One of the more confusing aspects of a new car deal is when rebates and financing specials are involved. One path may be more advantageous than the other and, if you don’t have a game plan before you arrive at the dealership, you may not end up with as good of a deal as you expected.
A reader sent me a rundown of his recent experience purchasing a Hyundai and it illustrates how numbers can get blurry real fast when you are in the middle of a car purchase.
“About 2.5 months ago my wife and I went to the car dealership to purchase a 2019 Santa Fe.
After agreeing to that price, we looking into our financing options. The original signed form was based on a 3.9% loan and $2000 off the overall price from Hyundai. Well, Hyundai was offering an alternative: 0% financing and $1250 off the overall price. Our salesperson comes back with a sheet comparing our two options and they are within a couple of dollars per month on a monthly payment. We opted to go with the 0% option.
When we got home I figured I should backcheck the dealership’s numbers. The final sales price of the car should have gone up $750 from our original signed form to our final one (the difference between $2000 off from Hyundai and $1250 off from Hyundai). In fact, it increased by $1400. I have reached out to the dealer many times to see if they had an explanation for the discrepancy and they have refused to acknowledge it.”
In the scheme of bad deals, getting hosed for $650 on a new Hyundai isn’t the worst thing in the world, but it still doesn’t make a buyer feel good about their purchase. But there are a few tips we can learn from this: First, never sign a sales contract until you have checked the math yourself. After the marathon of negotiating, you just want to get your new car and call it a day. Dealerships that are more about making a profit than having a happy customer know this and will often alter the numbers in a way so the deal isn’t quite as good as it should be. Your handy calculator is your first and last line of defense against this tactic.
What I recommend is to have all the numbers in order before you even walk through the door. By using the manufacturer websites and looking up the current specials for the month you can determine which rebate/financing program is better for you.
For example, currently, on Hyundai’s website, the company is advertising a $2,500 rebate and a 1.9 percent finance special on the 2019 Santa Fe. This is a little different than the situation above, but these programs change every month. Regardless, we can still look at the differences between these two options.
Hyundai says you cannot combine the $2,500 off with the 1.9 perce t APR. If you take the low rate you only get a $500 rebate. Even before we factor in dealer discounts, taxes, and fees you can figure out which option will likely be cheaper.
Let’s say you wanted to get a 2019 Santa Fe Limited AWD with an MSRP of $35,545 and you plan on financing this purchase for 60 months. This is where those handy loan calculators are really useful.
Option 1 is the $2,500 rebate, but you will likely get a higher APR. The market average right now is about four percent for a new car (of course you may do better), $35,545 - $2,500 = $33,045 . At four percent APR over 60 months the payment is $609 per month.
Option 2 is the 1.9 percent APR + $500 off the sale price. That works out to $35,545 - $500 = $35,045. At 1.9 percent APR over 60 months and the payment is $613.
Due to the differences in APR and rebates in this case the better play is the larger rebate and the higher loan. Where in the reader’s case it was more advantageous to take the 0 percent loan and the slightly smaller rebate. Because the programs change month to month and vary from region to region, it’s always smart to consult the automaker’s websites to see what’s applicable for you.
When you run the options ahead of time, you can solicit quotes from dealers based on the financing strategy you intend to take. That way you are comparing apples-to-apples quotes on the same car with the same rebate structure. The objective is to have the numbers all worked out in writing prior to going in and signing papers. This will reduce the likelihood of the dealer will get funny with the math., but never close a deal until you are comfortable with the numbers.