Wednesday, August 15, 2012

New Car Trade-In and Financing

Very belatedly continuing the story of Consuelo and her new car:

Once Consuelo had agreed on a price, she was much more relaxed. So was I! She didn't get the best possible price, but she at least got the exact car model and color she wanted and she was buying it from the most conveniently located dealer where she like the saleswoman, Debbie.

The next thing was to bring in her current car for a trade-in appraisal. This seemed to me like just as big a minefield as negotiating the purchase price, as a dealer is going to want to make the biggest possible profit on reselling that car.

So again I suggested Consuelo do some research online using and some other sites that estimate trade-in and retail resale prices for used cars. You can enter various details about the model, year, mileage, options and condition of your car to get a range of approximate prices to shoot for either with a dealer or if you are selling the car on your own.

Consuelo's car was 11 years old but in excellent condition. The interior was pretty much immaculate, and the exterior had only a few minor marks on the front and back fenders. No dents, no scratches, no rust, as she'd kept it mostly in a garage and not driven it much. The mileage was extremely low for its age. The only red flag with the car was that the engine light had been going on and off. She'd taken it to a mechanic who'd managed to fix it a couple of times, saying it was just some sensor that was loose and needed to be replaced. It didn't seem like a big deal, but I told Consuelo she should definitely have it fixed before she traded the car in, thinking that the expense of fixing it would probably be less than what she'd lose in the trade-in negotiation. Consuelo didn't really want to put more money into the car at all, but she ended up deciding I was probably right, and 2 days before she was due to bring the car back to the dealer for the appraisal, she went back to her mechanic.

But... she got to the mechanic and found that they were closed. She couldn't figure out why they weren't open, and since she'd rushed over there on the one night she'd have time to do it, the change of plans made her feel rather discombobulated... so discombobulated, in fact, that she wasn't thinking straight and got into a minor fender bender 5 minutes later! Suddenly her excellent condition car had a dent in it, and wasn't so excellent any more. (Fortunately the other car was not damaged much, and the driver didn't want any insurance company involvement, for whatever reason. And the other amusing detail about this story is that the reason the mechanic shop was closed was that it was a branch of Strauss Auto, which had gone bankrupt and closed all its stores only a couple of days before.)

Based on all her research, Consuelo still thought she could get $4-5,000 for the trade-in, so when she returned to the dealership, she was shocked when Debbie returned from a chat with the manager and only offered her $2,500. Consuelo said "that seems really low," to which Debbie of course countered, "well, the engine light is on and there's a dent in the side." Consuelo pulled out printouts of the trade-in estimates she'd found online and showed them to Debbie, who of course played good cop and said "oh, great, this will help me plead your case with my manager." But it didn't help all that much-- the manager's response was that he could go higher only if Consuelo could show a receipt proving that some major part had been replaced recently, because it was required at a certain mileage level if he was to re-sell the car as certified pre-owned, or something like that. He says the value of that part being replaced is $1,000. Of course Consuelo didn't have that receipt, and . And at this point, Consuelo just doesn't want to deal with selling her own car, and she doesn't really know if what they're saying about the part is true. Debbie goes back to the manager and says that they can only go as high as $3,000. Consuelo takes the deal. Afterwards, she does some research online and figures out that the part probably did have to be replaced as they'd said, and it would indeed have cost her around $1,000 to replace the part-- but of course the dealer would only have to worry about his wholesale cost of that part.

So that's all the icky part of the car buying experience. Consuelo didn't feel like it had gone all that well, but she was just glad it was over. And there was a bit of good news at the end: the dealership was offering 0% financing for up to 72 months for qualifying buyers. I couldn't get my head around this at first-- it seems like there must be a catch, but you literally pay no interest for the life of the loan. (The catch is just that the dealership is factoring the lost interest into their other pricing terms anyway-- sometimes choosing an up front credit is better than a loan with no interest, but in this case it wasn't an option they were offering.) Consuelo's credit is really good, so she qualified for the 72 month loan, which is longer than the usual loan terms for a car. 5 years tends to be the max. So when Consuelo sat down with Debbie to draw up all the final purchase documents, Debbie said "so, do you want to do the 60 months?" Consuelo asks if she can do 72 months and Debbie says yes. They compare the two payments. And Consuelo basically says to herself "well, duh! This is free money! No interest! There is no reason not to extend the term for as long as they'll let me. If I ever want to pay it off faster, I can." So she takes the 72 month financing and feels very pleased... at least until she and I were talking about it afterwards and I said "so if the loan was free money... why did you make a down payment of 1/3 of the price of the car?" Her response: "shit. You're right. I guess I was just trying to be good about not borrowing too much money!"

Anyway, the whole story is just a comedy of errors. After sharing Consuelo's experience, I've had quite enough of cars and am even more convinced that I'll never buy one of my own!


Unknown said...

Thanks for sharing great article !!Nras Finance

Jerry said...

I just buy used and save myself the hassle. It leads to some more repairs sometimes but not often. And, the insurance is cheaper.