Now that internet car shopping has become more commonplace, some dealerships are doing everything in their power to avoid giving you a written quote. One of the newest tactics is requiring you to submit a credit application in order to send you a price. Don’t fall for this.
I was recently shopping for a customer who wanted to lease a new Hyundai Sonata. Most dealerships were happy to provide the estimated lease payments given the down payment, term and mileage parameters that my customer wanted. But a few dealers didn’t want to cooperate with this method of shopping, and instead of just flat out refusing to send a quote (which does happen), they instead insisted that they run a credit check on my customer before they committed to a price.
A Philadelphia Hyundai dealer sent me a range of payments on a specific car rather than a specific payment; they ranged from $175 - $200 per month. When I asked them to give me a specific payment they responded with this:
“We only quote payment ranges until we samit the credit application to the banks.”
Yes, you read that right. This particular dealer “samits” your credit app to various lenders in order to get your approved.
All joking aside the reason why some dealers take this stance, especially when it comes to leases, is that your monthly payments will be contingent upon your the money factor (interest rate) on your lease and that is dependent upon your credit score.
All 0f this comes back to how most buyers and dealers focus on monthly payments when talking about price. Often one of the first questions a dealer will ask you when you walk on the lot is, “So, how much do you want to pay per month?” I’ve warned about being a “monthly payment” shopper before, and while you should know your monthly budget and work backwards to see what your spending limit is, that should be done before you arrive to the dealership.
When negotiating with a dealership the focus should be the sale price of the vehicle and the total out-the-door price that includes all taxes and fees. Whether you are buying or leasing the lower the total cost, the lower your payments will be.
Furthermore, you don’t want dealerships running what is known as a “hard inquiry”on your credit report if you are not yet at the point where you are ready to apply for financing. Too many hard inquiries can have a negative impact on your score. Usually, you want to apply for loans or leases within a two week period, as the credit bureaus know that most consumers will shop around for the best rates so the impact that multiple inquires will have on your score will be minimal as long as they are clustered within the same timeframe.
So how do you prepare yourself for the run your credit tactic?
The first thing you should do before shopping for any major purchase that will require a loan or lease is to check your credit score. Our friends over at Lifehacker have a great guide on how to get your score for free.
If you are buyer with Tier 1 credit, usually defined as a FICO score of 700 and up, you will most likely qualify for the lowest interest rates for loans or leases. If your score is below 700, it is crucial to know where you fall on the FICO spectrum because your interest rates can vary drastically, and thus impact your payments.
I’ve had customers with a 625 FICO pay up to $75 more per month on a 36 month lease compared to a customer that would have applied with a 725 FICO. That 100 point score difference is costing the 625 buyer an additional $2700 over the course of the lease.
Once you get your own credit score, the next thing you should do is get pre-approved for a loan through an outside lender such as your local bank, credit union, or credit card company (most major credit cards such as Bank of America, Chase, Capital One, etc. do auto loans). Of course, this will only help you if you are getting a loan — not a lease.
Leases are a bit trickier because there is usually only one leasing company that is aligned with that particular car; normally is the financing arm of the manufacturer such as BMW Financial Services. If your credit is less than perfect you are at the mercy of that company when it comes to getting approved in addition to what kind of rate you will get. Sometimes dealers can find other alternatives if you are not approved, but I’ve seen a few buyers just flat out denied a lease on a certain brand due to a credit score that was too low.
Now that you are armed with the knowledge of your credit and/or a loan pre-approval, it’s time to go shopping.
Most dealers will honor your request for to tell you the total price of the car. Just make sure you get it in writing. Dealers that insist on running your credit before telling you a price raise a red-flag in my book and probably should be avoided. However, if for some reason you want to do business with that store due to convenience or vehicle selection, here is how to control the conversation.
Be firm and explain that you know where your credit is and you would rather not run a credit inquiry until you know how much you are paying for the vehicle. Tell them you know your monthly budget, and you are most concerned with who is giving the most competitive price.
Also, let the salesperson know that competing dealerships have already provided you with price quotes and that if this dealership wants your business they will have to do the same. If you want to know your monthly payments, have the dealer give you an “estimate” based on the credit score you provide.
If the dealer refuses, gives you some line about how “it’s store policy” some other garbage, just take your business elsewhere.
Photo credit AP
If you have a question, a tip, or something you would like to to share about car-buying, drop me a line at AutomatchConsulting@gmail.com and be sure to include your Kinja handle.