Originally Posted by extrashaky
Usually the best way to buy a car is to think of the car-buying process as two separate transactions, because they are:
1. Financing the car
2. Buying the car
Why did I put financing the car first? Because that's the first thing you should do. It seems counter-intuitive, but not after you understand the process.
Before you ever set foot in a showroom and before you even test drive a car, you should start rate shopping and get pre-approved for a loan. Call your regular bank. Check the online lenders. Call around to your local credit unions. The credit unions often have the best rates, and yet people are completely unaware of them.
I actually saw an advertisement for my credit union on a slide that ran before a movie. I wasn't a member yet, but many credit unions are willing to lend to non-members. In my case, I just had to open a $10 savings account with them to become one.
Once you find a rate that looks good, get pre-approved. The process is a lot easier than you might expect. In my case, I filled out a form on the credit union's website and got a call back from my loan officer the next morning. I got pre-approved for up to $50K at 1.45%, without the lender even knowing what kind of car I was going to buy. Hell, I didn't even know what kind of car I was going to buy. But I knew how much car I could afford.
After you have financing in place, then go look at cars. That way, if you find something you like and can afford, you can negotiate for the price of the car by itself. Why do that? Because a car salesman is usually going to be better at the game than you are. If you try to negotiate two things at once (sales price and financing), the salesman can shift from one to the other in a shell game designed to keep your attention off whichever figure is not in you favor. Sales price too high? Let's talk about monthly payments instead. Monthly payments too high? Let's see what we can shift to upfront costs. What can I do to get you in this car?
You will usually get the best price on the vehicle when you take away the salesman's shell game and force him to focus on the price of the vehicle. When he tries to talk with you about financing, you say, "Nope. I already have financing in place. Let's talk about this price instead." If he asks for the details of your financing, tell him you'd rather focus on the price of the vehicle. Make him stick to one negotiation at a time. And just as you shopped around for rates at multiple lenders, you're going to shop around for car prices at multiple dealers. In each case, fend off their attempts to lure you into the financing game.
Keep in mind that just because you are pre-approved for a loan does not mean you're locked into it. There's absolutely no penalty if you decide not to use it. So after you have the dealer with the best price on the car, then you can bring up financing to see if the dealer can beat the deal you already have in place. Sometimes they can. But at that point you're negotiating only financing, because the price of the car is already agreed. And you already know what you can get elsewhere, since you already got pre-approved for the best deal you could find.
The OP is here because of a lease gone bad, and it might look at first glance as though a lease doesn't fit into this process. But it does. You have to think of a lease as a form of loan. A capital lease has an interest rate and monthly payments, just like a note from a bank. The biggest practical difference is that you have that big payment at the end of the lease if you want to keep it.
So there's really no difference in the process. Go get pre-approved for your financing from an outside lender first, then negotiate the price of the car, then bring up leasing. Doing it that way, you have a clear understanding from the outset of what you can afford and whether the lease is really a good deal for you or just more sliding around of shells. The lease terms may make it appear you can afford more car in the short term, but can you really afford it once the lease is up and you have to come up with money to buy out the car or get another one? Already having financing in place will help you decide without being unduly pressured by a salesman, and you might find that the note you've already negotiated with a credit union is better than the lease anyway.
There's also a third transaction to consider: Trade-in. Just as with financing, the car salesman will try to pull your trade into the shell game to get you to agree to a higher price on the car. Push that off until last, after you have financing and after you have a price on the car. Doing two of these negotiations simultaneously is bad enough, but trying to do all three at once is just asking for the salesman to try to screw you. You'll end up paying more for the car, getting less for your trade and paying more in interest than if you did each negotiation separately.
In my case, I went in armed with my pre-approved financing and a good understanding of what the car was worth. When the salesman tried to offer me a 3% loan, I smiled and declined. He had to focus on the price of the car. When he asked about trading my Jeep, I smiled and said I was keeping it. He had to focus on the price of the car. The negotiation was actually very short and not very stressful at all for either of us.
When the car was finally delivered and I went to pick it up, my salesman passed me off to the paperwork guy, who said, "Let's talk about financing." Suddenly it was down to 2%. If my pre-approved rate had been 2.5%, I'm pretty sure the dealership would have offered me 2% to beat it. But they couldn't get low enough to beat my existing deal.
The moral of the story is: Shop around! That goes for the car and the financing. And the best way to shop around for financing is to do it at your leisure, without the distraction of a salesman barking numbers and dangling keys at you.
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