When it comes to cars, we Americans love to brag. Not so much about our cars as what a deal we got when we bought them. $500 over invoice for that hot new coupe in cherry red or $500 under invoice for that pickup on clearance.
Yah, we are pretty savvy when it comes to handling what dealers call the front end of selling a car. We hit the Internet, gather a horde of information about the exact make, model and trim line we want, nail down dealer invoice pricing and march onto the dealer’s lot ready to do business. Sometimes we even know more about the car than the salesperson and that makes us feel pretty good. That is up until we follow him into the finance manager’s office. Then it hits us. We forgot to also shop for financing.
This is what dealers refer to as "the back end" of selling an automobile and it’s where they often make back what you saved on the front end and more. In fact, dealers make a lot more money servicing and financing cars these days than they do marking them up on the front end. That means that there is a lot at stake in the finance manager’s office.
For those of us diligent enough to have lined up financing before visiting a dealership, the back end can be a quick and painless final stage of the car buying experience. For the rest of us, the stress may only be beginning.
Thousands of dollars could be at stake
If you don’t negotiate the best deal here, you could end up paying hundreds, even thousands of dollars in extra interest that could easily eat up that $500 you chiseled off the dealer’s price within moments of arriving on his lot.
To illustrate this point, let’s consider Joe Average Guy. Joe, who has average credit, is buying an averaged priced car. With new car prices now averaging around $28,000, Joe is probably going to need to borrow around $20,000 after trading in or selling his vehicle and paying a down payment for that sweet new ride he’s been ogling.
If Joe checks on his credit score in advance, he’s going to discover some valuable information, such as, he does not qualify for all that zero to 5.99% financing Chrysler, Ford, GM, Honda and Toyota keep offering on TV.
If Joe is smart, he will go shopping for a loan by contacting a credit union, a commercial bank and going online to see what rates and terms they can offer. That way, Joe knows that the 12% interest rate the dealership is offering him is going to cost him $1,632 more over the 48-month duration of the loan than the 8.5% rate the credit union offered.
Auto industry earns more financing cars than selling them
If you don’t think that sum is worth a few hours of research, the finance companies and dealers will be only too happy to take your money.
A recent review of finances at the nation’s largest car dealers reveals they are making as much as half their profits from the fees they earn originating and selling loans, insurance, extended service plans and other financial products and services to their customers.
At AutoNation, the nation’s largest owner of new-car dealerships, such fees accounted for only 5.6 percent of revenue, but nearly 21 percent of gross profits in 2006. Finance and insurance fees accounted for half the gross profits the company earned on each vehicle it sold. That was $1,086 per car.
If every little bit counts for these massive corporations, why shouldn’t it count for you?
Nine step process could earn you $140 an hour
For this reason, we at autoloandaily are providing a series of nine articles with associated worksheets and links to some great Web resources to help you navigate through all the auto finance options out there.
Following the process we outline will take you any where from 8 to 14 hours, but the pay off could be several thousand dollars in saved interest, fees and other payments. In other words, if you take the time to follow these steps you will be earning the equivalent of at least $140 an hour.
Together with postings on our blog, we hope this information will help you hang on to more of the money you saved on the front end. And that, we feel, will really give you something to brag about.