advantage.
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Loans > Auto
Car Ads: Reading Between the Lines
Many new car dealers advertise unusually low interest rates and other special promotions. Ads promising high trade-in allowances and free or low-cost options may help you shop, but finding the best deal requires careful comparisons.
Many factors determine whether a special offer provides genuine savings. The interest rate, for example, is only part of the car dealer’s financing package. Terms like the size of the downpayment also affect the total financing cost.
Questions About Low Interest Loans
A call or visit to a dealer should help clarify details about low interest loans. Consider asking these questions:
• Will you be charged a higher price for the car to qualify for the low-rate financing? Would the price be lower if you paid cash, or supplied your own financing from your bank or credit union?
• Does the financing require a larger-than-usual downpayment? Perhaps 25 or 30 percent?
• Are there limits on the length of the loan? Are you required to repay the loan in a condensed period of time, say 24 or 36 months?
• Is there a significant balloon payment —possibly several thousand dollars — due at the end of the loan?
• Do you have to buy special or extra merchandise or services such as rustproofing, an extended warranty, or a service contract to qualify for a low-interest loan?
• Is the financing available for a limited time only? Some merchants limit special deals to a few days or require that you take delivery by a certain date.
• Does the low rate apply to all cars in stock or only to certain models?
• Are you required to give the dealer the manufacturer’s rebate to qualify for financing?
Questions About Other Promotions
Other special promotions include high trade-in allowances and free or low-cost options. Some dealers promise to sell the car for a stated amount over the dealer’s invoice. Asking questions like these can help you determine whether special promotions offer genuine value.
• Does the advertised trade-in allowance apply to all cars, regardless of their condition? Are there any deductions for high mileage, dents, or rust?
• Does the larger trade-in allowance make the cost of the new car higher than it would be without the trade-in? You might be giving back the big trade-in allowance by paying more for the new car.
• Is the dealer who offers a high trade-in allowance and free or low-cost options giving you a better price on the car than another dealer who doesn’t offer promotions?
• Does the "dealer’s invoice" reflect the actual amount that the dealer pays the manufacturer? You can consult consumer or automotive publications for information about what the dealer pays.
• Does the "dealer’s invoice" include the cost of options, such as rustproofing or waterproofing, that already have been added to the car? Is one dealer charging more for these options than others?
• Does the dealer have cars in stock that have no expensive options? If not, will the dealer order one for you?
• Are the special offers available if you order a car instead of buying one off the lot?
• Can you take advantage of all special offers simultaneously?
You’re not limited to the financing options offered by a particular dealer. Before you commit to a deal, check to see what type of loan you can arrange with your bank or credit union.
Once you decide which dealer offers the car and financing you want, read the invoice and the installment contract carefully. Check to see that all the terms of the contract reflect the agreement you made with the dealer. If they don’t, get a written explanation before you sign. Careful shopping will help you decide what car, options, and financing are best for you.
The tips on this website should be considered food for thought only. Lendingtips.com is a clearinghouse of ideas, not a professional adviser. Before any important decision, please consult the appropriate professionals (lawyer, accountant, real estate agency, broker etc.).
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• Loans >Auto Loan Articles Archive
• Auto rebate vs. low financing Use this calculator to help you determine whether you should take advantage of low interest financing or a manufacturer rebate.
• Simple payment calculator Determine your car payment based upon purchase price and interest rate.
• Miles per gallon calculator This calculator will compute your car's Miles Per Gallon and forecast your gasoline expense for one month and for one year. It also allows you to see how much money you would save if you were driving a car that got better gas mileage.
• Car Cost Comparison Calculator This calculator will not only help you to forecast the real cost of buying and owning a car, but it will also help you to more accurately compare the real cost of one car buying scenario with the real cost of a second car buying scenario.
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