Auto Financing Mistakes to Avoid

Last Modified: May 28, 2019 by Jeff Ostroff

The last step in the auto buying process takes place in the Finance and Insurance (F&I) office. It is inside this small office, sitting across the desk from the F&I manager, where the whole deal can go south if you make these mistakes.

1. Not Making a Big Enough Down Payment

If you want to make the worst mistake possible when financing an auto, make your down payment too small. We recommend that you put down at least 20%. When you see the 20% down payment recommendation, don't panic. That doesn't mean you have to have the full amount sitting in your bank account. The trade-in allowance or money that you get from selling your current car count towards this 20%. For example, if you buy a $30,000 car and your current car is worth $5,000 on trade-in, you only need to come up with $1,000 to meet this recommendation.

If you don't put down 20%, you will end up upside down on the loan. That means that you owe more on the loan than the car is worth. You can learn more about this topic in our blog article about how to avoid upside down car loans.

2. Walking Into a Dealership Expecting 0% APR

When you see a commercial or an internet ad for 0% or an extremely low APR on an auto loan, don't expect to actually get that deal. These deals are reserved for people with the best of the best credit. Few people will qualify. They are just using the offer as a teaser to get you in the door.

Don't be fooled into not doing you homework ahead of time because you think you are going to get a great deal on auto financing based on the marketing.

3. Trading In a Car You Owe More On Than It Is Worth

Do not, I repeat, do not trade in a car that you still owe more money on than it is worth. This is one of the biggest auto financing mistakes you can possibly make. When you still owe more money on a trade-in then it is worth, the amount you owe that is above the value will be rolled into your new auto loan. Therefore, you will now be paying for two cars but only driving one.

Getting you to trade-in a car when you owe more than it is worth is the basis of the "We'll Pay Off Your Car No Matter How Much You Owe Scam" that we talk about in our top ten scams.

4. Letting the Finance Manager Sell You Add-Ons

In order to make more commission, the Finance Manager will try to get you to buy all kinds of add-ons and throw them into your loan. The products will range from overpriced extended warranties to completely useless items like rustproofing and fabric sealant (especially if you bought a leather interior).

They will try to convince you by showing you the tiny increase in monthly payment when adding these "great" products. It doesn't matter how "cheap" the add-ons are, if you don't need them you are still wasting money by buying them. On a 48 month loan, even a $5 increase in monthly payments is going to cost you $240.

5. Not Carefully Reviewing the Paperwork

When you finally get to the point of signing the paperwork in the Finance and Insurance (F&I) office you are probably pretty exhausted. This is what the F&I manager is counting on because it will make it easier for him to take advantage of you.

Do whatever it takes to get on your game. Have a cup of coffee or 2 or 10. Just make sure you can pay attention to every piece of paper that is put in front of you to sign. Make sure all of the terms of the deal are exactly what you agreed to and that no additional charges have been added for items that you didn't agree to purchase. Do not sign any paper unless you are in agreement with everything it says.

6. Not Having the Will to Walk Away

You must have the will to walk away if you find something wrong in the paperwork and they won't fix it or try to convince you that it is what you agreed to. Many people will be so worn down at this point that they will just give in, sign and get out of there.

The will to walk is a high caliber weapon in your negotiating arsenal. If they see you are serious or actually see you leaving, it is highly likely that they will give in to your demands. If they don't, just leave and go to another dealership tomorrow. Don't let them win!

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