Often times, a client will ask me to help them with the car buying process. There are some good car dealers and then there are some you should just stay away from. Just recently I helped a client with the process and I was surprised by a trick that I haven't seen before.
We were negotiating back and forth on a deal. My client was trading in a 2013 model SUV with low miles and trying to purchase a new SUV. The salesman approached us with a "good" deal. He was offering a low car payment. That was nice. Then the clincher was the $10,000 in cash back. All my client had to do was sign on the dotted line and they received a decent payment and $10,000 cash back. At first, my client liked the idea. I am sure that this is an effective deal. It gives the buyer a cash surprise to go spend as they please and secures a low payment. It was appealing until we started to unpack the reality of the deal.
First of all the low payment was based on a 84 month loan. That is way to long for a car loan. Then the generous $10,000 cash back? That was from the trade-in. Basically, the buyer takes the $10,000 and the car dealer adds it back into the car note increasing the debt and the amount of overall interest. They might as well have borrowed money from a credit card. To add insult to injury, the trade in allowance was $3,000 below what Car Max would buy it for in a one way transaction. Of course, the salesman avoided the answer to how the deal was structured.
We politely declined and tried again.
What do you learn from this story? Car dealerships are not in business to give you a good deal. Beware of the salesmen who offers you a "good deal" or my favorite line - we are going to lose money on that deal! Always take someone with you during the car buying process that is not emotionally involved. You always need someone with a clear head.