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Consumers who are buying a new car often compare sticker price,
appearance, drivability, features-even extras, service, warranty and a
whole package of additional considerations. Another cost that a
consumer should compare is the auto finance charge.
A study released in January 2004, conducted by the Consumer Federation
of America (CFA), found that car buyers who finance their cars at
automobile dealerships might be paying enormous undisclosed "finance
mark-up charges." The mark-up occurs when automobile dealers
subjectively hike the car loan rates of buyers who finance their
purchase through those dealers. According to CFA, "Consumers are led to
believe they are receiving a rate based on their creditworthiness, but
often pay marked up finance rates determined arbitrarily by the dealer
and encouraged by the lender." Most of these undisclosed mark-up
charges are kicked back to the dealer by the lender. Such mark-ups
typically add at least $1,000 to the cost of an auto loan and
historically have affected about 25 percent of consumers who arrange car
loans through the dealers. The report indicates that African-American
and Hispanic car buyers are marked up more often than other buyers.
The report argues that the solution must include: disclosure of the
mark-up percentage and dollar costs, flat fees that are a one-time
charge paid to dealers for placing a loan that do not fluctuate and are
not based on the loan amount OR the term of the loan, remedy programs
for those already harmed by the hidden charges, and consumer education
programs designed to give consumers a clear understanding of the
automotive finance process and to promote consumer awareness of remedy
programs. For a copy of the full report is click here to access the Consumer Federation of America Web Site
In addition to including how new cars compare and reliability ratings
for new cars in its April issues, Consumer Reports suggests that
consumers arrange financing in advance. Look at interest rates at
several credit unions, banks or loan providers before checking dealer's
rates. Consumers who are preapproved for an auto loan can keep
financial arrangements out of the negotiations.
Be aware that the dealership salesperson may try to sign you up for a
higher rate than you could get in another place. Negotiate one thing at
a time. Dealers may give the consumer a better price in one area while
inflating figures in another. Only after you've settled on the purchase
price of the vehicle should you discuss financing or trade-in.
Negotiate each item individually. If the dealer offers zero percent
financing, they will not give consumers a rebate on the sale price. Car
buyers should think about whether they should take the rebate and
finance the purchase through their bank or credit union. They can work
with their financial institution to compare their calculations with
those of the dealer.
Remember, consumers should be talking to their bank or credit union, not
the representative from the dealership. Keep in mind, you can leave the
dealership at any time. Let the dealer know that you will visit other
dealerships selling the same car and will buy from the dealer offering
the best price. In addition to checking on information at dealerships
you can check the quotes for purchase price at auto-buying Web sites
such as: Edmunds Web Site ; The Kelly Blue Book Web Site; Autobytel Web Site;
Autotrader Web Site; and Autos MSN Web Site.
Before you buy that car, be sure you know the answers to these
questions: What is the:
- exact (down to the penny) price of the auto?
- total amount being financed?
- amount for the credit/finance charge?
- annual percentage rate (APR)?
- exact amount of each payment?
- total number of payments?
The best advice - be prepared when buying and financing that vehicle.
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click here to visit the Colorado State University Web Site or theAnswer Link Web Site, where answers to everyday questions are available 24 hours a day, seven days a week.
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