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Chris Butsch. The process of researching and purchasing a new car should take at least a month. A month gives you a week to research, a week to test drive, and a minimum of two weeks to patiently wait for the best deal to pop up. Is it a gift? Do you need a car for work? I totally get it. You can just borrow tens of thousands of dollars for free? But these auto loans come with a big catch that could end up costing you thousands more in the process.
What do they really mean, and why do I think they should be avoided? Some guy who sounds like a monster truck announcer rattles off this all-too-common sales line faster than Ben Shapiro:. When you take out an auto loan , you eventually have to pay back your lender three amounts:. Your annual percentage rate, or APR, is just a combination of numbers two and three. APR is always expressed as a percentage.
In fact, APR formulae are pretty messy and complex. Payment options. The key takeaway is this: lower APR means smaller monthly payments. Sounds suspiciously generous. Why do that instead of just offering a discount? Here are three of the most common:. To anyone paying off a home or a student loan , interest payments are aggressively unfun in both practice and principle. Think about it; even though you only took out money once , you have to keep paying a fee for your loan every single month for years.
I mean, when you buy a pizza, you pay a flat fee for the ingredients, labor, and tax. Interest is fair on paper. Your lender is entitled to extra money for taking on risk and providing a service. Consumers respond differently to sales. Some see it as a bonus, others as a warning sign.
Why is this item on sale? Is it of lower quality? Poorly reviewed? Why is the seller trying to get rid of it? This is especially pertinent for cars, where dealer-to-dealer competition is so fierce. He then pulls out a calculator, makes a phone call, and 10 minutes later comes back to you. In retail, promising a sale and then revoking it at the register is an illegal practice called false advertising. But in the Bimmer-slinging business, this is common practice.
It offers dealers all of the benefits of a regular sale increased foot traffic, increased sales, etc. You can know for sure by checking your credit score now, for free, with Credit Karma.
That should raise an eyebrow. Which should you choose? In both cases, the dealer is trying to trick you into making a choice, both of which are favorable to them. In both cases, the dealer is selling you a car at or near its MSRP, which is not a good deal. A dealer will sell as close to MSRP as possible if not higher in order to maximize their profit margin.
No bueno! There, you can follow their super simple wizard to get a competitive quote on a personal loan in minutes. You can also call them up to chat with an agent about your personal situation or to simply ask for guidance!
Once you get a loan offer, I recommend printing it out and bringing it with you to the dealership. It shows that you mean business and are to be taken seriously. And even if they do offer it to you, you should take it as a warning sign. To find out which, again, Edmunds is where you can research all new models, check for red flags, and find superior alternatives. We may receive compensation when you click on links to those products or services.
Written by Chris Butsch. Why do dealers do this, and what should you ask for instead? Sign Up for free weekly money tips to help you earn and save more.
We commit to never sharing or selling your personal information. About the author Total Articles: Chris Butsch Total Articles: Chris helps people under 30 prosper - both financially and emotionally.
In addition to publishing personal finance advice, Chris speaks on the topics of positive psychology and leadership. Read more from this author.
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