Armed with Consumer Reports magazine, I went shopping this summer for my first new car in 10 years. I knew exactly what I wanted: a sport sedan with a zippy engine, five-speed transmission, air conditioning and any other goodies I could get for a decent price.
I headed for a suburban strip known for its abundance of new-car lots. Three dealerships down the road, I met Tony.
He was low-key, and he immediately put me at ease. Tony said that most of the people who buCAry the car I was test-driving are women. He also mentioned that the dealership’s no-haggle, no-hassle, fixed pricing — a concept pioneered by Saturn and being copied elsewhere — appeals to women.
While we were driving and talking, Tony confided that, although his dealership has a high percentage of female customers, not all the salesmen on staff are particularly enlightened. He said he often gets into arguments with them about their dinosaur attitudes. Tony even went so far as to call himself a feminist. Even if the guy were a spectacular liar, I had to give him an A for effort. I loved the car, got a good price and liked my salesman. All that remained was the paperwork. That’s when Tony left me in the clutches of The Finance Guy.
I had decided to pick up the car and finalize the deal over my lunch hour. Lesson No. 1: Never finalize a car deal when you are in a hurry.
When I had scraped together the down payment, I crunched the numbers — based on the dealership’s 6.9 % financing — and wound up with an estimated monthly payment of $149. But when The Finance Guy calculated my payment, he came up with $166. I asked why his number differed from mine.
“Does your calculator calculate annual percentage rate?” He said this with a slightly condescending tone. I looked at my old, teensy, solar-powered calculator and suddenly got that I’m-getting-ripped-off feeling. This guy was no Tony.
The Finance Guy slid his macho calculator across the desk, pointed at a few of the kazillion keys, and rattled off a convoluted “explanation” of annual percentage rate (APR) that was about as clear as day-old coffee. I turned down life insurance, an extended warranty and a service contract. All I wanted was to get my car and get out. I did, but I still have that sinking feeling.
I’d like to spare you that feeling. So I called the bankers at Norwest Corp. and asked Jim Donohue of the consumer credit department for a simple explanation of APR financing. It turns out there is no such thing as a simple explanation. But there are some things you should know about APR.
“Most auto dealers or financing sources who quote you a payment or interest rate also include within that add-on features that you may or may not want,” Donohue says. These add-ons include credit life insurance, warrantee packages and items such as ”gap insurance” – which, if you total your car, covers the difference between your loan balance and the amount your insurance company is willing to pay you. APR, says Donohue, is a “very complicated calculation.” No kidding.
“It’s dictated by the federal government. The way we do an APR calculation, the numbers can be different depending on whether there’s an extended period until your first payment and whether there are certain charges in that first payment that are considered pre-paid finance charges,” Donohue says. In other words, APR might actually be higher than a straight interest calculation — which is why my figure didn’t match The Finance Guy’s.
“The deal is not always in the greatest English, because attorneys make lots of money writing these documents. But it’s all in the disclosure statements you get or the note you sign for the actual loan,” Donohue adds.
Make sure you’re not paying for add-ons you don’t want. While optional add-ons are not considered finance charges, they are added to your loan if you do decide to go for them, Donohue says. And be aware that when a dealership Finance Guy pulls out a macho calculator, it may be programmed to automatically calculate those add-ons. If you’ve declined these options, make sure the chap on the other side of the desk doesn’t pull a fast one on you.
“If you’re not comfortable, ask the question. And keep asking the question until you get an answer that makes sense to you,” Donahue advises. Even if it eats up more than a lunch hour.