Car Buying Myths

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You Can't Return a Car Once you Buy it

Well, sometimes you can. There is no Federal law that allows you to return a vehicle if you later decide you don't like it.

However, many car dealerships will allow you to return a car within an allotted time after purchase. If you get a new car home and have "buyer's remorse" it is best to call the dealership or return the car immediately to the dealership to see if they have a "grace period". In some cases, you can return the car within a certain number of days after purchase. Keep in mind that you may have to pay a "restocking fee." 
It is more likely that the dealership will work with you if you have decided that the vehicle is a bad fit and you are interested in swapping the car for another vehicle on the lot. That way, the dealership is not losing you as a customer. This is called a vehicle exchange, and most dealerships will work with you to make sure you get the right vehicle for your needs. The Federal "cooling off" law gives consumers three days to cancel certain sales for a full refund. However, it does not apply to new car sales. Remember that the dealership is under no obligation to take the car back and issue you a refund or exchange the vehicle for another one. 

Credit Pulls Hurt Your Scores

This is completely false. Automobile salespeople hear this from customers every single day. "If you do a credit pull to see if I am eligible to buy a new car, it will negatively impact my credit score." That is simply not true. FICO, the company that actually compiles your credit score uses a number of different parameters in figuring out your current score. The single most influential segment of your score involves your payment history. This amounts to 35 percent of your score. This comes down to paying your minimum payment on time every month without missing a payment.
The next highest segment of your score evaluation involves the total amount you owe including all your credit cards, your rent or house payment, other vehicle payments, etc. Add what you owe all together and that amounts to 30 percent of your score. Your credit history amounts to 15 percent. This shows how well you have paid off creditors in the past. Another ten percent is evaluated by your credit mix. Who do you owe money to and for what kinds of items? The last ten percent involves new credit. Do you have new credit cards or loans that are outstanding?

Add all these factors together and you get 100 percent of your credit score and how you are rated. You will notice that nowhere on the list will you find "credit inquiries". The fact is that the law was changed back on October 26, 1970.
According to the Bureau of Justice, the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., governs access to consumer credit report records and promotes accuracy, fairness, and the privacy of personal information assembled by Credit Reporting Agencies. 

Congress amended the FCRA once passing the Fair and Accurate Credit Transactions Act of 2003. This created new responsibilities for consumer reporting agencies and continued many new consumer disclosure requirements and provisions for identity theft. Pulling your credit for a car loan will not affect your credit score.
Buying from the Manufacturer Saves You Money.
This is false. Some people believe that buying a car directly from the automaker will save them money, cutting out the middleman in the form of a car dealership. Manufacturers set prices (the MSRP) in order to maintain profit margins. The fact is that car dealers help regulate prices lower through competition, also lowering prices through incentives and negotiations. Dealerships offer perks such as finance options and trade-ins as well as service options that you won't get by buying direct.

What if you have a car to trade in? The automaker doesn't want your old car and isn't set up to offer you the most money for it anyway. Look at Tesla. If they buy your used car, they sell it directly at auction, giving you the lowest possible price for your trade-in.

You may get more money for your old car if you sell it yourself but will likely lose your tax credit on the vehicle. Plus, you will put in a lot of time and effort to sell a car yourself. You have to handle repairs to the vehicle, have it serviced and detailed, take photos of it for your advertisement, and handle test drives. Does the prospective buyer have insurance if they crash your car during the test drive? How will you get paid for the vehicle? It is all a big hassle and a waste of your time and money because dealerships need your used car and are paying more to get them today.

Lastly, the car manufacturer will be very picky about how your new car is financed, often wanting you to deal through the automaker's bank (which may not offer you the best rates) or send cash through a wire transfer. At the end of the day, buying direct may end up costing you more money than it is worth.

You Can Save by Buying at the End of the Month

This is sometimes true. There is an old notion that dealerships will give you a better deal at the end of the month in order to meet certain sales quotas or that automakers give dealers "fast start bonuses" at the beginning of the month. This is based on sales benchmarks to get a certain amount of car sales. For instance, a dealer might set a target of 20 car sales within the first month of a quarter. Salespeople who meet the target get a $500 bonus, or a spiff for each vehicle sold over the target.

Dealerships often schedule certain car buying incentives that end toward the end of the month to promote more sales. These incentives generally save you $500 off the sticker price. Research special promotions at the dealership you are working with. Automakers spend a lot of money to provide incentives to dealerships so rather than think that the end of the month is the best time to buy, the actual best time to buy is when you can get the most factory incentives towards the purchase of your new car. A smart dealership will work with you to make sure you get the best deal possible.

Getting pre-approved is Best

Not always. Many people tell you that getting a pre-approved car loan is best before you visit a dealership. Before you get pre-approved, check the loan to value ratio to make sure the loan will work for you. This is the amount of your loan divided by the vehicle' actual cash value. Lenders use this formula when deciding whether or not you can get a car loan. The higher the percentage of the vehicle's value that you are borrowing, the riskier the loan is to the lender.
You can lower the loan to value ratio by increasing your down payment by adding cash up front or by trading in your old car to the dealership. This will reduce the size of your loan as well as how much interest you will pay over the life of the loan. 

Getting pre-approved at a bank for a car loan can help you get the best interest rates but be sure to ask your bank what their underwriting guidelines are. They may have a number of restrictions that make it difficult for you. These might include restrictions on where the dealership is located, the year of the car you are buying, and so forth. Do your research with the bank you choose before getting a pre-approved car loan.
Let Lithia Help
Car buying is an ever-changing landscape and Lithia Motors has been getting our customers great deals of new, used, or leased vehicles for over 75 years. With over 300 dealerships from coast to coast, let us help get you into the car of your dreams.