Finance Insurance
Rebates, Incentives Ect.
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FINANCING,
INSURANCE, REBATES, INCENTIVES, HOLDBACKS
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Buyer Navigator Step 4: Financing Insurance, Rebates, Incentives & Holdbacks Insurance: Before you buy a car or truck, AutoNetDirect suggests that you find out how much the new insurance premiums will cost in detail. We recommend that you get quotes on the vehicles you are interested in from your current agent, The reason we recommend large, well-known insurance companies is simple. Smaller companies could go bankrupt. They may refuse to cover damage. Their contracts may contain numerous loopholes. But most importantly, if you move to another state where your small insurance company is unknown, you may be put into a high-risk pool of drivers in your new state. That will only cost you more money in the long run. If you plan to lease, you need GAP insurance. This insurance covers the difference between the value of the car and the total of lease payments due in the event that the car is wrecked during the course of the lease. Most leases include GAP insurance in the payment, but it doesn't hurt to pre-arrange this policy if your agent handles such coverage. Financing & Loans: At this point, you should know which car you want to lease or buy. But before you run out to a dealership to do the paperwork, there are certain financial issues that must first be resolved. You should get at least two quotes for financing; one from an institution such as your bank or credit union and one from another source like what we offer on our contents page under financing. These quotes can usually be given over the telephone. Request your quote based on the vehicle's MSRP, so that the quoted payment represents a maximum number. Later on, price negotiation with the dealer on the price you actually pay for the car can only lower your monthly outlay. If a payment based on MSRP fits your budget, you can rest assured the vehicle is affordable regardless of the final price you pay. Using the best quote you were given, look at your estimated monthly payments and insurance costs. If the monthly payment is less than 20% of your monthly income, congratulations--you have used good judgment. You are ready to move on. If the monthly payment is too high, you should re-evaluate what types of vehicles will fit into your budget, or determine how much you will need to haggle with the dealer to make the car fit your budget. Remember to be prepared, as to this ection should be taken seriously. Your friends here at AutoNetDirect, will be here all the way, count on it. Customer Incentives and Dealer Money Incentives and rebates are programs offered by manufacturers to increase the sales of slow-selling models or to reduce excess inventories. Basically, incentives are simply the manufacturers' admissions that their cars are overpriced. Incentive or rebate programs are offered for a limited time, after which the marketing department gets together to decide what kind of an effect the program had on sales volume for that month. Usually, if an incentive or rebate is offered for a limited time, there's no need to rush right out and buy. Odds are good that the rebate will return, or a better program is on the way. Rebates can take the form of either direct cash back or low-rate financing offers. If both financing and cash are offered for the same model, the buyer must choose which he or she would prefer. To decide, simply use a loan calculator to figure your loan on the car (with the interest rate your bank would charge), minus the rebate. Then calculate the full price of the car at the subsidized interest rate, which is always a better rate than what you'll get at your bank. If the loan will end up costing less with the low-rate financing than it would with the incentive money, then go with the low rate. If, on the other hand, you just want to increase your down payment, then go with the rebate money. For example, let's say you want to buy a $20,000 Dodge Intreped that has a $2000 rebate or 4.5 percent dealer financing. Your bank is offering you 8 percent financing on the loan. If you take the rebate, you'll end up paying $18,000 at 8 percent interest, which comes out to $364.98 per month for a five-year loan. At the end of the loan, you will have spent $21,898. If, however, you take the dealer financing, you'll end up paying $20,000 at 4.5 percent interest, which comes out to $372.86 per month over a five-year loan period. At the end of the loan, you will have spent $22,371. So, in this case, you will probably want to take the rebate. But it's important to do the calculations for every car to see which is the better deal. Also, keep in mind that some low-rate financing programs require a shorter 24- or 36-month term, which can boost payments beyond the buyer's budgetary requirements, putting the vehicle out of financial reach. While manufacturers' rebates and low-rate financing are passed directly to the buyer, dealer incentives are passed on only to the dealer -- who may or may not elect to pass the savings on to the customer. Frequently, the salesperson will not even be aware of dealer incentive money, so buyers should speak to the sales manager about participating in dealer incentive programs. Deduct the amount of the dealer incentive and customer rebate from the Actual Market Value price to determine the cost. If the dealer refuses to let you in on the incentive money, try a different dealer. What is a Holdback. A Holdback is a percentage of the MSRP or invoice that is pre-arranged for inventory assistance by the manufacturer. That money is targeted for the dealership's financing of the vehicle, and it is non-negotiable. However, by knowing about the holdback, you can use it as a negotiating tactic for your benefit. First, a little more background: The total invoice cost of the car is due to the manufacturer, payable by the dealership, when the vehicle is ordered, not when it is sold. Since car dealerships (or any retail operation, for that matter) must have an inventory on hand, they must borrow money from the bank to pay for that inventory. The manufacturer pays for financing and maintenance for the first 90 days the vehicle is on the lot, in the form of a quarterly check called "holdback." After the first 90 days, the dealership dips into its own pocket, and into its own profit to finance the car. Usually, most cars don't stay on the lot for three full months. This amount is "invisible" to the consumer because it does not appear on the dealer invoice. Therefore, the dealer is guaranteed a profit even if they sell the car to you at cost (if, that is, the car is sold within 90 days). Because of holdback, the dealer can advertise a car at $1 over invoice, and still make hundreds of dollars on the sale. For example, let's say you're interested in a Dodge with an MSRP of $20,000, including optional equipment. Dealer invoice on this hypothetical Dodge is $18,000, including optional equipment. The invoice includes a dealer holdback that, in the case of all Dodge vehicles, amounts to 3% of the total MSRP. The destination charge should not be included when figuring the holdback. So, on this particular Dodge, the true dealer cost is actually $17,400, plus destination charges. Even if the dealer sells you the car for invoice, he would still be making $600 on the deal when his quarterly check arrived. That $600 is profit to the dealer only; the sales staff doesn't see any of it. However, the true "profit" of holdback money depends on how long the car has actually been on the lot. If our hypothetical Dodge had been sitting there for 45 days before you bought it, the dealer's holdback profit is only half of what it could have been, or only $300. And the dealership is not going to tell you how long a vehicle has been on the lot, so the odds of you actually getting any of the holdback money are zip. So how can you use this information? Well, if the dealership doesn't have that pretty green color you're after, and they can't trade for it with another dealership in the area, they have to order it directly from the manufacturer. If that's the case, make sure that they know that you know about the holdback. If a vehicle is special-ordered, holdback money is pure profit. Need Advise? Check here at AutoNetDirect. Our associates and partners offer all of this to you on this website. "A
direct auto information mainstream for the consumer"
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