If I had to definitively say what the biggest mistake is made by car buyers, it would probably be buying a car based upon liking the monthly payments you are being presented with.

If not the most financially imprudent mistake, certainly the most frequent car buying mistake made.

Additionally, negotiating a car deal based on the car dealer getting you to the monthly payments you like… really isn’t negotiating or driving a hard bargain on your part at all… if fact, it’s quite the opposite.

Automobile sales people salivate over customers that “just want to be able to get to a certain monthly payment”. If you’re one of these types of buyers, you are going to lose and probably big.

Buying your car based upon a monthly payment figure just about gives the car dealer a blank slate to work you with.

Don’t be one of those people.

Remember, mathematically any amount (selling price) divided by a large enough number (length of your loan) will get you a small enough number (your payments) that you will be comfortable with. Now throw in your trade in, dealer incentives, customer rebates into the mix and you’ll soon not only be confused, but you’ll be paying way too much.

I’m not saying that you don’t need to have a monthly payment figure in mind that will stay within your monthly budget all of us do. Of course you do to. It just has to stay within your mind, not blathered out all over the car lot in front of the sales person.

Know your numbers. Get your financing pre-arranged with Great Car Rates or Get your auto loan now – free 60 second application.

Calculate your monthly payments ahead of time or use our handy monthly payment calculator cheat sheet and know bottom line amount financed what you can afford.

Don’t discuss your desire to buy the car in terms of monthly payments… never.

If and when you leave the dealership with your new car, your car salesman, nor the sales manager, nor the finance manager, not anyone should know or not whether they met your monthly payment goals.

Car buying based on a monthly payment is a trap that many buyers fall into. No matter how much you want the car don’t rationalize yourself into buying on a monthly payment and certainly don’t tell the salesperson “if you can get me to this monthly payment then I’ll buy”….

And don’t answer the question when the salesperson asks you “if we can get you to this monthly payment, do we have a deal?” Turn the conversation off the monthly payment and back onto the selling price of their car.

Next Mistake Your Trade-in

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Remember!

A primary sales/closing tactic for car dealers is to sell you on the monthly payment. Well… more specifically a monthly payment ‘range’. And they want to do this without revealing to you what the interest rate and length of time they are using to quote you the ‘monthly payment range’. To move forward with the deal based upon a monthly payment the salesperson or sales manager has quoted you, will be disastrous financially! It will cost you thousands of dollars!

Other than the obvious, which would be big profit and big commission, by not revealing the interest rate to you and getting you comfortable with a monthly payment ‘range’ (range being the operative word).

Then if the financing department can bump your interest rate a point or two and still keep you in your comfortable ‘payment range’ (and they will certainly try. It’s their job.) dealer the profits and commissions just keep rolling in at your expense!

But, by you knowing the numbers, when the sales person quotes you a payment range you will know what interest rate that equates to and put the kibosh on this tactic right from the get go.

As we have discussed throughout the website, the mathematics of a car loan (or any loan for that matter) that affect how much your monthly payments will be are:

• the amount financed
• the length of the loan
• the interest rate

Another way automobile sales people like to lower the monthly cost (get you comfortable with that payment range) is to extend the length of the loan. However, this will be even more expensive for you. A longer length makes a loan more expensive over time due to the increase in interest.

To use the monthly payment guide, simply take the number of thousands of dollars financed and multiply that by the cost per thousand financed.

For example: if you are going to finance (bottom line) $15,876 for 60 months @ 8.5%, go to the 60 month financing table and find 8.5%. Then multiply the number of thousands financed (in this case you will be financing 15.876 thousands) by the cost per $1,000 financed.

The formula would be:

15.876 x $20.52 = $325.78 per month.

The guide will be very useful for you to print out and take with you; both when you are doing your preliminary research and when you get into the dealer and into the nuts and bolts of the car deal.

Remember what we talked about when the salesperson tee’s up the deal for the dealership finance department, they will quote you a payment range. They will probably plead ignorance to what the going finance rate is telling you that it depends on several factors and that the finance manager will be happy to discuss interest rates with you.

All of this is to get you comfortable with that monthly payment range while keeping the interest rate (the finance charge!) as murky as they can.

This guide will let you know within a few pennies what the interest rate to monthly payment will be.

A good idea would be print these tables out and take them with you as you do your car shopping. During the heat of the negotiations and with all the different figures that will be thrown at you, these handy tables will help keep your head straight.

Monthly Car Payment

This is eventually where the reality and the frustration of the deal you made a couple of years ago comes home to roost.

And I sense a good bit of car loan frustration in the air about now since the average trade in time for vehicles is somewhere around 3.5 years. That’s right, the majority of people get that new car itch about every 3 to 4 years only to find out that they are ‘upside down’ in their car and the only way out is to literally buy their way out of

the negative equity position either by dropping a good sized lump of cash in with their trade in or trying to roll their negative equity into their next car….. assuming their credit is good enough to do this. If it is then you have just made financing this car even more expensive. And if it’s not…. and you don’t have the cash…. then you are what we call buried in the car.

So, if you plan on extending the length of your car loan to the outer limits in order to save yourself some monthly cash flow and you have resigned yourself to the fact that even though your are paying a large financing cost to do so…… then you should also resign yourself to the fact that you are going to have to stay with this car for a lot longer period of time in order to get out of it cleanly when the time comes to trade it in.

To a degree the people in the automobile industry have shot themselves in the foot by offering such extended times to pay off those car loans. Extending those car payments out to 72 months certainly allows car buyers to be able to afford the car from a monthly cash flow perspective. But it does the buy a bit of a disservice by keeping them ‘upside down in their car for a longer period of time and runs their car loan financing cost up the ladder.

I really don’t mean to get you all depressed about buying car thinking that it is a no win situation that you will pay for the entire time you own the car.

But I do want to get across the seriousness of the car buying experience.

Dealerships and salespeople are not your friend or ally when it comes to negotiating your deal.

It is solely up to you to do your research and get yourself prepared to get the best price you can on both your new car, your trade-in (if applicable) and NOT to forget about getting the lowest car loan cost possible.

This page will be a bit longer but stay with me, take the information to heart and you’ll be able to get the lowest car loan cost possible.

There are some strategies available to you to help you keep your car loan costs as low and manageable as possible. Remember the goal for this piece of the whole car buying objective is to keep your financing costs as low as possible and shorten the amount of time you are stuck in an upside down car loan.

• First of all, line up your loan approval at your own bank if possible. This will enable you to know exactly what you can borrow the money for on your own.
• And, by the way, if the dealership F&I person offers you a rate that is higher than what you already know you can get at your bank, for goodness sakes don’t just flatly turn down the dealership’s F&I department’s offer…… can you not smell an opportunity to negotiate here?
• Work the dealer for all you can get on the finance rate!
• The key to negotiating just about anything is to get competitive bidding for your business going on. And trust me on this one…. the interest rate you are quoted at the dealership is most definitely negotiable, especially when you have put yourself in a strong negotiating position by knowing the interest rate you can get at your bank. Don’t miss this opportunity. It can literally save you thousands of dollars.
• Even if you don’t have a loan lined up at your bank, the dealer doesn’t need to know this! Tell the F&I person that you want the rate at ‘dealer retention’. This means you want the interest rate that the bank is getting the money to the dealer at and not a 1/2 point higher. And stand your ground.
• Some simple math: put as much money down on the car as you possibly can.
• I know this sounds and probably is painful up front, but this will lower your financing costs, you won’t be nearly as upside down in your car, and you will be able to get the best financing rate possible when you pony up your own money in the deal before asking a lending institution to do the same.
• If you don’t have the ability to put down a good down payment on the car, at least try to come up with enough to cover the taxes and fees. Since you are going to be financing the car and be immediately upside down in the car why would you want to pay finance charges on the taxes and fees? Certainly paying interest on a loan that includes taxes and fees in it, isn’t a good financial strategy.
• Within the boundaries of your budget, finance for the shortest possible term. Remember buying time isn’t free by any stretch.
• If you are a home owner, you could consider financing your car via a home equity loan. Depending upon the current interest rate and tax climate this could be a very viable option. If you are considering this route, be sure to discuss the details with your accountant first.
• As you shop around and research be sure to investigate all of the manufacturers rebates and dealer discounts available. A little knowledge here can really help you. Just because a dealer may be receiving special financing and rebates from the manufacturer doesn’t mean they’ll gladly pass this along to you….. especially if you don’t bring the subject up.
• You may want to check with your insurance carrier on the possibility of securing your car loan from them. Many companies do offer auto loans for qualified customers.

The financing research and leg work you do is a must.

Remember financing is a big piece of the puzzle when you’re trying to get all the car buying pieces to fit. Poor preparation in this area can literally cost you a bundle. And it does you absolutely no good to work hard on the new car and trade in aspects of the deal if you give it all back in the financing department at the dealership!

Financing is the point in the deal where you command the greatest position of strength in the negotiating process. By this time both you and the people at the dealership involved in putting your automobile deal together have invested a fair amount of time convincing you to buy. Remember, you are the customer, and no deal gets done without you.

Finance people are not your friend. They are a part of the deal process. They are every bit as much a sales person as the sales person or the sales manager. Much of their annual salary is based upon the additional coverage’s and add-ons that they can sell you…… and this includes the interest rate they quote you, remember. Not very often is their commission and spiffs (a car term used for cash money bonuses) based upon the sale of the car at all.

If you feel uncomfortable in the finance office. If all of the sudden there seem to be additional costs added on to what you thought you agreed to, or even if you don’t feel as though you’re getting straightforward answers from the F&I person, you can walk. Again…. you can walk!

And believe me, no one in the dealership wants to see you head for the door at this point. Don’t be weak. Anything at all start going sideways….. be prepared to thank them for their time. If they let you leave without some serious attention brought to your concerns then you should be glad that you did.

A look at online car loans next…

OK, fair enough.

Let’s take a look at a real life example with some real numbers maybe that will help.

So, pay close attention.

You’re a customer who believes you have done your homework, and you have made it to crunch time… the negotiation stage of the car deal. After serving and volleying with the sales staff, you are holding to your predetermined limit of not spending one dime over $15,000 (this is a relatively low number. a higher number would mean even a greater expense).

Let’s say the car in question is priced at $15,500. Negotiations are beginning to slow and the salesperson asks what your current payments are now. You innocently tell the salesperson they are about $300 a month and that you have three payments left (an egregious negotiating error).

Now… please stay with me on this.

The salesperson asks you to be patient just a few more minutes while they go to negotiate car prices a bit more (with that bad, bad man) the sales manager on your behalf… sure they are.

In a few minutes the sales person comes back and compliments you on the hard bargain you drive. And how he really didn’t think the sales manager would go for it… but let’s get this thing done before he changes his mind. The salesperson continues… with your trade, I can get your monthly payments around $300! Shall we put the deal together at those numbers?

This is where the salesperson just redirected your focus back to the monthly payments getting you to blink from your not a dime over $15,000 mantra.

The negotiations have been going on for a while and although it’s been a bit of a long day you are puffing up with pride over your cunning and tenacity. You’ve been comfortable the past few years making your $300 a month payments and you really like the car and heck… you’re going to be under $300 a month now and you got a new car to boot… what could be wrong with that?

So, you now make the next fatal step and tell the salesperson your payments cannot be over $300 a month, in fact get them under $300 pal to put this deal together.

You’ve been sucked into the monthly payment vortex.

The sales person grimaces and says “man you’re tough, but I’ll see what I can do.” In a few minutes the salesperson returns and says, “how does this sound. We’ll pay off the balance on your trade which is $900 and give you $1,800 more to use for the down payment on the new car. This will put your payments right about $290.”

You have what you think is one last spurt of negotiating the car deal in you and you say… “wait a minute, just what do you mean about $290? I want to know exactly.”

You mentally pat yourself on the back as the salesperson leaves once again and with the return says… “how does $291 a month sound?” And just so you can put the hammer down one more time to show ‘em who’s in charge you let them know it better not be more than $291 a month or I’ll walk.

Put a fork in your butt, because you are done my friend.

Hey, what could be wrong with upgrading the car you’re driving by a few years and lowering your monthly payments in the process? Well… in all honesty nothing if you’re happy with the deal you got.

But remember this website isn’t about being warm and fuzzy. It’s about letting you know how to get the most for your hard work and your hard earned money.

Bringing the monthly payment point home…

Let’s debrief. I’m going to put a few numbers together based on our scenario… the numbers are real only the interest rates will have changed to protect the innocent.

Let’s say you get your $291 per month at an interest rate of 9%. On a 60 month loan, this calculates to $14,000. Remember your trade. You better, They did. The dealer paid off the balance of $900 plus gave you $1,800 to apply as a down payment.

Let’s do the math: $291 a month for 60 months @ 9% interest = $14,000. Take that $14,000 and add it to your down payment of $1,800 and you just spent $15,800 for your new car.

Still a good deal?

You are probably wondering what happened to the selling price of the new car in the numbers you just showed me… doesn’t matter does it? Because you were will to buy the monthly payment.

And this was actually a rather mild example of how settling on monthly payment can cost you.

Don’t mix and muck up the new car part, the trade-in part, and the financing part. It will only muddy the waters for you and you’ll lose.

Let’s look at dealer holdback next…

The vast majority of people buy cars based on car monthly payments approach. If the payments fit the budget… Right? Very few people walk into a dealership and negotiate strictly from a cash position.

From a sales perspective, getting a potential buyer to commit to a monthly payment or payment range is the primary goal of an automobile salesperson.

As a buyer you should never try to get your best car deal negotiating from a monthly payment goal.

If you do this (and many do) you will probably be one of those who contribute the one of the highest profit margins for the dealer.

I sincerely hope that after visiting this website, you will understand how important it is for you to understand that what you need to know is… that if I finance (trade difference) this amount of money for this amount of time; my monthly payments will be where I need them.

Knowing this you can negotiate the two numbers that will get you there. The selling price of the new car and the dollar amount the dealer will allow you for your trade. Neither the salesperson nor the sales manager should have any idea what you want your monthly payments to be. All they need to know is what they have to accomplish trade difference wise to get the deal done.

Don’t make a boneheaded mistake and walk into the dealership and explain to the salesman that this is where I want my monthly payments, can you help me? And if the sales persons inquires as to where do you need to be monthly payment wise to make the deal. Politely tell the sales person that “let’s stay focused on the selling price and the trade and I’ll let you know when we get there.”

Sorry… but not knowing the numbers you need to be at to achieve your (unspoken/unadvertised) monthly payments is just plain stupid.
compare car pricing

Stay focused on the price of the car. The sales person will probably continue to ask and probe for a monthly payment commitment… It’s their job.

Don’t feel offended as they will probably continually turn the conversation that direction.

Do not give in. Again, just let the sales person know that when you feel good about the selling price and the trade value on the two cars (the new and the trade) you are sure that your monthly car payments will be where they need to be.

Getting you to commit to a monthly payment (actually a ‘payment range’ commitment is pay dirt for the dealer) is known as structuring the deal or teeing it up for the F&I person; who is waiting to take their whack at you.

By getting you comfortable and feeling all warm and fuzzy about a payment range the salesperson is merely trying to mentally raise your payment expectation level and desensitize you to the numbers.

Dealers know that they have a very good chance that they can bump your payment expectations (and their profit) by structuring a deal where you feel good about a ‘payment range’.

If you put yourself in this box its just about kings X for the dealer.

I mentioned teeing it up for the F&I person.

Here’s why dealers and salespeople really like you when you are a payment range type of buyer. When you get comfortable with a potential deal based on a payment range, there is going to be some payment padding figured into this.

When you sit down in the F&I department on the final leg of the deal, if the sales person has a bit of padding in his payment range quote, then the F&I person will gladly show you some of the little extras they can add to your contract (F&I people are sales people. They too are responsible for sales and profits and their job depends upon it) and hardly affect your monthly payments at all!

Imagine that!

Next Car Monthly Payment – Big Mistake