The Finance Office

It may seem like a dealership reaps a large profit selling new and used vehicles but, by the time all expenses are paid for, there isn't much left. In fact, a dealership depends on its Finance and Insurance (F&I) office to generate additional profits.

The dealer can earn hundreds or thousands of extra dollars on each vehicle sold by selling financing and insurance plans. After completing negotiations for the car, you generally meet with the finance or business manager. At this point many customers relax, thinking that the hard part is over and all that's left is the paperwork. The finance manager presents different interest rates or insurance products as standard procedure, and not open for negotiation. This can ultimately cost you thousands of dollars!

Here are some things to watch out for:

"How's Your Credit?"

If you have credit problems, you know how difficult applying for a loan can be. A salesperson often ask this question to gain leverage over the customer. When the salesperson asks you, "If I could get you approved will you buy the car?," remember that your ability to obtain a loan is completely out of the dealership's hands.

This is one of the most powerful tactics a salesperson can use, but you can be prepared for it by knowing your credit score.

Why Check Your Credit Report?

There are several reasons you should check your credit report regularly. It can help you avoid paying extra interest and fees on your credit cards, and it can also help you stop or prevent identity theft.

When it comes to buying a car, knowing your credit score will give you the confidence you need to seal the deal at the negotiating table because you know your score is high enough to qualify for low-interest financing. It is critical to know your credit history so you can make informed decisions on your past, present and future accounts. Your credit score can change frequently due to inaccuracies caused by simple human or computer error, as well as indentity theft.

Studies have shown that many credit files contain inaccuracies which could influence the approval process when you apply for a loan, car insurance, or even a job.

In the past few years identity fraud has risen dramatically. Consumers shop for car insurance and purchase everyday items online; in addition, most companies maintain at least a portion of your identity records on their computers. It is essential to keep tabs on your credit report, especially if your personal information has been jeopardized. An identity thief can run up huge balances in your name by making simple phone calls to utilities, credit card or other companies, even if he or she only has access to a small portion of your vital personal information.

If you don't check your credit report frequently, an identity thief can use your information without you being aware of it. It could be months before the charges surface; in the meantime, your credit will suffer.

You can stop identity theft by checking your credit report regularly.

To keep regular tabs on your credit file consider using a credit check monitoring service, which provides you with periodic (even daily) updates of any new information added to your report, including alerts to possible fraudulent activity.

INTEREST RATE A dealership does not lend money, but can arrange financing for you. Not surprisingly, it earns a handsome profit doing so! Dealerships actually purchase money to finance your car at a "buy rate" which is then marked up a few percentage points to the customer's rate. This is the rate YOU pay for the loan. The dealership earns money on the mark-up by selling the loan back to the lender. This means that the rate you receive on your loan will be higher than the rate the bank is actually earning.

Look at this example to see how much additional profit the dealership can earn by moving the interest rate just one point.

Notice the increase in profits between 6% and 9%. Your payment may have only gone up by $21.39, but that is pure profit for the dealer. At 12% the salesperson is smiling all the way to the bank, and all he or she had to do was print the agreement for you!

Use this calculator to see how much the dealer could earn on your next car loan.

Since the dealership makes money by adding percentage points to your loan, you may be curious how you can avoid handing over the additional money. You can lock in a lower rate by making the banks compete over you. Click here to have banks compete for your loan. This free, no obligation service will give you everything you need to purchase your own loan, including a bank check to take along when you go car shopping!

Bad Credit? If you’ve had credit problems in the past, it’s best to get your financing in line before you get to the dealership. Dealers love to take advantage of this situation – they want you to feel desperate. If you’re already approved for financing it gives you more buying power.

Credit, Life, and Disability Insurance

There are many things to consider when investing in credit, life & disability Insurance

• You are more likely to become disabled temporarily than to die before age 65.
• Life and disability insurance can provide savings protection.
• Credit insurance can protect a good credit rating for you (and your consigners).
• You are not paying for more coverage than you actually need; you are only protected for the amount you have financed.
• There is no medical examination required.

Be careful about buying ANY insurance from the dealership, who typically earns between 30% and 55% commission on life and disability coverage. The same coverage can be purchased directly through your insurance or finance company for a substantial savings. You can save on auto insurance by shopping around at various provider websites.

Paint & Fabric Protection, Rustproofing, and Alarm Systems

As a general rule of thumb, you should never buy any of these products from the dealer, and here's why:

• High quality automotive care products can be purchased at any local auto supply store for a very competitive price.
• Rustproofing is already applied to the car at the factory.
• Security systems can be purchased through local retailers for hundreds of dollars less.

If you live or work in an area where vehicle theft is not uncommon, consider purchasing a vehicle locator/retrieval system such as LOJACK to protect your investment. This type of device helps law enforcement locate your stolen vehicle and return it safely to you, sometimes within hours of the theft! Many insurance companies offer discounts for this type of system, which can offset the cost of the system.