HOW YOU PAY DETERMINES YOUR CAR DEAL! The Homework Guy, Kevin Hunter

Your payment method determines your car deal or how good a car deal you get. Let's say you've got the cash to buy a $50,000 car. Congratulations if you do, but you might have incorrectly figured that gives you the upper hand. Then the dealer says, I can take another $1,500 off if you finance with us. We know cash buyers very well here on the Homework Guy Show because we help tons of them buy cars. So here's the question. Could you take the $50,000 deal and just put most of the purchase price in down payment, finance a smaller balance? And then pay the loan off early and still come out ahead? Oh, yes, you can. I'll show you the math on that in just a moment. You can most definitely come out ahead if the written terms and the math work in your favor. Today, I'll show you what to ask for, what to look for in the contract, and what it costs if you decide to wait three or six months to pay it off. I'm Kevin Hunter, The Homework Guy. If you want help putting a deal together, go to thehomeworkguy.com. The link is right at the top of the description box below the video, so it's easy for you to find. On our homepage, look for the red hassle-free car buying service button. And then for you do-it-yourselfers who like to do it yourself, well, that's cool with us, but buckle up, because here we go. Here's the way to look at this. When you buy a car, you've got three basic ways to pay for it. A, you pay all cash. B, you put some cash down and finance the rest, a combo deal. And C, you finance the whole thing. If your goal is to get the biggest discount and end up owning the car free and clear as quickly as possible, option B is the one I want you to be thinking about. But you've got to see the two prices first. Otherwise, you could be taking out a loan to chase a discount you already had. Years ago, we put out a video called Don't Say I'm Paying Cash, and if you heard that line from a few other people since then, well, we were the first ones to put it out. Here's what we are getting at. When you lead with, I'm paying cash, the dealer knows right away that there's no loan to make extra profits on. And no, there's nothing wrong with profits, but isn't the goal to keep as much of your money as possible? Here's the situation. The dealer can make money arranging financing, including through a markup on the rate a lender offers. That gives the dealer a reason to move on the selling price if there's money to be made elsewhere in the deal. In a dealership, that's known as back-end profits. The profit on the sale price is the front-end profits. If there's no back-end profits to be had, there might not be any front-end discounts to be given. Make sense? So when they ask, are you paying cash or financing? Here's what I'd say. That depends on the numbers. Send me your itemized out-the-door price if I pay cash and send me the out-the-door price if I consider financing through you. Show me what I have to do to qualify for each way you have the car price. It's the same car, same stock number, two written quotes. That's the kind of homework our car coaches do all the time. Once you put those numbers side by side, you can see what the dealers actually offer you for using their financing. Now, if financing is the dealer's bread and butter, why wouldn't you finance every penny and ask for an even bigger discount? Because now you've got to get approved for a bigger loan. That's more risk. And if you roll the taxes, fees, and add-ons into it, you could owe more than the car is worth from the day you drive it home. That's when the finance manager says, you really need GAP. And that's totally true at that point. Gap at a dealership is expensive, but it can help cover the difference between what you owe and what your auto insurance pays if the car is totaled or stolen, subject to the coverage terms. It's generally optional, but if you want it, price it separately before you add it to the loan. Think about this. You negotiate an extra $1,000 off the car. Then you sign up for a $1,500 Gap product you never planned to buy. Well, there goes the entire discount, and then some. And if you finance the product, you can pay interest on it, too. Here's the deal I'd ask the store to put on paper. Say your cash price is $50,000 out the door. The dealer offers you the same car for $48,500 out the door if you finance through them. And we see that happen all the time. You could put $25,000 down. In this case, let's put $30,000 down and finance the remaining $18,500. Before you sign, ask the dealer these questions. What's the smallest amount I can finance and still get this price? What's the interest rate and what fees come with the loan? And then, does the loan have a prepayment penalty? And does any written term require me to keep the loan open to keep the discount? That last question has two parts for a reason. The loan could allow early payoff while a separate rebate or purchase agreement has conditions of its own. Make sure you read both. If someone says there's a six-month requirement, ask them to show you where you're agreeing to it. Because finance guys say that kind of stuff all the time. And if you've heard that a 62 month loan automatically lets you pay it off penalty free, check the paperwork. That federal rule deals with how unearned interest gets refunded on certain loans. For this strategy, I want a simple interest loan with a clear early payoff term and a rate I've compared with my bank or credit union. So let's take a look. Cash $50,000, dealer financing $48,500. Then show $30,000 down and $18,500 financed. What does it cost to wait? Let's say you finance that $18,500 at 6% simple interest. At the start, that's about $3 a day. If you pay it off around day 30, that's roughly $90 in interest. If there are no extra financing fees and you keep the full discount, you're still $1,410 ahead of the cash quote. If you wait 90 days, think roughly $270 spent on interest. If you wait six months, think roughly $530 spent on interest. The exact amount depends on when you make your payments and how fast the balance comes down. Estimates assume scheduled payments are made when due and exclude fees. Now imagine the dealer only gave you an extra $500 off the finance. Six months of interest could eat up the whole thing. Same strategy, different numbers, different answer. You may hear, do me a favor and make six payments. The dealer may be trying to protect what the finance officer gets paid for arranging the loan. Ask whether that's a favor or a written condition. If it's a favor and you want to do it, you now know what that favor could cost you. Once the dealer has set up the account, contact the lender directly. Ask for the full 10-day payoff amount. Good through the day your payment will arrive and ask how to send it. That payoff figure accounts for interest through the quoted date. Then confirm the loan is closed and ask when the lien will be released. That's the smartest play for the cash buyer. Get both prices in writing, subtract the interest and fees you'll actually pay for the extra financing discount. If you come out ahead and the terms let you keep the discount, you can take the lower price and own the car free and clear soon after. If the cash quote costs less, well, then take the cash deal. If you're a cash buyer thinking, Kevin, I'd rather have somebody else sort this out for me. Well, we handle cash buyers all the time with our hassle-free car buying service. A Homework Guy coach can help you find the right vehicle, get itemized quotes in writing, and compare the cash and finance offers, and negotiate with the dealers. If there's a financing discount worth taking, your coach can help you put a dollar figure on it, and if the cash deal is better, you'll know why before you sign. So, go to thehomeworkguy.com, and the link is underneath the video, right at the top of the description box. And then tell me in the comments below, has a dealer ever quoted you one price for cash and another if you financed? How far apart were the two numbers? I'm Kevin Hunter, the Homework Guy. Thank you for watching.