With the American economy in less than stellar shape, and many consumers worried about big purchases, buying a new or used car on today’s market can be tough. When money is tight, it’s even more important to bring a good strategy to the table for negotiating a final price and financing agreement with a car dealership. Earlier this year, the New York Times provided some good tips for car buying and explored some innovative ways to get the scoop on car pricing before visiting the lot.
One item mentioned in the Times story is something that experts often recommend. Some in the auto industry might call this a “pricing strategy.” One of these strategies is waiting out expensive auto markets. That means if there is a crunch in inventory, as happened this summer, car buyers who put their plans on hold can see prices come down in future months. Another aspect of this is figuring out if specific models are priced up due to low availability, brand cachet or other factors.
Aside from knowing the context for a particular car model’s value, buyers can also engage in a deeper analysis of any financing agreements that are offered to them. One very good resource for this is something called a “foursquare calculator.” The NYT story introduces one of these tools from top auto reviewer and consumer reporting firm Edmunds, and we found it to be one of the best ways to calculate the total value of an auto financing deal.
Basically, the financing deal includes four major parts. One is the cost of the vehicle that the buyer wants. Another is the value of a trade-in. The difference between these two values is subjected to two other factors. One is a down payment, which lowers the amount of financing needed, and the other is the eventual cost of the interest rate on the financing agreement itself. This last part is critically important. Without looking at it in depth, buyers may not really understand how a certain interest rate will have them paying additional money to the lender over every month of their auto loan.
The introduction of this financing tool underscores what we’ve been stressing for any car buyer who wants to finance all or part of their purchase: that just accepting a low monthly payment is not a good idea. Many dealers sell this way, tempting customers with a seemingly small amount of money that will come out of each paycheck or monthly budget. Often, these agreements can hide a lot of additional costs, from up front fees to padded interest rates, that will have buyers paying out much more over the term of the loan than what they could have secured from another lender. Buyers who at least take a look at tools like a foursquare calculator and heed some of the other advice in auto loan columns from industry experts can find themselves saving a lot of money to go toward all of the other costs of ownership, from maintenance to filling up the fuel tank, and in today’s market, many buyers can’t really afford to ignore these opportunities.