Paul Ferraresi

The first step to getting a good deal on a new car is finding out how much the dealer paid for the car you want. New car cost guides are available in bookstores, libraries, and the internet. These will help you find the factory invoice price and the cost of various options.

When you are negotiating a price with the dealer, remember the invoice price does not represent the actual cost of the car. The dealer receives a rebate from the manufacturer for each car he or she sells, usually three to five percent of the sticker price. Depending on the time of year and the demand for the car, that rebate may be enough profit for the dealer to sell the car “at invoice.”

At other times, the dealer may add additional profit to the price of the car. With some domestic cars, you can expect to pay $200 to $500 over invoice. For a more popular model, you may pay two to three times that much.

Less than one in five people pay cash for a new car. If you are thinking about financing the new car, you may do so through an auto loan or home equity loan. Just as you want the best price on a car, you should also comparison shop for the best deal on a car loan. The ideal time to shop for a car loan is before you shop for a car.

Get your loan pre-approved before you start looking for a car. It is like shopping with cash! You can drive the car right off the lot – no more waiting for the loan to be disbursed and taking the check back to the dealer. In most cases, the loan can be approved with your present lender in a couple of days.

With the elimination of consumer interest deduction, home equity loans have become a more popular way to finance a car. Check with your tax advisor on the deductibility of home equity interest.

WHAT ABOUT “TAX SMART” LOANS?

The interest deduction on most personal loans has been eliminated. The major exception is that interest on a home equity loan is still tax deductible up to as much as $100,000, no matter how you spend the money. Although, watch out for the possible application of the Alternative Minimum Tax.

Recently, some banks began offering “tax smart” loans to give consumers back the car loan deduction. A tax smart loan combines the ease of a regular auto loan with the tax deductibility of a home equity loan. With a tax smart loan, you do not have to go through the closing procedures and expense required by a regular home equity loan. In addition, you can usually borrow up to 100 percent of the equity in your home. Unlike a regular home equity loan, the primary collateral on a tax smart loan is the automobile. To earn the tax benefit, a lien is placed on the house, too.

Tax smart loans may be smart for the bank that offers them, but they may not be such a great deal for the borrower. A tax smart loan is a safe loan for a bank to make. They get the security on your car and your house. In addition, they usually charge the same interest rate on a tax smart loan as on regular auto loans. This could be significantly more than the rate charged on a home equity loan. Not only are you tying up the equity in your car and house for this loan; the savings you realize on the tax deduction may be less than the money you save with a lower rate.

The end of a model year is a GREAT time to buy a car. The new models are out and the dealer wants to “unload” inventory. The “old” model year car still has the same warranty, new cars smell and you can save 20-40% off the original price. Remember, it is not how much money you “earn” that counts…it is how much you “keep”.

RESEARCH THE MARKET ON THE INTERNET

Many car dealers prey on unprepared purchasers – selling cars for far more then they would to an informed purchaser.

Kelley Blue Book Online (trade-in and retail)
www.kbb.com

Digital Cars
www.digitalcars.com