How to Get the Best Car Deal

Written by Kate McCaffery, Special to Wallet Pop Canada (AOL), 2010-10-18

When it comes to financing and deciphering the true cost of things, purchasing a car is even more complicated than buying a house.

It's one of the largest expenditures people make, second only to their mortgages, yet it's rarely thought of in financial planning terms.

"Many people are not comfortable with complex matters of finance. They often don't probe deeper when doing the deal," says Viraf Baliwalla, car broker and president of Automall Network.

As a result many people tend to rely on the emotional aspect of things � falling for features and that new car smell � without running the numbers to see if the deal they've been offered is really the best one to be had. Considering the number of different (and sometimes hidden) details that can go into car financing, it's not surprising that people will only look at bottom line monthly payment figures instead of bigger picture spending and saving objectives.

"Car deals tend to be the most complex things a consumer is going to negotiate," says Baliwalla. "There are so many tricks of the trade that exist. When you're buying a house the dollar value is much higher but it's a straightforward transaction. When you get into cars there are all sorts of kickbacks, rebates, different types of financing and leasing. If you don't understand what is happening behind the deal you could really lose a lot of money."

Factory rebates and low financing offers both impact the price you'll ultimately pay in different ways. Although zero per cent financing may seem like free money, if the interest free loan is obtained by forgoing any rebates you'd receive by taking out a bank loan and paying cash, it's possible you could be leaving thousands of dollars on the table.

To get financing at zero per cent, says Baliwalla, "you're going to have to forgo the rebate," which can ring in around $7,000 or $8,000. "If you go to the bank and get the money and they were to charge you six or seven per cent, you'll end up paying $4,000 (to service your car loan)." By taking the dealer's financing offer, he says, "you've lost $3,000."

To determine whether or not clients are getting the best deal financially, he inputs all dollar figures � the cost of the car, taxes, rebates, interest charges, etc. � into a spreadsheet to determine which offer is the most economical.

If this sort of comparison or financial planning is important to you, Baliwalla has other advice to offer as well:

• Never lease if you can avoid it. "Consumers have been conditioned to believe that leasing is a better way to go, especially if it's a business writeoff," he says. The capital cost allowance, however, allows taxpayers to deduct the cost over several years as the car depreciates in value. "At the end of that period you're still going to have something of value as well."

• Leasing is also more expensive long-term than buying. "The monthly payments may be lower but they will continue forever."

• It is never a good idea to get out of a lease early. Transfer fees will usually apply. There are also reported cases where customers are charged "administration fees" by the dealership. "It's not illegal but it's unethical, in my opinion. If I were to scrutinize the original lease agreement, I bet you they charged a $500 admin fee when they sold the car too," says Baliwalla.

• Consider buying a vehicle that has been involved in a minor accident if it has been properly repaired by an insurance company. "If you've got a $2,000 claim against it, cosmetic repairs really, the marketplace perception is going to drive the price of that vehicle down." Down the road he says the resale value gap between the car and one with an accident-free history narrows dramatically. "The difference between that and something that wasn't damaged might be $2,000 or $3,000 right now. Four years from now the difference will be $500 or $600, if that."

• Consider getting professional help. Automall fees are $399 to find a new car for clients or $799 to locate an appropriate used car. (This fee also covers the car's inspection.) In addition to saving clients the hassle of going from dealership to dealership, Baliwalla says brokers who know the business can usually save clients $1,000 to $2,000 on average for each deal.