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Buying and Financing a Car

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I have a friend who’s a car salesman; he’s straight but I didn’t hold that against him, he’s already got enough problems being a car salesman. He doesn’t have a checkered jacket, for a straight man he dresses sharp. However, if you can tell a horse is an animal, you can tell this guy is a car salesman.

He’s telling me over a beer, I can still get him into a gay bar now and then, how the vulture thing works. Whoever is nearest to the landing quarry gets him. You’ve seen them; standing around the perimeter like vultures awaiting you so they can swoop in and empty your wallet. Even wonder why you feel that way whenever you arrive at a car dealership? Because your feeling is right; that is exactly what they are poised and planning to do. You are involved in a car transaction every once in a long while. They do it all day long, every day. You can’t win.

My friend is smart. He waits, and watches and lets the others fight over the everyday up; the guy in the four-year-old minivan with either his husband or wife and a couple of kids. What’s he waiting and watching for? The real clunker (that’s a not very nice car); it’s blowing smoke and he can hear it coming down the street two blocks away. When it’s finally silenced in the parking lot and the smoke has dissipated enough to get close without getting gassed he greets the guy struggling out a squeaking door followed by his partner climbing out the other side. A quick visual check of the car reveals that it is of reasonable age and not a bad model in its day but now a worthless clunker because it has been overused and under maintained.

This is my friend’s favorite customer. This is the guy who is going to drive away from that dealership in a well marked up used car, perhaps of questionable quality, but of high perceived value. He is going to have his old car paid off by the dealer. The upside down amount is going to be rolled into the new purchase. He is going to buy an extended warranty, an on-going prepaid service agreement, credit life insurance, and his first year of liability auto insurance, and pay the highest interest rate available on not just the car but also on all the service and insurance products.

He is going to drive away from that dealership with a payment higher than a brand new car of far greater value and be instantly buried in the new car far worse than he was in the loud smoking clunker he rolled into the dealership in. My friend is a happy camper because he gets a commission of each part of the rolled up deal. He sold a car, sold insurance on the financing, sold insurance on the car, sold an extended warranty, and sold financing on all of the above at a high interest rate.

The deal sounded good to the uneducated customer. Service and repairs are prepaid. Insurance is paid for the whole year. The car is paid off on death. Everything handled in one place. What a deal! That’s for sure, what a deal for the dealer.

Here’s how the deal should work for you, not the car dealer.

There are three main deals going on here. You are buying a car, selling a car and financing a car. In addition, in the example above, there is the purchase of an extended warranty, a credit life insurance policy, and liability and comprehensive car insurance. You are best served and get highest value for lowest cost when the deals are each handled separately.

Sell your existing car to someone else. If you think that’s too difficult, let the dealer put a value on your car, then simply ask around to people you know. Someone is bound to give you more than the dealer’s offer because the car will be worth it. If you do sell it to a private party, offer it for a bit more than the trade offer plus the amount of the sales tax on the transaction. Generally when you trade a car the sales tax is calculated on the trade difference; the sales price of the new car less the value of the trade in. When you don’t trade in a car you pay additional sales tax.


If you insist on trading it in, go to the dealership armed with a reasonable value for the car and stick to it. Know that you can always go away and sell it yourself. Do you have a CarMax near you? Drive by there. They will buy the car from you even if you don’t buy a car from them. Then you can have their offer to fall back on if you are unhappy with a trade offer. If you owe more on your car than it’s worth, you will have to trade it unless you can come up with the cash difference to pay off the loan. Regardless, you are armed with additional information when you head off to the car dealer.

Credit life insurance on the car is an interesting concept. You pay premiums for insurance that pays off the car on your death. Who benefits? The bank that lent the money; let them pay the premium! If you have a real reason for the car to be paid off in the event of your death, like protecting your husband’s ride to work, consider a term life insurance policy, separate from the car transaction, for the amount you require. The term life policy will likely be less expensive, and it provides your survivor financial flexibility.

Go to a lender before you go to a dealer, either your bank or a credit union. Get a pre-approval that you qualify for an auto loan. The lender will tell you how much they are willing to lend you based on your credit qualifications. Maybe you want more, but the lender is in the business and knows the odds of you being able to pay the money back. Listen to them and limit yourself to a car transaction that fits with their pre-approval.


Leave the bank with a sight draft in your hand. A sight draft is a check from the bank with a limited maximum value. It is a check for your purposes. When you buy a car, the dealer includes a title with the check and it is processed like a check to pay the dealer. With a pre-approval you are less likely to fall into the financing traps set by the dealer to make you spend more of your money; money you may not be able to repay, and spending that will certainly take more of your money,


The dealer wants to sell you the most car and other stuff he can to maximize his profits. Your new car loan will then be sold. The dealer has no vested interest in your ability to make your payments. A lender separate from the deal knows that in the event you can not repay the loan, your car must satisfy your obligation. A reputable lender will protect you in the borrowing, and likely limit the dealer’s ability to sell you additional unnecessary insurance items.  

Know what car you want before you arrive at the dealer. With the advent of the Internet there are almost unlimited resources to determine who has the car you want and what the real value of that car is. Online, visit,, or any of many car websites to learn about different cars and help you to make an informed decision.


Once you choose a car, search inventory online. Compare prices, new and used. Find out what dealers have the car you want. Go see the car if you want, but only after you know of two others you can get at different dealers.


A dealer has one prime objective – take your money from you; as much as they can get. Do your homework and arrive an informed buyer ready to take your business elsewhere if the deal is not what you want. You will be a party in the final decision for a long time. Never forget, you are the customer and the dealer must earn your business. You do not have to give it away.

Now you turn into my friend’s worst nightmare. Here you come in the old clunker with check in hand ready to pay exactly one number for that car right over there. The salesman is now an order taker and you are in charge of the transaction.

I can all but guarantee that you will not leave the dealer having purchased any useless warranty or insurance, not over paying for the new car, having received fair value for your trade in and not been signed up for a usurious, but perfectly legal, interest rate. Chances are you will not be upside down in your car when you drive off the lot.


The simplest purchasing method and the one the dealer will most dislike (which in my mind is reason enough to insist on it) is a bottom line purchase. This is simply the act of insisting the dealer tell you the total cost of you driving the car away. Like you were going to write a check for the car, how much will you write your check for.


Bottom line buying takes a bit of effort on your part. Decide what you are willing to pay for the car, how much you are willing to accept for your trade (if you insist on trading), how much is the sales tax, what other fees are you willing to pay, and total it all up.


Make the dealer the offer and shut up. When he says no way, leave; you’ll get a call. I will only buy a car with a bottom line number. Don’t even allow a conversation about payments to begin. Payments are easy to manipulate and a $10 higher payment doesn’t sound like much until you multiply it by the number of months in the loan.

That all said, interest on a car loan is controllable at only one point; at the beginning. Once you sign the note you are locked in until the note is retired by paying it off, or selling or trading the car. Once the deal is done you are locked in and your car loan interest spending is then fixed. This is a four to six year commitment. Do your homework first. Your money looks better in your pocket.

Ric Reily

Ric Reily is the author of two books, Money Is The Root Of All - Skip The Debt Habit, and Gregory’s Hero; and two blogs, LGBT Opinion In A Gay World and LGBT Personal Finance In A Gay World. He is a Member of the Board of Directors of Stonewall National Museum and Archives serving as Treasurer. His firm CFO On Call provides small business finance and operations consulting. Ric is married to John, his partner of 26 years, and lives in South Florida. You can reach Ric at

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