Everybody that buys and finances an automobile wants the lowest monthly payments possible and hopefully this post will provide you with some advice on negotiating low car payments. The stark reality here is that the car sales person wants to negotiate automobile payments because that is the easiest way for them to make more money on your purchase. The car buyer believes that the payments quoted by the car salesperson are a result of the calculations using the actual price of the vehicle and the interest rate, but it’s not.
Negotiating Car Installment Cautions
In fact the dealership and the salesman do their best to sell a car by going back and forth with the customer over the monthly payment. They use a technique that is commonly called “Packing the Payment” which is a standard practice among automobile dealers for negotiating car payments. To give you an idea of how packing the payment works it’s easier to use an example. Let’s say you have selected a vehicle to purchase that is priced at $20,000 and your credit qualifies you for a 5% interest rate for a term of 60 months. To simplify this example we will say that the sales tax, title and license fees are all included in the $20,000. So if you calculate the payments for the term and interest rate shown above the payment should be approximately $377 a month for 60 months.
As a way of packing the payment the sales manager may use an 8% interest rate and a $22,000 price which would come out to be $446 per month for 60 months. Now the car salesman presents the payments to the buyer and the buyer will negotiate lower car payments. The buyer and the salesperson will go back and forth and maybe settle on $415 a month. The buyer feels that they have made a good deal because they negotiated the payments down by $31 a month when in fact they will be paying $38 more than they need to pay (the difference of $415 and $377). Unless you have a financial calculator with you or you have calculated approximate payments before visiting the dealer you would never know.
Now when it is time to sign your papers you should be able to spot that something is not quite right if you are paying close attention. That $38 a month over 60 months comes to $2280 and these extra charges need to be shown on the contracts or car buyer’s order somewhere. It might be in the price of the car or it could be in the way of a higher interest rate. It may even come in the way of having the business manager selling you an extended warranty for only $15 a month to bring your vehicle payment up to $430 a month and then including the warranty on the paperwork for $2280 plus the actual price of the warranty. It could be in several different places, but this is what can happen when you are negotiating low car payments rather than the price.
You may be looking for advice on negotiating low car payments, but this one area where the car dealers can make thousands of dollars in additional profit. When your focus is all about the amount of the car payments it is easy for you to get taken. The best advice I could give that will keep you from paying more than you need to pay is to do your due dilligence before you visit the dealer. Take a look at the steps to buying a car for a step by step guide to preparing and doing the research you need to do before you get clipped by your local car dealership. You will find informative articles and posts that will provide you with an inside look at the methods car dealers use to get your money and my recommendations for bargaining on car payments.