Buying a car can feel like you’re walking through a minefield, with skilled car loan and sales negotiators at every turn just waiting to take every advantage of you they can get. If it’s not the banks taking their pound of flesh from you, then it’s the car salesman espousing the virtues of the car he wants to sell at the price he wants. You’re not a mechanic so you won’t know if the car is operationally sound, and you’re not a car loan broker so you won’t know if you’ve got the best deal possible. So what can you do to ensure you end up with the car loan you want with the least amount of debt possible?
Organise your finance
Before you even begin talking to a car salesman at a new or used car lot, organise your finance first. Definitely have a look around and see what sort of vehicle you might like to own and how much it’s going to cost, but never enter into negotiations without having a pre-approved car loan first.
Car dealers make most of their profits from the finance they offer through a third party financial institution. They take what the lender offers, and add a small margin on top to line their own pockets. This is fair enough given the profit margins on selling cars is quite small, so the car dealer needs to make his or her money somehow. But having money in the bank ready to spend puts you in a position of power, and may encourage the dealer to strike a good deal knowing they will get their money back on the car, plus a little extra, immediately. The last thing a car dealer wants are cars sitting in the lot for weeks at a time, so if they can move them on quickly for cash, they could be more inclined to strike a good deal.
But your first step is sorting out your finance, and that requires talking with experts in their field who negotiate car loan deals every day. So how are you going to get the best deal possible without feeling as though you could have done more?
Do your research
The lender you speak to will smell blood in the water if they realise you have no idea what products are on offer in the market place. If he or she throws an initial interest rate at you, and you don’t know how that compares with other providers, how are you going to know if that’s a good deal or not? They are under no obligation to offer you the best deal possible right from the start. A quick search on any comparison website will give you an idea of what products are available in the market, what their interest rates are and what other fees they may charge. Knowledge is power and having this information at your fingertips will make it easier for you to negotiate the best deal for you. Negotiations are a game of cat and mouse, so make sure you do your research and be the cat in the conversation, and not the mouse.
Make yourself look good
Are you in regular employment? Have you got a documented history of saving money? Can you prove that you’ve got a few assets that are worth something? If you really want to get the best deal possible, you need to show the lender that you’ve got a steady income, and they’re confident it’s going to continue long into the future. Periods of unemployment or jumping from job to job can spook lenders, who will then increase their interest rates because of the perceived risk you present. Showing a savings history will demonstrate your ability to repay the loan, and having a deposit will reduce the amount you need to borrow. Having less debt is always better than borrowing more than you need, or can comfortably pay back. If you don’t think you’re going to look good to a lender, you might want to spend the next six months in a steady job saving a little money before revisiting the decision to buy a car.
Don’t put yourself under pressure
Lenders are going to try and load you up with as much debt as they can for as long as possible, after all the bigger your repayments the more money they make. So while that bright green Mercedes Benz 4WD might be the car of your dreams, the more practical Toyota Corolla is probably the smarter choice on this occasion. Do a simple budget to determine how much disposable income you have each month, and decide how much of it you can allocate to a car loan without putting you under financial stress. Having a nice car is one thing, but having to eat two-minute noodles for the next five years to pay back the debt is something else. Before entering into negotiations with a car loan lender, enter how much you’d like to borrow into an online car loan calculator. That will give you a good idea of what your monthly loan repayments will be, and help you decide if the car you want is feasible, or if you need to set your sights a little lower.
Be like Iceman
Maverick, Tom Cruise’s emotionally unstable character in Top Gun, didn’t like Iceman because he was always in control, but that’s what you’ve got to be like when negotiating with a car loan provider. The problem most people have in a negotiation is their inability to control their emotions. They’ve found the car they want and will accept almost any deal just so they can have it. This weakness is what lenders prey on, and has been the ruin of many people who get stuck paying back a debt they can’t afford for years on end. Before talking to a lender, set your parameters and don’t let emotions get in the way. Write down how much you’re willing to borrow, how much you want to pay back each month, how long you want the loan for, and how much you’re willing to repay over the life of the loan. If the lender isn’t willing to offer a car loan within your parameters, then walk away. If you can’t find any lender willing to offer a car loan within your parameters, then perhaps now is not the right time for you to buy a car.
It’s not a fight to the death
The best negotiators understand that coming to a conclusion that is in the best interests of all parties is the desired outcome. The lender starts by offering a higher interest rate, you give a counter offer below what the lender is willing to accept, and hopefully you eventually meet somewhere in the middle. At least that’s how the best negotiations are supposed to turn out. On the other hand, if one party gets angry or simply isn’t willing to find any common ground, then negotiations die with very little chance of them ever being revived. Maverick would have sucked at negotiating, while Iceman would walk away pretty happy with the outcome. Once again knowledge is power. Subtly letting the lender know you’re talking to several providers who have better interest rates is a good tactic, as long as you can name the lenders and their interest rates! Otherwise it’s just a bluff that you might be caught out on.
Stay calm and avoid the car loan trap
Entering into a contractual agreement with a car loan provider is like any relationship, and you want it to be as amicable and friendly as possible. You’re going to be with each other for the next few years at least, so there’s no point either party having any issues with the other.
See how expert car loan negotiators find the best deals for their clients every day.
If you’re looking for a new car loan, make sure you use the tips above to get the best deal possible for you given your current set of circumstances. If you already have a car loan and you’re not happy with the interest rate you’re currently paying, pick up the phone and try and renegotiate. Lenders get phone calls from new and current customers every day who want the best deal possible, so they are literally expecting your call. And who knows, a 10-minute conversation could end up saving you hundreds of dollars over the life of the loan, and relieve some of the financial stress you might be feeling. That is a good thing for you and your health, and believe it or not, it’s good for the lender when you’re happy with the service they are providing.