Would You Please Write a Blank Check to Buy This Car?
George Boelcke FCI
June 08, 2007
Sooner or later, all of us end up on a car lot looking to replace the vehicle we’re now driving – or just to buy a new car.
One of the most innocent first questions from the salesperson is generally: “what kind of payment are you looking for?” What answer would you give? Maybe $400 a month? “OK – up to what”?...
Without much thinking most people would give the sales person a payment they have in mind. We believe that it’s a positive to have the sales person know right up front what budget we’re working with, right? The second question of “up to what?” is a really great sales technique to immediately bump up your budget. In this example, maybe we volunteered $400 a month – and when promoted might say: up to - maybe $450.
But what if I asked you to give me a blank check to buy the car? How would you respond? You’d tell me to drop dead, wouldn’t you? Yet, I would suggest that offering a payment up front with no context is like offering the sales person a blank check!
Here’s what I mean: Watch more and more car ads, or an A&E show called The King of Cars. You’ll find that you’ll hear less and less discussions (often none) about price, but more and more about the monthly payments. We’ve become totally conditioned to talk only about payments that fit our already stretched budget, while never even considering the total price of what we might spend!
Yet when the sales person talks about payments, you don’t have a clue if they’re talking about a three, four or five year lease. You don’t know if it’s a balloon contract over five or six years and then a big buyout, or whether it’s a four, five, six or even seven year finance contract, do you? And answering the monthly payment question up front makes it clear that you likely don’t really care about all those details - just the payment. How often is it a mindset of not caring how the dealer gets there - just get to the payment I can afford?
In our example of $400 a month, the difference between four year financing and seven years is over $14,000 in the total you’ll pay. Never mind what a lease will do if stretched by number of years. Not to mention that when we volunteered another “up to” $50 more – over seven years, that’s another $4,200 in debt we’ve just bumped our budget by.
Monthly payments are always a direct result of the price, tax and interest, less the down payment and/or trade-in. Be really really careful when you volunteer to negotiate backwards from the payments. You don’t have the fancy computer or calculator with you and you’re not in the car business. It’s very possible (OK, likely) that you’ll be the big loser in negotiatimg this way.
When someone tells me their car payment is “only” $400 a month, that figure is as useless as the hype of “no down payment.” No money down and purely negotiating on a payment make things worse and not better. Both give you the biggest amount of debt for the longest time – and both are a recipe for future financial problems - sooner or later.
But then, it’s the North American way of debt: Spending a ton of money we don’t have on things we don’t need to impress people we don’t like. And we wonder why almost 50 percent of people owe more than their car is worth when they trade it in? Hello?
One of the most innocent first questions from the salesperson is generally: “what kind of payment are you looking for?” What answer would you give? Maybe $400 a month? “OK – up to what”?...
Without much thinking most people would give the sales person a payment they have in mind. We believe that it’s a positive to have the sales person know right up front what budget we’re working with, right? The second question of “up to what?” is a really great sales technique to immediately bump up your budget. In this example, maybe we volunteered $400 a month – and when promoted might say: up to - maybe $450.
But what if I asked you to give me a blank check to buy the car? How would you respond? You’d tell me to drop dead, wouldn’t you? Yet, I would suggest that offering a payment up front with no context is like offering the sales person a blank check!
Here’s what I mean: Watch more and more car ads, or an A&E show called The King of Cars. You’ll find that you’ll hear less and less discussions (often none) about price, but more and more about the monthly payments. We’ve become totally conditioned to talk only about payments that fit our already stretched budget, while never even considering the total price of what we might spend!
Yet when the sales person talks about payments, you don’t have a clue if they’re talking about a three, four or five year lease. You don’t know if it’s a balloon contract over five or six years and then a big buyout, or whether it’s a four, five, six or even seven year finance contract, do you? And answering the monthly payment question up front makes it clear that you likely don’t really care about all those details - just the payment. How often is it a mindset of not caring how the dealer gets there - just get to the payment I can afford?
In our example of $400 a month, the difference between four year financing and seven years is over $14,000 in the total you’ll pay. Never mind what a lease will do if stretched by number of years. Not to mention that when we volunteered another “up to” $50 more – over seven years, that’s another $4,200 in debt we’ve just bumped our budget by.
Monthly payments are always a direct result of the price, tax and interest, less the down payment and/or trade-in. Be really really careful when you volunteer to negotiate backwards from the payments. You don’t have the fancy computer or calculator with you and you’re not in the car business. It’s very possible (OK, likely) that you’ll be the big loser in negotiatimg this way.
When someone tells me their car payment is “only” $400 a month, that figure is as useless as the hype of “no down payment.” No money down and purely negotiating on a payment make things worse and not better. Both give you the biggest amount of debt for the longest time – and both are a recipe for future financial problems - sooner or later.
But then, it’s the North American way of debt: Spending a ton of money we don’t have on things we don’t need to impress people we don’t like. And we wonder why almost 50 percent of people owe more than their car is worth when they trade it in? Hello?
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