Advertiser Disclosure

Auto Loan

Why You Shouldn’t Take Out an 84-Month Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Part I: The Truth About Long Term Auto Loans

When poor credit and high monthly payments are keeping you from buying the car you need, it may be tempting to lower your payments by signing up for a 72-, 84- or even 96-month term loan. Before you do, it’s important to know exactly what you’re signing up for — and be sure you’re making the right move for your finances.

Lower car payments with longer terms mean you’re paying more in interest, and loan companies love this for obvious reasons. Evidently, consumers do, too. In the first quarter of 2017, new car loans with terms from 73 to 84 months represented 34.9 percent of all auto financing. For used cars, they represented 19.5 percent.

Most of the big dealerships offer 84-month financing through banks like Ally Financial or Santander. Local dealers are also known to offer longer term financing offers, typically through third party financing companies, credit unions, or insurers like Nationwide.

Let’s take a look at what you’re getting into when you choose a longer term on your auto loan…

Note: These numbers don’t include tax, title, or registration, which will only increase the amount of interest you pay if you include those costs in the total amount you borrow. These numbers also don’t include any down payment or trade-in you may have, which will decrease the amount of the loan and the amount of interest paid.

5 reasons long auto loan terms are a bad idea

  1. More interest. As you saw in the example above, you’re going to pay a lot more interest on a car loan with a longer term. If you spend more than those average amounts on a new or used car, the amount of interest you pay is only going to go up.
  2. Your loan will outlast your warranty. Most manufacturer’s warranties last 3 to 5 years, so you’ll be paying on your loan for an additional 2 to 4 years after the warranty runs out. Which leads to…
  3. New car payment, old car repair costs. Think about this. You’re going to be making your car payment for the next seven years. With a shorter term, you’d have paid off your vehicle before you started paying for costly repairs. But with an 84-month loan, you’re going to be paying both your monthly loan and the inevitable repair costs that come with an older vehicle.
  4. Negative equity. Stretching out a car loan over time means you’re paying less on the principal and more in interest with each payment. As your vehicle continues to decline in value each year, you’ll continue to be upside-down on your loan unless you made a significant down payment.
  5. Unable to refinance. If you’re upside-down on your loan, meaning you owe more on your loan than the vehicle is worth, you’ll be unable to refinance your loan.

When it makes sense to get an 84-month auto loan

  • You absolutely can’t afford a car any other way. This is probably the number one reason why people choose longer terms on their auto loan. An 84-month auto loan will lower your monthly payment, allowing you to purchase that vehicle that otherwise would be just out of reach. However, you should consider whether you’re borrowing too much if you can’t afford the monthly payment on a shorter term loan. Can you compromise by buying a used car at a lower price point? Or, could you scrounge up more money for a larger down payment to reduce the amount you need to borrow?
  • You have higher interest debt to worry about. If you have other loans at a higher interest rate, it may make sense to get a lower monthly loan payment so you can free up capital each month. That way, you can use the extra money you’re saving to pay down higher interest loans.

How to make the most of a long-term loan

  • Compare rates. Companies like LendingTree and MagnifyMoney allow you to compare auto loan rates from multiple lenders. So you can make sure you’re getting the best deal and a low APR. (Disclosure: LendingTree is the parent company of MagnifyMoney)
  • Buy now, refinance later. If you’re absolutely bent on getting a certain car now, you can always choose to refinance down the road, when your financial situation improves.
  • Make a larger down payment. Getting out of a bad car loan can be difficult when you’re upside-down. By putting more down on your vehicle up front, you’ll prevent this from happening while saving money in interest and avoiding gap insurance.
  • Buy used. The average used car payment is $145 less than the average new car payment, according to Experian, so save yourself some money with a more affordable monthly payment by buying a used vehicle.

5 tips to lower your costs of borrowing

  1. Keep your car after it’s paid off. Once your car is paid off, keep it — especially if it’s reliable and gets good gas mileage.
  2. Make an extra payment each month. By paying an extra $100 per month, you could save $1,819 in interest and own your car in a little over five years when you buy a $30,534 new car with an 84-month loan. When it comes to that $19,126 used car, you’d save $1,598 in interest and pay it off in under five years.
  3. Compare rates. Shop around for the best rates, and get multiple offers from lenders to compare. A difference of 3 percent on your interest rate could save you $3,689 on that 84-month new car loan of $30,534 and $2424 on that $19,126 used car.
  4. Buy used. With used car payments an average of $145 less than new, you’ll save a lot when you buy used over new.
  5. Don’t finance extras. Pay up front for your license, tax, and registration. If you purchase an extended warranty or prepaid maintenance package, don’t finance those into your loan either.

Part II: Understanding the Auto Loan Process

84-month auto loan
Source: iStock

Most people do it backward — they go shopping for a car first, then shop for a loan. When you do this, you’re making yourself vulnerable to high-pressure sales associates and putting yourself at a disadvantage when it comes to financing your vehicle.

When you get pre-approved for auto loans before heading to a dealership, you have an understanding of how much money you can qualify for, so you’re not shopping for vehicles that are too expensive. You also have a loan amount and interest rate to compare any other financing that’s offered to you.

How to get pre-approved for an auto loan

You can get pre-approved with a bank, credit union, auto finance company, or dealership finance center.

  1. Research rates online. Many sites, like MagnifyMoney’s parent company Lendingtree.com, will offer auto loan rates online. It’s a good idea to check them out so you have an idea of what’s being offered. Keep in mind that your creditworthiness will affect the rates you’re able to qualify for, and the credit score for an auto loan is a little different from other loans.
  2. Gather your documents. Get everything you need together before calling or taking a visit to your lender. This may include:
    1. Personal information, like your name, address, phone number, and Social Security number.
    2. Employment information, like your employer’s name and address, your title and your salary
    3. Financial information, including what kind of credit you have available now, your current debts and your credit score.
  3. Apply. Choose a few lenders and apply online or in person for your auto loan.
  4. Get a quote. Once you’ve completed the loan application and you’ve been pre-approved, you’ll receive a loan quote showing how much you qualify for, the interest rate and the length of the loan. You can take this to the dealership with you when you’re shopping and use it as a negotiating tool.

For more information on your loan choices, check out these resources:

Getting a cosigner for an auto loan

Having a co-signer can help you qualify for a loan you wouldn’t otherwise get. As long as the co-signer has a strong credit score, it’s likely you’ll qualify for a better interest rate using a co-signer too. And making on-time payments on this type of loan will help build your credit.

The drawbacks of having a co-signer are that the cosigner is responsible for the loan if you fail to pay. If this happens, chances are you’ll negatively affect your relationship with whoever cosigned for you. If that’s a friend or family member, (which it usually is) look out! Think twice about the responsibilities of having a co-signer, and the importance of paying back the loan, so you don’t leave your cosigner on the hook for money you borrowed.

Understanding your auto loan contract

Here are some key terms you’ll need to know when it comes time to signing a contract.

  • Sticker Price – A manufacturer’s suggested retail price that is printed on a sticker and affixed to a new automobile
  • Purchase Price – This may be less than the sticker price, and is the price you agree to purchase the vehicle for from the dealer.
  • Amount Financed – This is how much money you are borrowing and the amount you’ll pay interest on. Be careful about financing extras into your loan, as doing so may put you upside-down in the vehicle.
  • Down Payment – An amount of cash provided at the time of vehicle purchase and credited toward the purchase price of the vehicle to reduce the amount financed.
  • Interest Rate – The amount of money charged for loaning money, expressed as a percentage of the Amount Financed.
  • Fixed-Rate Financing – With a fixed rate, your interest rate will never change and you’ll always pay the same amount each month.
  • Variable Rate Financing – A variable interest rate is subject to change and may increase your monthly payment amount.
  • Monthly Payment Amount – This is how much you’ll pay each month.
  • Finance Charge – This is a fee, charged by the lender, for extending you credit.
  • Annual Percentage Rate (APR)APR includes both the interest and fees expressed as a percentage, making it easier for you to compare multiple loan offers.
  • Term — This is the length of the loan expressed in months, usually 36, 48, or 60.
  • Extended Warranty Contract – An extended warranty covers the vehicle beyond the manufacturer’s warranty for a fee.
  • Guaranteed Auto Protection (GAP) – If you owe more than the car is worth, you’ll be offered GAP insurance, which will cover the difference if the vehicle is lost, stolen, or totaled.
  • DMV Fees – These may include title, license, and registration.
  • Title — The legal document proving ownership of a vehicle.

Auto loan contract traps

Here are few traps dealers can use against you. Know them so you can protect yourself and avoid getting ripped off

  • Rate mark ups. Your dealer is getting financing from a bank, and they mark up the rate, charging you an extra percentage or two when you could have just gone directly to the bank in the first place.
  • Yo-yo financing. The dealer says you’re approved and you drive away. Later, the dealer says you were denied, and asks for a larger down payment or increases the interest rate. If you refuse, you must return the vehicle, and the dealer may try to keep any deposit you made.
  • Falsified credit application. Sometimes dealers will falsify information on your credit application, like increasing your income, to help you qualify for a vehicle you wouldn’t otherwise qualify for. Be sure to check your credit application before signing.
  • Selling extras. Whether it’s GAP insurance, prepaid maintenance, or extended warranties, the dealership is going to try to upsell you on some extras to rack up the charges and, if you agree to roll it into your financing, increase the amount of interest you pay. Be careful when selecting these extras and make sure you understand what you’re getting and know it’s worth the expense.
  • Negative equity financing. If you owe more on your trade-in vehicle than it’s worth, dealers will try to offer you a deal where you roll the negative equity into your new auto loan.
  • Extra charges. Look over your contract for any extra charges. One way to spot these is if they’re pre-printed on the contract. Many of these charges are not required and can be negotiated down.

Using an auto loan to improve your credit

If you’re working toward improving your credit, there are two rules you must follow. And while going from good to excellent isn’t easy, there are a few ways your auto loan can help you improve your score.

  • Payment history. On-time payments are 35 percent of your FICO score, so paying your auto loan on time will help with your payment history.
  • Credit mix. Because having a mix of different types of credit (home loans, personal loans, credit cards) makes up 10 percent of your FICO, throwing an auto loan in there will certainly improve your mix.
  • Report to credit bureaus. Make sure the lender you’re working with reports your payments to the three major credit bureaus. Beware of “Buy here, pay here” dealerships who may or may not report your payments to the credit bureaus.

And if you want to prevent your credit from getting worse, make sure you don’t do any of the following:

  • Make late payments on your auto loan.
  • Stop making payments and get sent to collections or have your car repossessed.
  • Include your car loan in your bankruptcy (if applicable).

When it makes sense to lease vs. buy a car

If you’re taking out a longer term loan in order to lower the monthly payment, you may want to consider leasing as an option. There are some things you should know before leasing a car, especially if you’re comparing leasing to buying. And while leasing isn’t for everyone, it can be a viable alternative to taking out an 84-month lease. in fact, according to Experian data, the number of people taking out a lease continues to increase.

“Another reason why we see consumers increasingly choose to lease, is they’re generating around $100 lower payment. And the biggest difference is in non-prime, [where there’s a] $109 difference between a loan and a lease,” says Melinda Zabritski, senior director of sales at Experian.

The Pros and Cons of Leasing a Car

Pros:

  • Lower monthly payment. The payment to lease is an average of $100 less than buying according to Experian’s 2017 report.
  • Warranty coverage. The average lease lasts 36 months and during that time, you’ll have full warranty coverage for anything that goes wrong with the vehicle.

Cons:

  • Mileage penalties. Most leases have a limit on how many miles you can drive (10,000 per year for an average lease), and you’ll pay for additional miles you drive unless you secure an extra-mileage or unlimited-mileage lease upfront.
  • Wear-and-tear fees. Nicks, scratches, stains — they all amount to extra wear and tear on your leased vehicle, and you’ll pay for them at the end of your lease. So if you’re hard on your vehicles, buying may save you some money here.

The Pros and Cons of Buying a Car

Pros:

  • Ownership. Once you’ve paid off your loan, the vehicle is yours.
  • No mileage penalties. Drive as much as you like, you won’t pay a dime for “extra” miles you drive like you would with a lease.

Cons:

  • Maintenance and repairs. With ownership comes responsibility. In addition to being responsible for the maintenance, once the manufacturer’s warranty expires, you’ll be responsible for all any repair costs needed. That’s why some people consider buying an extended warranty.
  • Loss of value. Although you won’t pay fees for wear and tear, or extra miles you put on the car, those things will still lower the value of the vehicle when it comes time to sell it. And every year you own it, the value of the vehicle is likely to continue to decrease.

The Bottom Line: Is an 84-month auto loan ever a good idea?

In our opinion, no. Most people make the choice to take out a longer term auto loan in order to lower their monthly payments to afford the car they want. ‘Want’ being the operative word here. Chances are, you can purchase a less expensive car that would give you the same monthly payment. Although it’s difficult, putting your emotions aside can really help you make a financially sound decision when it comes to choosing the terms of your auto loan. If you know this is an area where you struggle, ask for help from a friend or family member who can be the voice of reason.

If you do choose to go with an 84-month auto loan, just understand that you’ll be paying more interest on your loan. And hopefully, you have a good job for the next seven years to help you pay for it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Ralph Miller
Ralph Miller |

Ralph Miller is a writer at MagnifyMoney. You can email Ralph here

Advertiser Disclosure

Auto Loan

Navy Federal Credit Union Auto Loan Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Getty Images

If you are shopping for an auto loan, it’s helpful to get quotes from multiple lenders to ensure you receive the lowest possible interest rate and most favorable terms. For members of the military and their families, Navy Federal Credit Union could be an option.

Here’s what we found out about Navy Federal Credit Union and its auto loans.

About Navy Federal Credit Union

Navy Federal Credit Union, which was founded in 1933 and is headquartered in Vienna, Va., serves the military community. Its “once a member, always a member” policy means that you can continue to use the credit union if you or your family member leaves the military.

The following groups are eligible for membership:

  • Active-duty members of the Air Force, Air National Guard, Army, Coast Guard, Marine Corps and Navy
  • Delayed Entry Program (DEP) enlistees
  • Department of Defense officer candidates/ROTC participants
  • Department of Defense reservists
  • Veterans, retirees and annuitants

Parents, grandparents, spouses, siblings, children and grandchildren in a military family are also eligible, as are household members. Department of Defense civilian employees can become members, too.

Consumer Financial Protection Bureau action against credit union

It’s important to note that in 2016 the credit union was ordered by the Consumer Financial Protection Bureau, or CFPB, to pay $28.5 million after an investigation found that, among other things, it was improperly restricting account access for members with delinquent loans. The CFPB accused the credit union of making false threats of legal action and wage garnishment, threatening to contact delinquent members’ commanding officers and lying about the consequences of falling behind on loan payments. Of that total, $23 million would go to victims who received threatening letters. The credit union was required to correct its debt collection practices.

Navy Federal Credit Union: At a glance

When shopping for an auto loan, it’s crucial to get several quotes, no matter your credit score. If you have an array of loan options, you’ll have more negotiating power with a dealership.

APRs

APRs for Navy Federal Credit Union auto loans, which are based on creditworthiness, currently start at 2.99%.

Here’s a breakdown of APRs based on the type of vehicle:

  • New vehicles: 2.99% to 6.29% for loan terms between up to 36 months and 96 months
  • Late-model used vehicles: 3.29%* to 4.79%* for loan terms between up to 36 months and 72 months
  • Used vehicles: 4.99% to 6.29% for loan terms between up to 36 months and 72 months

Used vehicles older than 20 years are paid back at a collateral loan APR, which can be between 8.09%* and 8.9%* for loan terms between up to 60 months and 180 months. Preapproval isn’t available for this type of loan.

Your rate could be higher, depending on your credit profile and the value of the vehicle.

Active-duty and retired military members may be eligible for an additional discount with direct deposit to a Navy Federal Credit Union account. To get the discount, call or visit the credit union.

Vehicle requirements

Navy Federal Credit Union has specific vehicle requirements for its auto loans. For new vehicles, the minimum loan amount is $30,000 if seeking a term of 85 to 96 months. Used vehicles are 2017 models or older, or any model year with more than 30,000 miles. Late-model used vehicles can be model years 2018 to 2020 with 7,500 to 30,000 miles.

Boat, motorcycle and RV loans

The credit union also offers new and used boat, motorcycle and recreational vehicle (RV) loans. These loans only apply to recreational vehicles, so full-time RVs aren’t eligible. Here’s a breakdown of APRs based on the type of vehicle:

  • New boats: 6.05%* to 8.75%* for loan terms between up to 36 months and 180 months
  • Used boats: 8.05%* to 9.2%* for loan terms between up to 36 months and 180 months
  • New motorcycles: 7.25%* to 8.6%* for loan terms between up to 36 months and 84 months
  • Used motorcycles: 8.09%* to 9.35%* for loan terms between up to 36 months and 72 months
  • RVs (collateral loans): 8.09%* to 8.9%* for loan terms between up to 60 months and 180 months

These rates are based on creditworthiness, so your rate may be higher.

As with auto loans, there are specific requirements when it comes to boats, motorcycles and RVs. Check with the credit union for details.

Refinancing

Navy Federal Credit Union also offers auto loan refinancing.

Here’s a breakdown of APRs based on the type of vehicle:

  • New vehicles: 2.99% to 6.29% for loan terms between up to 36 months and 96 months
  • Late-model used vehicles: 3.29%* to 4.79%* for loan terms between up to 36 months and 72 months
  • Used vehicles: 4.99% to 6.29% for loan terms between up to 36 months and 12 months

Members may be eligible for $200 cash back 61 to 65 days after completing their first scheduled payment when refinancing from another lender.

A closer look at Navy Federal Credit Union auto loans

Highlights of Navy Federal Credit Union auto loans

A down payment isn’t required to get a Navy Federal Credit Union auto loan, but making one could improve your loan-to-value ratio, which could boost your chances of getting approved.

If you have a limited credit history, you may still get approved with a co-applicant.

You could get a decision about your application in just a few minutes. The credit union offers preapprovals, so you know how much money you can spend on your vehicle before you start shopping. If you get preapproved, your rate will be locked for 60 days.

The credit union offers an auto buying program, through a nationwide network of dealers, as a straightforward way to buy a new or used car. You can even get special military prices if members need to buy a new car while overseas.

You can get optional guaranteed asset protection (GAP) insurance for existing or new auto loans through the credit union. It also offers some discounts on GEICO auto insurance, depending on your state of residence.

Lowlights of Navy Federal Credit Union auto loan

If you don’t have ties to the military, you won’t be able to access Navy Federal Credit Union’s services, including its auto loans.

If you are approved for an auto loan, you must either pick up your check in person at a branch or receive it via mail. There may be a fee associated with mailed loan checks. If you had a co-applicant with a different mailing address, the check and promissory note will be sent to them. Some applicants may find this inconvenient, especially if their co-applicant lives far away.

On the credit union’s website, minimum interest rates are noted in detail for used vehicles, new vehicles, boats, RVs and motorcycles. The website, however, doesn’t note its maximum interest rates or discuss specific credit requirements for auto loan approval. The credit union did not respond to emails requesting this information.

How to apply for a Navy Federal Credit Union auto loan

To apply for an auto loan from Navy Federal Credit Union, you’ll first need to become a member. You can apply at a branch or online, and you won’t be charged an application fee.

Make sure to gather contact information for both you and your co-applicant, if you have one. If you’ve picked out the vehicle you want, you’ll need its 17-character vehicle identification number (VIN), the state where it will be registered, the dealer or seller’s name and the mileage reading on the odometer.

If you don’t have a specific vehicle in mind, you’ll need an estimate of the type, age and price of the vehicle you want to buy, including the warranty, title, tax and license fees minus the down payment. You’ll also need to know about how long of a loan term you’d prefer.

The credit union requires personal information, including employment and income details for both you and your potential co-applicant. It’ll ask for your current housing information, too. The credit union already has identity information about its members, and it’ll base its decision on your credit history, the amount of money you want to borrow and the value of your collateral.

You’ll receive a text or email from the credit union to let you know whether it approved your application. Most applicants get a decision in about five minutes.

The fine print

Navy Federal Credit Union’s website doesn’t indicate whether it charges any additional fees for auto loan borrowers. The only fee mentioned is the one that the credit union may charge to mail a physical check to an applicant or co-applicant, as mentioned above.

Who is a Navy Federal Credit Union auto loan best for?

The credit union is a great option for people with ties to the military who want to work with a credit union that has friendly policies and decent interest rates.

Like many credit unions, this one offers competitive interest rates for those with good credit. Even if you are already a member and know you’ll apply for an auto loan with this lender, it’s still important to shop around for the best rates so you can be sure you are paying the lowest possible amount for access to the money you need to buy a car.

*Rate accurate as of August 22, 2019

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rachel Morey
Rachel Morey |

Rachel Morey is a writer at MagnifyMoney. You can email Rachel here

Advertiser Disclosure

Auto Loan

Buying a Car: When to Walk Away

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Walk away from car deal
Getty Images

Buying a car can be a stressful experience for anyone. For some of us, the anxiety begins before we start negotiating financing or even step foot onto a car lot. But no matter how eager you are to get the experience over with, or how persistent a salesperson is, you should never buy a car without being certain it’s right for you.Ron Montoya, consumer advice editor for Edmunds, says that dealerships are good at applying pressure. “There’s always a sense of urgency that ‘today is the best day to buy the car,’” he says. “While that may be true for the seller, it’s not always the case for the buyer.”

According to a 2018 Cox Automotive study, you may be tempted to give in to the pressure after spending a whopping three hours at a lot, which is the average amount of time buyers spend. But no matter the circumstance, you should always be prepared to walk away in the presence of red flags.

How do you negotiate in “good faith?”

Like most things in life, a bit of preparation can go a long way. Here are some of the ways you can reduce your risk before approaching a dealership or private seller when buying a car:

Review your budget and credit

Doing your financial homework can help you determine what price range is truly affordable for you, instead of letting a salesperson decide. Loan payment calculators can also help you get a realistic view of affordability by taking interest rates and fees into account.

Get loan preapproval

Another factor in determining affordability is the amount of financing you get approved for. Having a loan preapproval from your bank or credit union, before visiting a dealer, has several benefits: it sets realistic expectations about the maximum sales price you can shop for and helps you avoid more expensive or even potentially predatory dealer financing. If the dealer can beat your preappoved loan offer either through one of its lender partners or through the manufacturer, you’ll know you’re getting the best deal possible.

Research market prices

Montoya, who purchases fleet vehicles for Edmunds, an auto industry research firm which tests cars, says the best way to prepare for a purchase is to understand the market price of the car you want. You can do this by looking up values through sites like Kelley Blue Book or Edmunds, checking out a variety of ads and car-buying websites, and even by getting a few price quotes, so you can compare them to the offers you get from a dealership.

Research promotions

Having a sense of manufacturer and dealer promotions can not only help you narrow down which models to buy and which lots to visit in your area, but it can also help you understand if the dealer is truly offering a “one day only” sale, or if it’s just a tactic to pressure you into buying.

What are the warning signs that you should walk away from a car deal?

Interacting with a salesperson who’s been trained to haggle and close the deal might leave you feeling outwitted. Some level of stress is normal, but these are the real red flags to look out for:

Prices change after your initial negotiations.

For example, your trade-in value is lower than what you discussed or your monthly payments are higher. You should also look out for add-ons you didn’t agree to, like an extended warranty or a “service contract” that increases the overall price tag. Montoya says it should be a deal-breaker when written terms don’t match what you discussed.

The contract isn’t final.

It’s easy to assume that signing a contract means your deal is final, but some dealers include contingencies, including “spot deliveries” that might be “yo-yo transactions” meant to intentionally deceive buyers.

If your contract states, for example, that your financing isn’t final, you may be asked to come back later and get a different loan with worse terms, for the car you’ve already taken home. If the dealer won’t state in writing that your financing is final, they may be breaking the law. This is a definite sign that you should walk away.

You’re being pressured.

Brent Miller, executive director of a community center where musicians work, practice and perform in San Francisco, recently shopped for a new car. Miller says despite visiting a reputable dealership for his purchase, the salesperson repeatedly pushed him to make unwanted decisions. “It was amazing how much pressure there was to sign the contract without reading everything, even before I had a loan offer,” Miller says.

If you’re encouraged to buy a different car than the one you’re shopping for, or to close the deal without looking over the numbers, Montoya says you should walk away.

The seller is withholding information.

It’s a red flag if your salesperson gives unclear information about pricing and loan terms. If you can’t get a straight answer on what your monthly payment will be, the length of your repayment term or your interest rate, you shouldn’t sign a contract. A good tip is to keep your focus on the out-the-door price of the car — if you get the lowest price possible, a good monthly payment should follow.

Discriminatory practices

If you feel a dealer is attempting to take advantage of you based on your citizenship status, income or other factors, you should go elsewhere. One way dealers do this is by marketing to you and conducting negotiations in your first language and then offering you a contract in a different language, with higher fees. Regardless of the circumstances, never sign a contract if you’re unsure what it says.

How to walk away from a car deal

So you’ve attempted to negotiate a deal with no luck, or you’re simply uncomfortable with the transaction. It’s completely within your rights to walk away at any point before, and in some cases even after you sign your contract.

During negotiations

At this point, walking away is as simple as putting one foot in front of the other. Montoya advises that even if the dealer already pulled your credit information, you’re still under no obligation to stay. While you may be concerned about the hit to your credit, know that making multiple auto loan applications within a short period of time will have a small impact on your scores.

If you’re having trouble ending the negotiations, Montoya suggests shutting down persistent salespeople by shifting the blame to someone else, like your spouse…even if you’re not married.

Whatever your explanation, walking away or telling the dealer you’re going to shop around is perfectly acceptable. If you really are interested in buying the car, walking away may also be a useful negotiation tactic.

Once you’ve seen the contract

Regardless of the time and effort invested by both parties, you are under no obligation to sign any contract you’ve been presented. At this point in the process you can still simply say “no” to the dealer.

After signing contract

If you sign a contract and drive away with a car, but then get called back based on a contingency, you may be able to walk away from the deal.

If you’re called back because financing fell through, you can demand to get your down payment back and unwind the entire transaction. To complete the process you’ll need to make sure that the application and contract are cancelled and that you get copies of all the documents.

If, on the other hand, you simply wish to return the car because you’ve changed your mind, your options may be limited. Some state laws may allow you to return your car if you discover it’s a lemon, but contrary to popular belief the “cooling off period” unfortunately doesn’t apply to cars.

In some circumstances you may have a special option to cancel, particularly when it comes to buying used cars. New York state law, for example, gives you a set amount of time to file paperwork and cancel your contract. Your dealer may also have a special clause that gives you time to reconsider and return your vehicle. But if neither your state nor your contract stipulates that you can cancel, your best shot is to ask the dealer to give special consideration to your case.

The bottom line

The best way to avoid a bad deal is to be your own biggest advocate. Educating yourself about market prices, understanding affordability and researching consumer protections in your state, all before you talk to a salesperson, can help you stand up to pressure and recognize red flags quickly.

Ultimately you shouldn’t be afraid to walk away, no matter how difficult the dealer makes it to leave. Both the car and the financing have to work for you. “I want people to buy a car when its right for them and do it on their own time,” says Montoya, “not a dealership’s time.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Brady
Sarah Brady |

Sarah Brady is a writer at MagnifyMoney. You can email Sarah here