How to Negotiate a Car Loan Like a Pro
or many people, buying a car can be a highly stressful experience. Not only do you have to negotiate a fair car price with a highly skilled salesperson, but you may also need to negotiate a car loan with an equally skilled operator at a financial institution. As you make your way through the car buying process, there are many doubts that will creep into your mind. If you don’t have experience in these areas, chances are you’ll be second-guessing yourself at every turn.
- Am I buying the right car for my set of circumstances?
- Is there something wrong with it that I’m unaware of?
- Is the car salesperson being honest with me, or stretching the truth?
- Have I found a loan with the lowest repayments and favourable terms and conditions?
hese are just a few of the questions that will cause you to stop and think if you’re doing the right thing, or if you’re making a huge mistake that will cost you thousands of dollars in the long run.
Organising car finance
After finding a vehicle you’re interested in buying, your first step is to organise car finance from an independent lender. By organising a pre-approved car loan, you can begin your negotiations with a car dealer from a position of power. You’ll know exactly how much money you have to spend, and the dealer will be inclined to yield a little more in negotiations if they know the money is available.
Alternatively, car dealers usually offer their own finance, but going down this path is fraught with danger. The profit margins for new and used car dealers in the cars they sell are minimal. Dealers make their money in providing finance, as well as ongoing servicing charges.
As such, while the sale price on the car you’ve negotiated might seem like a great deal, the dealer knows they can claw their money back, and some, in the finance they provide. Not only will they sting you with potentially higher car loan interest rates, but they will try and up-sell you into buying extended warranties, car accessories and anything else they think you might buy.
What to do before entering into negotiations
Entering into negotiations for any purchase is like playing a sport, it’s always better to go in with a game plan than to fly blind. Your odds of achieving a successful resolution are greatly enhanced if you’ve gathered enough knowledge to feel confident when dealing with an experienced finance provider. Knowledge is power, and spending the time to arm yourself with information before heading into negotiations could save you hundreds or even thousands of dollars over the life of the loan.
. Fix bad credit history – By knowing your credit score and history, you will immediately understand what your bargaining position might be with a lender. You can access your credit history online through sites such as Get Credit Score, My Credit File and Equifax. If you have a great credit history, you’re in a strong position from the outset. If your history is poor, you have two options:
- Accept it and enter negotiations knowing you will have a higher interest rate.
- Take the time to fix your rating before securing a car loan and buying a vehicle.
A great way to repair a bad credit history is to accept a loan with a high-interest rate, make all loan repayments for 12 months, then renegotiate the terms of your loan. Refinancing a car loan with bad credit is difficult, whereas refinancing a car loan when you have a better credit rating is much easier. You’ll save a lot of money over the remaining life of the loan, and be in a stronger position for negotiation when it comes time for your next loan.
2. Understand your repayment ability – How much income do you generate? What are your expenses? How much disposable income do you have each month? Are any of these forecasts to change in the future? Entering details into an online car loan calculator, such as how much you want to borrow and the preferred term of the loan, will provide with an estimate of your periodical repayments. Having a very clear understanding of your ability to repay the loan will provide strict parameters for you to negotiate with.
3. Do your research – Online car loan comparison tools give you enough information about what products are on the market and if they’re right for you.
- What comparison interest rates do they offer, both fixed and variable?
- What are the monthly repayments for the amount you wish to borrow?
- How much will you repay over the life of the loan?
You can compare the different loan options using a car finance calculator to see what you can afford and which will have a lower total cost over your loan term
It doesn't take long, and having a list of lenders you are interested in negotiating car finance with will save you time and money.
4. Be ready with proof of your assets – Securing your car against an asset will bring your interest rate down, as well as evidence of any assets you own outright. Have the information at hand, and hard and soft copies ready to go if the lender you’re negotiating with requests them.
5. Do you have a cash deposit – Having your own money to contribute to the purchasing price will not only bring the amount you need to borrow down, thus reducing your monthly repayments, but also give the lender confidence that you have the capacity to save and make loan repayments.
6. Are you in regular employment – Nothing will set alarm bells ringing in the office of your lender more than unstable employment history. Being new in a job won’t necessarily inhibit your chances of securing a loan, but your negotiating power may be diminished. If this is the case, be sure to ask a broker about car loans for bad credit.
How to negotiate a car loan when you’re ready
Once you’ve completed your preparation, it’s time to make the all-important calls to the banks, credit unions and other financial institutions. Dialling those numbers can be a nervous time, but with the information you’ve gathered, you’ll be far more confident than you would otherwise have been. Financing a car is a tricky process, but it doesn’t have to be an unpleasant experience, even for those with limited experience.
1. Leave emotions at the door – If you’ve already emotionally attached yourself to a car, chances are you’re going to accept terms and conditions that aren’t as favourable as they could be. Emotions will be your greatest Achilles Heel, so make sure you rule with your brain and not your heart.
2. Be calm and be prepared for 'give and take' – The best negotiators go into any negotiation with a mindset of compromise to achieve the best outcome for all parties. Getting angry won’t be received favourably by someone on the end of a telephone who receives these calls for a living. At the end of the call, both you and the lender want to walk away happy with the outcome, after all it’s just the beginning of a lengthy relationship with each other.
3. Let them know you’re shopping around – There’s nothing wrong with informing the lender that you’re shopping around for the best deal possible. They will be expecting it, but if you reveal that you’ve only spoken to them and they’re your first choice, you’ve given up some of your negotiating power. It’s not personal, so make your choice based on the best deal you can get for you, your family, and your current financial situation.
4. Read the fine print – Once you receive an offer from a lender, make sure you read the terms and conditions from cover to cover. What are the setup costs? Can you make additional repayments, or pay out the loan early without penalties? What happens if you miss a loan repayment? Make sure you know what you’re getting yourself into before you put pen to paper. If anything doesn’t feel right, walk away from the deal or have a lawyer look over the contract for you.
5. Look at all of the figures – Double check the figures in the contract to be sure they all add up. Make sure the monthly repayments and total loan repayment sum are exactly what you agreed to. You might use a car loan repayment calculator to make sure. Once you sign a contract, it’s very difficult to make changes at a later date.
It’s time to negotiate the best car loan for you.
Most people find it difficult to negotiate a better deal for themselves. Even when it could save them thousands of dollars over the life of the loan, money that is better in your pocket than a financial institution, people are reluctant to pick up the phone. If you still don’t feel confident negotiating car finance with a financial institution, there is expert help available who can do the negotiating on your behalf. The reality is lenders negotiate with new and existing clients every day, so they expect it. When someone doesn’t negotiate, it’s too easy for the lender to lock you into a contract at the top end.
Be prepared, be confident, know your financial limitations, and negotiate a deal you’re comfortable with. If you don’t get the deal you want, thank the lender for his time, and call the next number on your list. After all, when contracts have been signed and your new car is sitting in your garage, you don’t want to live with constant financial stress.