Think Twice About a Seven-Year Car Loan

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The easiest way to prevent the dealership from taking you to the cleaners is to get financing before you go to the dealership. This way, you already know what you can spend and afford. It also puts you in the driver's seat when it comes to negotiating the price of the car. Also, research the type of vehicle you want by going to www.edmunds.com or www.kbb.com. The sites will give you the MSRP and, in the case of edmunds, the price that is closest to what the dealership paid for the car. This can also improve your negotiating power when going to the dealership.
The most important thing, however, is getting prefinancing first. You can eliminate a lot of hidden fees and a lot of the hassle by getting this before you even think about buying a car.

Chris of AZ 3:29PM April 03, 2008

Thanks, PJM - that sounds like solid advice. I paid $9,000 upfront, about one-third of the value of the car, although I did not arrange financing elsewhere. Maybe I could have gotten a lower interest rate... (I'm paying 6 percent).

Kimberly Palmer of 10:16AM April 03, 2008

When I bought my car (in 1997!) five-year plans were dominant. I went in armed with a book called "Don't Get Taken Every Time" by Remar Sutton (see http://www.dontgettakeneverytime.com/ - it seems to be a newer edition now than the one I used) which is largely about negotiating tactics to use but, because financing is so often used as a negotiating tool by the dealers, has a lot to say about auto financing as well.
Sutton recommended four-year terms, exactly what you got, Kimberly, and further suggested (a) financing 80% of the purchase price of the car with a four-year loan (and making a 20% down-payment), thus establishing your ceiling price as 5x what you had on hand for a down-payment, and (b) arranging financing elsewhere, e.g. with your bank, first, and then negotiating a price with the dealer independent of financing, thus keeping a clearer eye on the real price of the car (because dealer financing can often obscure that price.)
This may be less true now than it was in '97, but then, it was rare that dealers were offering a better APR than the banks.

pjm of MA 8:23AM April 03, 2008

Not to mention the fact that with a seven year loan, you'll be paying so little principal up front that you'll be upside-down on the car for most of the loan!

Josh of CA 5:01PM April 02, 2008