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Candice Choi

Getting the best financing deal still biggest blind spot for car buyers

By Candice Choi
Associated Press / September 24, 2011

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NEW YORK - Car buyers are getting smarter about negotiating prices. Securing cheap financing is another matter.

It’s a common blind spot for consumers. Yet high interest rates and add-on services can sharply push up the cost of owning a car. The problem is that consumers often get financing at the dealership without exploring their options. Since buyers don’t know the interest rates they’ll be offered until they’re far along in the process of making a purchase, they can end up feeling pressured to accept terms or services they don’t want.

This year, the Federal Trade Commission held a series of discussions to collect more information on the matter.

In the meantime, it should be noted that the loans provided by auto dealers are not overseen by the newly created Consumer Financial Protection Bureau. The watchdog agency is charged with policing the terms and disclosures associated with financial products like credit cards and mortgages. But auto dealers say they don’t underwrite the loans they provide and successfully lobbied to be exempt from its oversight. So if you want to trade in your car for a new model - here’s how you can act as your own watchdog:

Obtaining financing - Car buyers can get their loans from a variety of sources, including credit unions, local banks, and online banks. But about 80 percent of borrowers get their loans from dealerships. Consumers often don’t realize that the financing at a dealership - just like the car price - is negotiable.

To negotiate the best rate, research competing offers from outside sources. Keep in mind that the lowest advertised rates are usually only available for those with the top credit scores.

Navigating the extras - Once you’ve negotiated a fair price and loan terms, don’t be derailed by add-on fees and services.

For example, it’s common to be offered an extended warranty beyond the typical 3- to 5-year warranty included with the purchase. Another common extra is credit insurance, which covers monthly payments if you become disabled or pass away.

If you’re convinced you need any such add-ons, make sure you understand the terms of service; the coverage may not be as extensive as you believe.

Before signing any contract, the FTC advises consumers to carefully review it to see that it reflects the terms negotiated with the dealer. Consumers should also check to see that the dealer didn’t add any fees for services they didn’t request, the agency says.

If you’re not sure what a fee is for, ask.

Some of the fees added to the contract - such as the title and registration fees - aren’t negotiable. But dealers sometimes add their own fees, such as a “conveyance fee’’ or “dealer prep fee.’’ It’s always worth asking whether such fees can be reduced or removed.

Candice Choi writes for the Associated Press.