It’s super stereotypical that car salespeople are shady. I wish after a weekend of looking at new vehicles for my girlfriend, that I could say that I had an opinion changing experience. Unfortunately – I did not. In fact, I left the dealership more frustrated than I was going there in the first place. After reading this, you’ll get a quick education on terms, calculations and most importantly some things to know when negotiating.
After my experience on Saturday my question is.. HOW is it possible, that a person that has been in the car business for 15 years doesn’t know things like how a lease payment is calculated? How a credit score is compiled? Or.. my favorite, what the term ‘holdback’ is. Don’t worry, I’ll define these terms after I get off my soapbox!
Wouldn’t it be great to walk into a place to do business and have everything you asked explained in detail, where you are left with no questions. I think it is standard when you’re shopping around for something (cars, mortgages, real estate), you ask questions to become educated. You want to know you’re working with someone you can trust. You want to work with someone that knows that product BETTER than YOU do. I didn’t have that experience whatsoever on Saturday.
I’m an extremely trusting person. However, when I’m dealing with a dealership for the first time, I tend to have questions when I have no idea how this monthly payment is being calculated on a lease (he pushed the lease BIG TIME from the start). I know we may spend time going back and forth on price, but if the ‘money factor’ changes, I have no idea. FYI: Dealerships aren’t required to disclose anything but the monthly ‘rent’ expense on a lease.
Here’s the terms you need to calculate: (so you can save yourself from being taken at your local dealership):
Depreciation Fee: Depreciation Fee = ( Net Cap Cost – Residual ) ÷ Term
Finance Fee: Finance Fee = ( Net Cap Cost + Residual ) × Money Factor
Total Payment: Total Monthly Payment = Depreciation Fee + Finance Fee
Lease calculation figures are broken down further here. Without this website, I would have been lost and unable to protect myself as a consumer. I have forwarded the site to my veteran car salesman, so he can be a responsible professional instead of replying ‘You’ll have to talk to my finance guy, he can probably explain how it works.’
Another concern of mine was the confusion of how a credit score was calculated. For a quick summary, here is my post. The WORST thing that was said, was that the lease payment wouldn’t effect a debt to income ratio when buying a home. That is complete misinformation, I quickly corrected him. I’m sure he loved me at this point in our conversations.
Lastly, he acted as if he didn’t know what ‘dealer holdback’ was.
Holdback: Money the manufacturer pays back the dealership for each new vehicle sold, usually 2%-3% of the MSRP or invoice (depending on the manufacturer), to reimburse the dealership for certain expenses (salesperson commission, interest accrued on vehicle loan, etc). This tactic inflates the invoice price and lowers salespeople’s commission. This is not the same as rebates, which are openly advertised reimbursements.
Holdback now seems like a crazy thing to act like you don’t know what it is, right?
I know that all car salesman aren’t this way, I specifically know some folks that are not. I’m just truly disappointed that this was my experience. At Four Legacies Mortgage, we make it a point to educate every client that we work with. They understand their options, terms and most importantly how I get paid. We’ve got to keep raising the bar and asking the right questions!
That’s really all there is to the story for now (It’s a work in progress) But If you’re in looking at buying or leasing a car in the near future, take a look at these negotiating tips!
