It’s almost certainly the part of car shopping that people dread most.
But it has to be done correctly to ensure nothing goes wrong after you’ve driven away your new vehicle.
“If there are things you don’t understand, ask questions,” says the federal Consumer Financial Protection Bureau (CFPB). “You’re signing a contract, and this is a major purchase. It is important that you understand what you are signing.”
To begin with, the federal Truth in Lending Act (TILA), which is intended to help consumers make “apples-to-apples” comparisons between loans, requires lenders to make specific disclosures in writing about important terms before you are legally obligated under the loan.
Those disclosures, according to the CFPB, include:
- The annual percentage interest rate (APR), which is the cost of credit expressed as a yearly rate.
- Finance charges, including the total amount of interest and certain fees you will pay over the life of the loan if you make every payment when it’s due.
- The amount financed, which normally is the amount you are borrowing.
- Total of payments, or the sum of all payments – principal and finance charges – that you will have made at the end of the loan.
- Other important terms such as the number of payments, the monthly payment, late fees, whether the loan has a fixed or variable rate, and whether you can prepay without penalty.
Then, before you drive away, the CFPB says, make sure that you have a copy of all documents, that you and the dealer have signed, and that all blanks are filled in.
In some cases, you shouldn’t drive away at all, suggests the consumer protection bureau.
“Some dealers will allow the customer to take possession of the new vehicle before the loan is approved by the lender. This practice, called ‘spot delivery,’ could put [at risk] the deal that you thought you had. Make sure the financing is nailed down before you sign the contract and drive away with the vehicle.”
“If you don’t have the financing nailed down, the dealer may ask you to come back in and agree to a higher interest rate, add a co-signer, or make some other change different from what you thought was agreed … If this happens and you don’t want to agree to a second deal, you will have to return the vehicle and the dealer will have to unwind the deal and give you back your trade-in and down payment.”
In any case, the CFPB advises, “Walk away if you are not comfortable with any aspects of the loan or the process. You can always leave without completing the deal, take time to think it over and come back. No one can make you accept financing or a vehicle that you are not satisfied with.”
Be sure you know before you owe.