Business Opinion

Down the Road: Don’t Just Focus on Monthly Payments

VW USA Photo

West Hartford resident John Lyons is an avid car enthusiast and collector. He has consulted in the car industry for nearly two decades and follows the industry and trends closely. He has written for Car Collector, Sports Car Market, Old Cars Weekly, and written auction catalog descriptions for cars with values up to the seven figures that have been published by numerous auction houses. His consulting practice works with estates to assist in selling cars no longer needed by the families. 

By John Lyons

I want to open by saying dealers are good people. They are family-owned businesses that faithfully serve communities, often for generations. They are active in local communities, the church, charitable organizations, and care very deeply about their reputation. I have personally done a lot of business with the Hoffmans and the Mitchells over the years and regard both as friends.

Their job is to sell cars and do what they can to put deals together. It is your job to be prepared and work to serve your financial best interests, not theirs. They will listen to you and try to work toward your needs, but it is very hard for them to know your full financial picture without you telling them. You want to be as well prepared as possible when you are shopping for a car.

When you buy a new or used car and finance it through the dealer, pretty much all the time, the dealer will try to focus you on monthly payment amount. The amount you can afford to pay monthly tells them what you can afford in a car. The problem is there are a lot of factors that perhaps you are not thinking about when financing a car. I can assure you the dealer is thinking about those things.

There are many important factors that you should consider when looking at the costs and finances of buying and owning a car. In my opinion, monthly payment should be one of the less important considerations. Don’t worry about the monthly payment until you have looked at all the other aspects of buying the car and borrowing the money. I am not saying to sign on the dotted line yet but have your ducks in the correct order first. If AFTER you take these steps, the monthly payment isn’t manageable for you, consider a cheaper car.

Rule No. 1: Do your homework ahead of time. Know what the price of the car is, know what loan specials there are and understand how taxes and interest impact your payment. There are loads of free loan payment calculators online. Be prepared when you go shopping.

The first focus should always be the price of the car whether paying cash or financing. I am saying this with the assumption that you have done your homework and know what you want for a car in terms of features and options and the suggested sticker price is within your overall budget. Let’s say the budget is $20,000 and you find a nice new VW Jetta S that is within that budget. If your plan is to finance, look at the interest rate. Some car lenders will really resist giving you that information. The biggest reason why they are likely charging a higher interest rate and by stretching out your term of the loan, making it look like the car is within your budget (the longer the term, the lower the payments are) when in fact you are paying thousands more in interest than you would on a zero percent interest loan or shorter term note.

Next are add-ons. When you finish with your decision to purchase, you are handed off to a manager whose job it is to sell you additional things for your car. One is gap insurance, another is extended warrantee, others are glass etching, wheel and tire insurance, etc. I have a saying when my kids go through this process if shopping for a new or late model used car: “‘No’ is a sentence.” I am probably not making friends with the local dealers saying this but most of this stuff you don’t need, and you’d be surprised to know your auto insurance company might offer the extended warrantee, gap insurance and tire/wheel insurance at a fraction of the cost of what others offer it for. ALWAYS check PRIOR to shopping for your car with your insurance company for these types of services.

Now you’ve chosen your car, finished with the add-ons and the dealer gives you a monthly price that is way over your budget. There are only two ways for you to buy that car with what you want and get it in your budget. First is to put down a larger down payment lowering the amount of money you borrow to buy the car, the second is to stretch out the term of the loan. Some banks will go up to 84 months on a loan now. This is where your pre-work is critical. You need to understand that the longer the term, the more you are paying in interest charges. It’s OK to stretch out the term, just understand what it is costing you. Also, NEVER do a longer-term loan on an older car. You will go broke with maintenance and repairs.

I always recommend, in very low interest rate situations, put as little as possible down. The cost of money to you is lower and you can put more money into saving and investing which will outpace the cost of using the bank’s money. If you are paying a higher interest rate (over 5%), try to put more money down to lower the size of the loan as your cost of using the bank’s money could exceed the money you could make investing it. You want to avoid that.

That’s really it. Do your homework ahead of time and be prepared when you go to the dealer. I have had situations where I need a car, I call the dealer, tell them the car I want and ask them to write up the order. I’ve done my research ahead of time so I know what payments will be and for how long and I know the interest rates, too. I give them a deposit over the phone and show up to pick up the car when they tell me to. I know you are probably skeptical reading this but do your homework and this works. I bought a car for our family last spring doing just this and was in and out of the dealer in well under an hour. The deal even involved a trade.

That all for this month. I promised my review of the Cadillac Blackwing (it’s amazing) but out of room for this month.  Look for it next month and I’ll see you down the road!

West Hartford resident John Lyons writes a monthly column reviewing cars and talking about the industry. He will also provide tips for those purchasing a car to help readers get the best deal.  

A version of this column appeared in the May issue of West Hartford LIFE.

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