As Jalopnik’s resident car buying expert and professional car shopper, I get emails. Lots of emails. I’ve decided to pick a few questions and try to help out. This week we are talking about “approved dealers” from banks, getting out of a lease you don’t like, and how the tax credit savings is applied for an EV.
First up, why do certain banks and credit unions have “preferred dealers”?
“I’m shopping for a used car and I went to my credit union to get pre-approved for a loan. When I submitted the application, the bank rep said they have a list of dealers that I can buy from if I want to use this money. The list is pretty long and includes pretty much all the big-name franchised dealers in the area, but why does a bank do this? I thought the purpose of getting CU financing is so you can buy from wherever you want? I asked them what would happen if I didn’t buy from the list or bought a car from a private party and they didn’t provide a clear answer.”
Local credit unions will partner with local dealers for a few reasons, the first is they are usually acting as a referral service to the dealers and may even be getting some kind of kickback for sending a customer to a specific dealer. While I understand that everyone needs to make money, this practice on the part of credit unions can be a bit shady since they may be pushing a customer to a specific dealer that may not have the buyer’s best interest in mind. What you should keep in mind is that you still need to be vigilant about going to the dealers on the “approved” list and get all prices in writing. As always, make sure you get an independent inspection before buying
A less sinister reason a credit union or other local banks may partner with dealers is to make the transaction easier. Often there is a system in place for the CU and the dealer’s finance office to communicate quickly and easily, allowing the car to get paid for without a lot of back and forth or additional paperwork.
Next up, what do you do if you have a lease you don’t really like -
“I am leasing a Hyundai Tucson, and am happy with it, but in retrospect, I don’t think I got a very good deal (I have good credit, but it was my first lease and I don’t feel I negotiated as well as I should have). It has just over a year left on the lease—are there any good ways to get out of it at this point? Ones that won’t cost a small fortune? I would consider buying it outright to sell (I have used only around half of my allocated miles and it’s in great shape), but am ultimately hoping to get in a similar car with a lower payment.”
Getting out of a lease early is often expensive. The leasing company wants all those payments one way or the other. You can pay them over time, or you can pay them in one big lump. However, given that you are way under miles, you might be in good shape. Here is what you do: get a payoff amount from the lease company—the total that you will owe which is a combination of the residual value plus the total of the remaining payments—and take the car to a local dealer or CarMax to see what your trade-in value would be. If the trade-in value is equal to, or greater than your payoff amount you can look into another car.
However, what usually happens for most people is that the trade-in value is a bit lower than the payoff amount putting them in an “underwater” situation. You’d either have to bring some money to the table to cover the difference or roll that negative equity into another loan or lease. You really want to avoid either of those options. If it turns out that your trade value .vs your payoff is not equal or that you have positive equity it would be best to ride it out a bit longer and revisit this once you are closer to the end of your lease.
Finally, when you buy an EV how when does the tax credit come into play?
We are planning on buying a 2020 Kia Soul EV when it finally comes to the US. As we are looking at financing and car payments, we don’t have any clear clue as to how the federal tax credits are applied to the purchase of the vehicle. Are the credits factored into the sale price thereby reducing the transaction price of the car and our monthly payments, or do we just get the money back at the end of the year in our federal income tax filing? In our state, we stand to get $7,500 for the federal tax credit and another $3,750 from the state, so it’s not an insignificant amount of money we are talking about, especially when it comes to financing and choosing which trim level we’ll want. Also, is there a standard way this is handled across all makes and models or does it vary?”
One of the most common misconceptions about EVs is how the tax credit impacts the price of the vehicle. If you are buying the car, those tax credits don’t come back to you until you file your taxes; they will not reduce the loan balance of the vehicle when you sign the papers. For example, if you were to buy a $40,000 EV and qualify for $11,250 in tax credits, your loan and the payment schedule is still going to be for a $40,000 car and, after your taxes are filed the fed and the state, you’ll get check for the credits you qualify for. Therefore, if these credits are determining which car is “affordable” from a payment perspective, and you want lower payments to reflect those credits, you would essentially have to bring that amount of money to the table and wait until the government reimburses you.
However, if you leased that car the tax credits come off the sale price, because you are not technically the owner of the vehicle, the leasing company is. This arrangement and the fact that EVs change so fast, is one of the reasons why they are often leased instead of purchased.
Got a car buying conundrum that you need some assistance with? Email me at firstname.lastname@example.org!