5 Lies a Car Salesperson Might Tell You

Handshake between two business people in a car showroom.

Driving a new car home can be a huge relief, especially after going through the stressful process of purchasing a vehicle. In addition to finding the perfect car and getting your lowest loan rate, you’ll ultimately have to haggle with a car salesperson whose main goal is to get you to spend the most money they can.

“[Salespeople] can sense if you come in blind, and they are going to fill in the holes to their advantage,” says Jack Nerad, executive market analyst at Kelley Blue Book. “It’s not that they are dishonest people. It’s not their job to make the best deal for you. It’s their job to make the best deal for the dealership.”

Staying one step ahead of the salesperson by knowing the tricks they use can help you avoid signing a bad deal. Here are a few ways car salespeople might lie to you:

1. “Wait here, I’m going to consult with my manager.”

Nerad says chances are, if a salesperson says this to you, they aren’t talking to a manager. It’s more likely that they are taking a coffee break and trying to wear you down by having you invest more time in the transaction. They may also be trying to keep you on the company’s grounds while they come up with a deal closer to your asking price.

You can beat them in this game. Say you’ll leave while they talk it over. A salesperson knows your chances of coming back are minimal, and they want to make a deal with you that same day. If they are serious about selling you a car, they won’t let you leave the grounds, and they will return quickly with a better offer.

2. “This is our final offer. It’s the best deal you’re going to get.”

This is usually an outright lie. The salesperson always wants you to believe that you are getting the best deal that you can at their price. That’s because most people aren’t confident in their knowledge and are fearful that if they don’t make a deal right now, they won’t get the best deal.

“They don’t just want to sell you a car, they are trying to sell you a car today,” says Nerad. “Don’t fall in love with a particular car. There’s the same kind of car, in the same color, with the same equipment or comparable darn near everywhere.”

His advice is to stand firm and understand what the vehicle is worth to you. Don’t go over your asking price. He says to remember “if you get up and walk out, you’re going to find an equally good deal tomorrow and the day after that and the day after that.”

3. “There’s no need to test drive the car.”

Always test drive the car. You should have access to the car, you should be able to look inside and outside and be allowed to test drive it. It’s a huge red flag if they don’t let you test drive the vehicle for any reason.

The salesperson might say they can’t find the keys or that it’s in a position where it’d be difficult to move. They might also have you test drive a car that’s similar to it. Don’t do that either. You want to test drive the actual car that you are actually considering paying thousands of dollars and interest for.

Rosemary Shahan, founder of Consumers for Auto Reliability and Safety (CARS), a consumer advocacy group for the auto industry, encourages shoppers to go one step further and hire an independent mechanic to inspect the car first. You can use a resource like Car Talk to find a mechanic in your area.

4. “We can’t print out the contract.” or “You can’t take the contract with you.”

A salesperson could say this to get you to go ahead and sign for the purchase, but it could also be a tactic salespeople use to barrel-roll things you didn’t ask for into the contract.

The contract may be presented to you on a computer to sign electronically, but contracts are long and chances are you won’t have the time to carefully read each section before signing. The contract could include extra fees or add-ons like tire insurance that you don’t need and that will inflate the final purchase price and hurt the deal that you’ve worked hard to get. Just say no to most of it, or sign it aware that you’re financing the add-ons for the next few years.

“Insist on a paper contract,” says Shahan. “We believe it is a violation of the Federal Truth in Lending Act for [dealerships] to sell you a car with an electronic contract, because you are supposed to be able to take it physically with you to comparison shop. But if it’s on a screen you can’t do that.”

You should have reasonable time to make up your mind. Take a day or two to check out the contract and shop around until you are comfortable, but keep in mind that they could sell the car in that time. Don’t feel like you’ve spent too much time not to sign the contract if you’re unhappy with the terms. Even if you are in the contract phase, you can still walk out of the door.

5. “We just sold the car you saw online.”

The dealership may have just sold the car that you saw online, but that could also be a lie. Many dealerships may advertise a popular car for a low price as bait to lure consumers. When you show up looking to buy it, the salesperson will say it’s just been sold or out for a test drive and try to sell you something else.The tactic is called a “bait-and-switch.” The idea behind it is, again, your valuable time.

The assumption is that you wouldn’t want to waste this trip to the dealership, so you might as well stay and see your options. The bonus for the salesperson is that they already have an idea of what your price range is and what you’re looking for so they may even have some alternatives conveniently top of mind.

You have two options at this point. You can either stay and let them show you other vehicles, knowing that they may have used a bait-and-switch tactic, or leave and explore your other options. You could also try calling the dealership before you get there to ask if the vehicle is still available. If they really have just sold the vehicle to someone else, it’s unlikely any online resources like a vehicle history report would have been updated already. Cut your losses and see their other options, or find a dealership that does have the car you want.

How to complain about a shady auto dealer

If you feel as though the salesperson is engaging in questionable practices, you should walk away from the purchase. Nerad says to remember that “as a consumer, you have all of the power. You have all of the power because you are a rare commodity. You are someone who can afford to buy a new car.”

Before you leave the dealership, ask to speak with the manger on duty. After you leave, file a complaint with the Consumer Financial Protection Bureau, the Federal Trade Commission, or the BBB. You won’t be alone. New and used auto dealership complaints ranked 4th and 6th, respectively, of all complaints in 2015.

If you feel as if you’ll need legal assistance, you can find an attorney with experience in consumer law under “Find an Attorney” on the National Association of Consumer Advocates website.

The post 5 Lies a Car Salesperson Might Tell You appeared first on MagnifyMoney.

A Quick Guide to How Much Car You Can Really Afford


If you’re planning a car purchase, and even if you’re in the middle of financing your car, a few tips from financial experts can help you save money (and hopefully guard against becoming “underwater” on your loan).

Paying off a car is, of course, a highly individual process dependent on many different personal factors like credit score (you can view two of your credit scores, updated every 14 days, for free on Credit.com), financing rate, down payment, and how much you can afford to pay each month.

When budgeting, it’s also critical to consider expenses such as your auto insurance premium, gas, and maintenance into the total cost of ownership of your vehicle.

Still, there are some general guidelines that most people can follow:

  • Financing: Experts The Zebra spoke to said they recommend auto loans not exceed 10% (for just the loan) to 20% (for the loan plus related expenses like gas and insurance) of a consumer’s gross monthly income.
  • Timeline: You should take the shortest term you can afford for two reasons: Shorter terms come with lower interest rates and they allow vehicle equity to build faster, Bob Harwood, vice president of Carloan.com in Richmond, Virginia, said. Experts cited four or five years as the ideal balance of affordable monthly payments and reasonable total interest. If you have to spread your payments out over six years (72 months) or more to get monthly payments you can afford, you might want to consider a less expensive car.

“Your goal as a consumer is to decide what works best for your monthly budget so you can decrease the long-term expense,” banker Deric Poldberg from American National Bank in Omaha, Nebraska, said.

Hypothetical Financing

The Zebra asked three financial experts from around the country for their input about what type of loan over what time period a person living in Texas making $50,000 a year (the average statewide income) should expect to pay for a 2016 Honda CR-V LX (one of the most popular cars in the U.S.) for $23,000 (a little below the MSRP).

The Verdict(s): You’ll pay between $400 and $500 per month, depending on your credit and how quickly you can/wish to pay the vehicle back. Here are three ways of getting there:

  • Per Poldberg: “For this customer, the interest rate is going to be between 4.79% – 5.49% based on the U.S. average credit score (687). Because most people finance their vehicles for five years, that would lock our customer into a rate of 4.99% for 60 months, making the monthly payment $433.93. During the term of the loan the customer would end up paying an extra $3,035.97 in interest, bringing the total out-of-pocket expense to $26,035.97. Financing your vehicle for the least amount of time possible will save hundreds or even thousands of dollars in the long run, but often people just want a lower monthly payment and disregard the long-term cost of the loan. If you financed that same CR-V for the maximum 75-month term, you’d end up paying $3,820.11 in interest (quite a bit more). But most consumers just look at the low monthly payment of $357.60 and think it’s a better deal.
  • Per Rob Jupille, president of RTJ Financial in Santa Monica, California: “Assuming a relatively ‘normal’ level of other debt, when doing a budget, generally target your auto loan to be in the neighborhood of 10% of gross pay (excluding other auto-related costs like gas, maintenance, insurance, etc.) and put at least 20% down to reduce the likelihood of being ‘upside down’ on your loan. This way, you’d look for a monthly car payment not exceeding $400 and we’d recommend shopping for a combination of interest rate and term to stay within that number.”
  • Per Harwood: “Considering that your monthly car expense (including insurance, gas, etc.) should be no more than 20% of your take home pay, we can assume that an annual income of $50,000 translates to about $3,300 in take-home pay monthly after taxes. Budgeting around $250 for secondary auto expenses leaves room for a payment of around $450. For a consumer with decent credit, the $23,000 financed over 60 months at an interest rate of 6.9% lands the payment at $454 per month. (Of course, everyone should pay off their car loan as quickly as they can, but this is a realistically affordable scenario.)”

The bottom line: For a smart financing deal, pay the most you can for the shortest amount of time and after you’ve paid off your car loan, keep saving for your next car – or for a “rainy day.”

Image: Squaredpixels

The post A Quick Guide to How Much Car You Can Really Afford appeared first on Credit.com.

12 Cars That Depreciate Quickly (& Are Good to Buy Used)


If you’re in the market for a new car, you may be tempted to drive a brand-new one off the lot. After all, many manufacturers are already releasing their feature-packed 2017 models, and the weather hasn’t even turned cold yet.

But, before you do, consider this: A new study by iSeeCars.com, an automotive data and research company, found that buying a new car is not always going to get you the best bang for your buck. In fact, the company discovered that purchasing some cars that are just a year old can provide consumers with substantial savings.

“Most people know new cars depreciate the most in the first year and that different cars have different depreciation rates, but we wanted to determine which used cars experienced the largest price drops compared to their new models,” Phong Ly, the CEO of iSeeCars.com, said in a press release.

To establish the savings, iSeeCars.com analyzed the more than 14 million cars sold from August 1, 2015 and July 31, 2016, excluding models with fewer than 250 new and 250 used cars sold. The average asking prices of year-old cars were compared to those of new cars from the same model, according to the release, with the difference in price expressed as a percentage of the new model average price. This percentage was then compared to the overall percentage difference across all models.

Using this data, iSeeCars.com researchers found that the average price difference between a new car and a lightly used car was 21.2%, ranging from $6,099 to $19,966 in savings. (Note: For this study, a lightly used car is defined as a vehicle from the 2014-2015 model years with mileage within 20% of 13,476, the average annual miles traveled in the U.S., according to the Department of Transportation.)

But it isn’t all cars — iSeeCars.com established a dozen cars that offer the best value when purchased lightly used instead of brand new, with price differences between 31.2% and 34.6% — at least 1.5 times more than the overall average. Below are those 12 cars.

1. FIAT 500L

Price Difference: $8,096 less
Percentage Price Difference: -34.6%

2. Lincoln MKS

Price Difference: $16,039 less
Percentage Price Difference: -34.5%

3. Volvo S60

Price Difference: $14,204 less
Percentage Price Difference: -34.4%

4. Kia Cadenza

Price Difference: $12,940 less
Percentage Price Difference: -34.3%

5. Mercedes C250

Price Difference: $15,247 less
Percentage Price Difference: -34.3%

6. Nissan Maxima

Price Difference: $12,469 less
Percentage Price Difference: -34.0%

7. Lincoln MKS + MKZ Hybrid

Price Difference: $14,177 less
Percentage Price Difference: -33.8%

8. Jaguar XF

Price Difference: $19,966 less
Percentage Price Difference: -32.3%

9. FIAT 500

Price Difference: $11,106 less
Percentage Price Difference: -31.9%

10. Cadillac ATS

Price Difference: $6,099 less
Percentage Price Difference: -31.8%

11. Chrysler 300

Price Difference: $13,351 less
Percentage Price: -31.7%

12. Buick Regal

Price Difference: $11,525 less
Percentage Price Difference: -31.2%

If you’re considering purchasing a new car — whether it’s straight from the manufacturer or simply new to you — it’s a good idea to make checking your credit part of your shopping process. Knowing where your credit stands can help you get an idea of what terms and conditions you may qualify for with your auto loan. You can see two of your credit scores for free, updated every 14 days, on Credit.com.

Image: AdrianHancu

The post 12 Cars That Depreciate Quickly (& Are Good to Buy Used) appeared first on Credit.com.

The Average New Car Loan Payment Is $499


New car loans continue to set all kinds of records — average monthly payments are now essentially $500 — and a long-feared subprime lending bubble has yet to show signs of popping. But suddenly slumping auto sales raise plenty of questions about the overall health of the car sales market.

The car loan market expansion has been remarkable. Total outstanding loans have jumped from $840 billion in 2014 to just over $1 trillion last quarter, according to Experian’s latest State of the Automotive Finance Market report. The average monthly payments on new car loans is now $499, up from $483 last year. And the average new car loan size is up, too — $29,880, up $1,356 from last year’s $28,524.

Car sales have been juiced partly by the continued embrace of buyers with less-than-perfect credit. The fastest-growing segment of buyers are deep-subprime borrowers, who have the lowest credit scores, Experian said. Deep subprime borrower loan volume grew nearly 12%, compared to about 8% among other credit segments. Late payments among subprime borrowers have grown slightly, Experian found. Still, they represent only a tiny fraction of total outstanding loans, lowering the systematic risk to the auto market, Experian said.

“Automotive lenders seem to be keeping cool heads when it comes to how much risk they are willing to take with subprime and deep-subprime customers,” said Melinda Zabritski, senior director of automotive finance for Experian, in a statement. “Yes, subprime and deep-subprime loans are growing, but the entire market is growing from a volume perspective across all risk tiers. In fact, the subprime loans have actually dropped as a percentage of the total market. That, combined with only a slight uptick in delinquencies, makes clear that the sky is not falling.”

The sky might be falling on the auto sales market, however. Record auto sales and the strength of the new car market have been a big success story in the otherwise lackluster economic recovery.

But August turned out to be a bummer of a month for auto makers, with sales falling 4.2%. Lower sales hit all major manufacturers; many started waving the white flag in stories on the bad news, conceding that the years of record-setting sales may be over.

“We had a period of several years coming out of the financial crisis when growth in auto sales outpaced broader economic growth, and that period is over,” Bryan Bezold, Ford’s senior U.S. economist, told Bloomberg News. “We’re no longer in a period where we have a lot of pent-up demand.”

Used Cars Are Popular 

Sluggish new car sales don’t necessarily indicate any additional risk of an auto loan bubble that might burst. It will be tempting for auto lenders to move even deeper into the subprime market to keep up transaction volume, however — particularly as buyers abandon the new car market for other alternatives.

Drivers are clearly returning to the used car market in response to high prices and other factors. The average used vehicle loan reached an all-time high of $19,101 in Q2 2016, up from $18,671 in Q2 2016, Experian said. The average used car loan payment was $364 a month.

In a bit of a surprise, customers with good credit scores are now hustling to the used car market. According to Experian, 43.3% of super-prime consumers selected a used vehicle, which represents a 10% increase over 2015. Among prime consumers, 59.9% chose used, a 6.6% increase over the previous year.

“One of the biggest trends we continue to see is the shift to used vehicles by customers with excellent credit,” Zabritski said. “As vehicle prices continue to rise, savvy consumers are looking for ways to control costs. That appears to be pushing more customers toward used vehicles.”

Overall, used vehicle loans also reached a new peak, accounting for 55.61% of all vehicle loans during Q2 2016.

Used car loan terms are also up, with the average loan term now lasting 63 months (the average new car loan is 68 months). Long-term used car loans are generally a bad idea, as drivers are often upside-down on the car loan throughout its life — meaning it has no value at trade-in. Also, used car loans have far higher interest rates — the average new rate is 4.82% versus 8.97% for used — so the costs of borrowing for five years or longer is much higher.

Drivers are looking for other ways to lower monthly payments, too, as vehicle leasing continues to surge — in both new and used car markets. New car leases jumped from 26.92% last year to 31.44% this year. Even used car leases, while still rare, are growing fast. Last year, they represented 3.26% of all leases; this year, that rose to 3.71%, Experian said.

Remember, having a good credit score can help you spend less on a vehicle since it will generally qualify you for the best interest rates. You can see where your credit currently stands by viewing two of your scores for free each month on Credit.com. And, if you’re credit is looking second-rate, you may be able raise your scores by paying down high credit card balances, limiting credit inquiries and disputing errors on your credit reports.

Image: Xavier Arnau

The post The Average New Car Loan Payment Is $499 appeared first on Credit.com.

10 Cars Young People Are Buying


Main Image: wundervisuals

The post 10 Cars Young People Are Buying appeared first on Credit.com.

What You Need to Pre-Order a Tesla Model 3

Tesla Model 3

Tesla’s Model 3 is set to hit roads in late 2017 — and anyone saving up for or on the fence about buying the company’s “most affordable” electric car yet may be happy to learn that it’s surprisingly easy to pre-order.

Per the company’s website, prospective buyers can reserve a vehicle for $1,000. This down payment is refundable, should you decide you don’t want or can’t afford to buy the vehicle once you receive a formal purchase agreement.

“If you proceed with the order, we will apply your Reservation Payment towards the order payment,” the reservation agreement reads. “Until you enter into a Purchase Agreement, your Reservation may be cancelled at any time, in which case you will receive a full refund of your Reservation Payment.”

The purchase agreement will be sent when your Model 3’s production date nears and will indicate the purchase price of the vehicle, plus estimates of applicable taxes, duties, transport and delivery charges and other fees, Tesla said.

The car’s starting price is $35,000, minus any tax incentives you may receive for driving an energy-efficient vehicle. (It advertises a 215 miles range per charge.)

Reserving the vehicle gives you delivery priority “within your region”, the agreement says. Still, there’s no telling when your Tesla 3 will arrive, given there’s no set release date and already a lot of pre-orders. Tesla CEO Elon Musk tweeted that the company has already received 276,000 pre-orders for the Model 3.

The Model 3’s reservation agreement does feature two potential caveats to be aware of: You can’t transfer your reservation over to another person without Tesla’s permission. And you do have to turn over some personal information (name, email, billing address and phone number) alongside your credit card number to pre-order the car. (You can find the company’s privacy policy here.)

Car Buying Basics

High demand can make it hard to negotiate a good price on a vehicle, but if you are considering buying a Tesla Model 3 or any other car in coming months, you may want to check your credit. Good credit scores generally help people qualify for better terms and conditions on a car loan. You can see where your credit currently stands by pulling your free annual credit reports at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.

If your credit is in rough shape, now is the perfect time to start working on it before you buy your Model 3. You can improve your score by paying down high credit card balances, disputing any errors on your credit report (here’s a quick guide for that) and focusing on smart spending behaviors, like making all existing loan payments on time, until your dream car hits the market.

More on Auto Loans:

Image: Tesla Motors

The post What You Need to Pre-Order a Tesla Model 3 appeared first on Credit.com.

Car Leasing Is All the Rage. Is It a Good Deal?


Old Betsy’s reign in the American driveway may be over. After all, why would you name a leased car?

Americans are no longer looking for a long-term relationship with their cars. Auto leasing is in the midst of a historic rise, setting all-time records quarter after quarter, and now makes up nearly one-third of the new car market, with millennial leasers leading the way. Consumers have begun to treat cars the way they treat cellphones — holding on to them until contracts run out, then happily exchanging them for the newest thing.

The records come just a few short years after leasing was all but left for dead during the Great Recession, when auto sellers shunned the practice, and leasing fell to only about 10% of the market. At the end of last year, auto leases made up 33.6% of all new car financing during the quarter — and 28.9% of all purchases — according to Experian Automotive.

A Nicer Car for Less

The appeal of leasing to consumers is obvious: The monthly payments are less. Experian offers these examples: An average new Toyota Rav4 loan last year cost $431 per month, while a lease cost $322; a Chevy Silverado costs even less per month, $544 vs. $384.

Many consumers use that savings to end up in nicer cars, and leasing can really expand consumers’ options. Here’s a calculation from Edmunds.com: Buyers with a $3,000 down payment and willing to pay only $300 per month can buy a $20,000 car, but they can lease a $35,000 car.

“People shop for vehicles largely based on monthly price, and right now, average dollar amounts for new-vehicle loans are soaring,” Melinda Zabritski, senior director of automotive credit for Experian Automotive, said. “In order to stay within their budget goals, we have seen that more consumers — even those within the prime and super-prime risk categories — are turning to leasing.”

Millennials are even more likely to opt for leasing, according to Edmonds. Leasing among younger adults is up 46% in the past five years, the firm says.

“Most millennials understand and accept that they’re on a tight budget and that they need to stick to it,” said Jessica Caldwell, director of industry analysis for Edmunds.com. “But it doesn’t mean that their financial constraints limit them only to the most basic vehicles to get from Point A to Point B. If they see a chance to get into a nicer car while staying within their budget, they’re likely to explore that opportunity. In most cases, leasing opens the door to the bells and whistles that they couldn’t otherwise afford.”

The Drawbacks of Leasing

Of course, leasing is hardly perfect, and has a well-earned reputation for causing consumer headaches. The biggest bugaboo is mileage limits: Many limit drivers to 12,000 miles annually, a serious disincentive for road trips. Also, while it’s easy to turn in a leased car and get into a new lease, it can be harrowing to drop off a leased car at the end of a term and face potential damage claims from the dealer or mileage overage payments. Many drivers find their insurance rates go up when they lease because of increases in mandatory coverage (check with your insurance company before you shop around).

And while leasing is attractive to people with long-term car commitment issues, a lease can be even more of an anchor than an owned car. Consumers who move and can’t take their car find out the hard way that getting out of a lease is even worse than getting out of a cellphone contract. Car leases can be transferred, but it’s easier to sell a car you own.

Still, leasing has become mainstream. Once more popular with luxury car drivers, leasing is now common for mid-level and discount brands. The Honda Civic was the most-leased car last year, followed by the Accord, Camry and Rav4, Experian says.

So, should you lease? One truth overrides all the details about leases: In the end, leasing costs more than buying. You pay for those lower payments by not owning anything at the end of the lease term. The best deal, financially, is buying the car. But the difference can be only a few thousand dollars, and that may not matter to you.

On the other hand, if you are leasing mainly because it feels cheaper than buying, you are almost certainly making a mistake. Long-term, buying is the cheaper option, especially if you don’t mind holding onto your car for more than a few years.

Luxury cars that lose value quickly (and often aren’t needed as “everyday” cars) still make the most sense to lease. People who live very close to work (or work at home) and don’t pile up telecommuting miles are good lease candidates. And if you really do want a new car every three years, and don’t mind knowing that you haven’t gotten the absolute best deal you can, consider leasing. But know that there is always a risk when you turn the car in at lease’s end that a dealer in a bad mood may try to nickel-and-dime you for every carpet stain. If you tread very lightly on your floor mats, you’ll probably be fine. But if you drive hard, a surprise end-of-lease wear-and-tear bill could make those lower monthly payments seem pretty expensive.

Remember, your credit score can directly impact your ability to get the best deal on a car lease. You can check your scores, along with the major factors impacting them, with your free credit report summary each month on Credit.com.

More on Auto Loans:

Image: Ridofranz

The post Car Leasing Is All the Rage. Is It a Good Deal? appeared first on Credit.com.