Motor Vehicle Sales
Information for Consumers
When you are buying a vehicle, remember: Everything is Negotiable and Nothing is Free.
Before You Go To The Dealer
Do your homework! Ask family or friends for dealership recommendations. Check with our office and The Better Business Bureau to see if any consumer complaints have been filed against a dealer.
You can shop around and test drive vehicles, but know what you want and what it should cost before you buy. The Internet has a wealth of information to help you estimate a reasonable price for a vehicle - new or used. Edmunds and Kelley Blue Book are good places to start. Before buying a used car, you should get a Carfax report. The dealer may already have one . . . just ask to see a copy. You will need the VIN of a specific vehicle in order to get a Carfax report.
Before going to a dealer, calculate exactly how much you can afford in terms of price and then figure out what monthly payments fit that budget. People who go to dealers without such knowledge and who then negotiate based solely on what they can pay per month usually end up paying more over the life of the loan.
Check with your bank or credit union to see what rates they will give you. This will help you determine if you want to obtain financing through your bank or credit union or through the dealer. You may be able to pre-qualify with a bank or credit union to lock in a rate before you go to the dealer.
Negotiating The Deal
At most dealerships, everything is negotiable. Everything includes the price of the vehicle you are buying, the price of a trade-in vehicle, the financing, and any "back end" products such as insurance and service contracts ("extended warranties"). A dealership with fixed pricing must post the non-negotiable price on a vehicle. (Dealerships also must post any advertised price, which may still be negotiable.)
Never buy a car in a hurry. Be prepared to take as long as several weeks to find and negotiate the deal you want.
Do not negotiate on monthly payments alone. Find out how much you are actually paying for just the car! Make buying your new car, selling your old car, and financing your new car three separate transactions. This helps you figure out exactly what you are paying (or getting) for each. Otherwise, it is very easy for a dealer to play "numbers games." For example, you may think that you are getting a great deal on your trade-in, but in exchange for that "great deal," the dealer may have increased your interest rate on the financing. (Even though consumers typically finance through a company other than the dealer, the dealer almost always gets a percentage of the interest rate kicked-back from the finance company.) If you just negotiate based on monthly payments, it is even easier to play a "numbers game."
Take a notebook, calculator, and pen or pencil. Use them! Even if a salesperson does calculations for you, you can still do your own.
Take someone with you. They can take notes while you ask questions. Two people are less likely to miss something.
If you are purchasing a used vehicle, have a trusted mechanic inspect the vehicle before you buy. This may cost around $100 or more, but could save you thousands in the long run.
Do not assume salespeople are your friends, no matter how friendly they act. Their job is to sell you a car. Most are paid on a commission basis, so their compensation increases the more you spend. Remember that even the person who does your financing and goes through the final paperwork is a salesperson who gets paid on commission for selling every product, including service contracts ("extended warranties"), credit life insurance, glass etching and everything else. You should also be aware that many of these products have very high profits added.
Be cautious about purchasing aftermarket add-ons or treatments offered by the dealer. Examine the cost and need for such extras and whether you can afford it. Some add-ons are unnecessary or are significantly overpriced, and they may greatly increase the price or cost of your overall financing. Do not believe a salesperson that tells you they are "free" or "included in the cost of the car."
You do not have to pay sales tax on any vehicle purchased in Oregon. Many Washington dealers will fill out paperwork for Oregon residents so that you do not have to pay sales tax.
Dealers may charge up to $75.00 for processing your paperwork with DMV. Dealers may charge up to $100.00 for electronically processing your paperwork with DMV and providing you with a license plate at the time of sale. These are not government mandated fees, and are also negotiable prices. However, a dealer can refuse to sell you a vehicle if you do not want to pay either $75.00 or $100.00, the same as if you and the dealer do not agree on the price of any other term, such as the price of the vehicle.
Once you have agreed on a price with a dealer, make written notes of what the agreement is and stay alert. Make sure your notes include the cost of each item. Some dealers will try to change the deal later without you noticing. Compare the agreed-upon prices with the prices listed in the purchase agreement and make sure they are the same BEFORE you sign anything.
Leases
If you are thinking about leasing a vehicle, first ask yourself why. Leasing may be a better option for some people, but buying a vehicle may be a better option for others. Typically the deciding factor is how long you are planning to keep the car.
If you decide to lease a car, you should read all of the information on this page, in addition to this section. Before you lease a car, you should understand at least the following concepts: residual value, GAP insurance, capitalized cost reduction, acquisition fee, money factor, early termination fee, and lease term.
Just as if you purchase a vehicle, a lease is negotiable. The capitalized cost (or "cap cost") is similar to the purchase price of a vehicle. You want to negotiate the lowest cost possible because the lower the cap cost, the lower the monthly lease payments will be. The cap cost does not need to be the MSRP; in fact, unless it is a highly desirable vehicle, it should be under MSRP. The cap cost can be reduced by rebates, factory-to-dealer incentives, a down payment or a trade-in value. This is called the "cap cost reduction." (And, just like with a purchase, negative equity - money you still owe on your trade-in vehicle - can be added to the price of the vehicle, or the cap cost.) Even if you do not make a down payment, expect to pay your first month's lease payment at closing, the time you sign the paperwork and get the vehicle. You may also be required to pay other fees at closing such as acquisition fees and bank fees.
The residual value is the worth of the vehicle at the end of the lease term. This can be difficult to calculate and is based on the estimated depreciation of the vehicle. The higher the residual value, the lower your lease payments.
A money factor, or lease factor, is comparable in a lease to what an interest rate on financing is if you took out a loan to pay for a vehicle. However, unlike a money factor, an interest rate in a loan is calculated by annual percentage rate (APR). A money factor is typically shown as a small decimal number. You can convert a money factor to APR by multiplying it by 2400. For example, a money factor of 0.00297 would equal 7.13% APR. You want the lowest money factor you can negotiate.
The lease term is the length of time the car is leased. Typical examples of leases are 24, 36 and 48 months. If you lease for more than 36 months, you should seriously consider purchasing rather than leasing.
Another extremely important factor to consider in choosing a lease is how many miles a year you typically drive your vehicle. While the annual mileage allowed in a lease is always negotiable, the average lease is for 12,000 miles per year, which is 1000 miles a month. If you use your car for anything more than local driving on a regular basis, it is likely that you may exceed your mileage limitation. Any excessive mileage will be charged to you at the end of your lease, usually at a very expensive rate per mile.
Finally, guaranteed asset protection (GAP) insurance, is something to consider when leasing a vehicle. Typically, during the early years of a lease, the amount you owe on a lease is more than the actual cash value (ACV) of the vehicle. If a vehicle is stolen or totaled in a collision, normally an insurance company will only pay the ACV of the vehicle. You still owe the lessor the difference between the ACV and the total owed on the lease. GAP insurance pays the difference between these two values. Some leases automatically add GAP insurance into the lease payments; others do not. Dealers will try to sell you GAP insurance. Shop around for the best rates. Many motor vehicle insurance companies sell this product and you may be able to purchase it for much less as an option with your regular car insurance. Further, after the first year or two, the gap between the ACV and what you owe on the lease may disappear and paying for gap coverage may be unnecessary. Do the math every year.
Some dealers try to sell many after-market products that are unnecessary if you intend to lease for two or three years and then return the vehicle. These include service contracts ("extended warranties"), paint and fabric protection, roadside assistance and other similar products or insurance. Most new vehicles come with at least a three year / 36,000 mile bumper to bumper warranty, manufacturer roadside assistance programs and the like. While you should always do thorough research before getting a new or used vehicle, leasing is much more complex and you should never lease if you do not understand all aspects of the benefits and disadvantages of leasing.
Make sure you know what all of the up-front fees are, and what fees you will pay for early termination or if you decide to purchase the vehicle after the lease expires. Beware of any dealer who says you can get out of your lease without any penalty; leases almost always have early termination fees and it will cost you to end a lease early. Read the "fine print" so you know how much you will pay if you go over the mileage limit and what maintenance you are required to do on the vehicle.
Closing The Deal
At every point in the negotiations, be prepared to walk away. You have no obligation to sign a contract . . . especially if it is not on the same terms you thought you agreed on.
Make sure that ALL promises made by the salesperson or dealership are in writing.
Do not let a salesperson rush you to sign paperwork without reviewing the contract terms. Read all documents and understand all terms before signing on the bottom line.
If a contract has terms substantially different from what the salesperson initially promised, do not sign the contract unless you are willing to accept the new terms.
DO NOT allow false information on any forms and beware of a salesperson who suggests putting false information on your finance application, such as stating a higher income or a larger down payment. While financing may be approved, the payments may be difficult for you to make. If something goes wrong, the false information could be held against you.
After you have agreed on a deal with the sales department, you will usually be taken by the salesperson to the finance and insurance representative (F&I) and told that he or she will "fill out the paperwork." Watch out - in some dealerships the finance and insurance representative will try to change your agreement without you catching on.
Be very careful what you sign. Do not sign a blank contract or application. Do not sign anything that contains blank spaces - especially on any contracts or credit applications. Draw a line through all blanks on documents you sign.
Never buy life or disability insurance from a dealer without comparison shopping with an insurance agent first.
In Oregon, you can take a new or used car home before financing is approved. This practice is called "spot delivery" and is designed to "lock you in" to a purchase. There is no "3-day right of rescission" for a car purchase or lease, even if you do not yet have final approval of financing. However, if you cannot get financed at the exact same terms as those for which you signed an agreement with the dealer, you must bring the car back to the dealer and the dealer must give you back your trade-in vehicle and down payment. (As of January 1, 2008, the financing will need to be completed within 14 days.) If the dealer cannot proceed on the original terms you agreed upon, you have an absolute right to walk away from the deal. The dealer may charge you for wear and tear and mileage. You may re-negotiate the deal with the dealer, but at this point in time, you also have the option of walking away and looking at a different vehicle or going to a different dealer. See ORS 646A.090.
Financing Through The Dealer
When financing through a dealer, always negotiate the car price first. Once the price is settled, then negotiate the monthly payment amount. Otherwise, you may end up with a reasonable monthly payment, but with a longer term and/or a higher interest rate. While a longer loan may lower your monthly payment, it may cause you to pay thousands of dollars more in interest over the term of the loan. Additionally, the longer the term of the loan, the more likely it is that as the car gets older, the value of the car will be less than the amount owed on the loan. This creates what is called "negative equity." If you decide to trade-in a vehicle on which you owe more money than the vehicle is worth, you will have to pay off the negative equity. Oftentimes, the negative equity is rolled into the cost of the vehicle you have just purchased and you will be paying off the negative equity (and the ensuing additional finance costs and interest) through a new loan.
Always ask the dealer if the interest rate being offered is the lowest rate he or she can offer and whether it includes a profit for the dealer.
You cannot be required to buy other products, such as credit/life insurance or service contracts ("extended warranties"), in order to finance or purchase a vehicle. Beware of a salesperson that tells you that you cannot be financed unless you purchase these products.
Service Contracts
Service contracts provide for the repair of certain parts or problems. These contracts are offered by manufacturers, dealers or independent companies.
When deciding whether to purchase a service contract, consider the following questions:
- What is the difference between the coverage under the warranty for the vehicle and the coverage under the service contract? Most vehicles come with at least a 3-year or 36,000-mile warranty.
- What repairs are covered?
- Who pays for labor? Who pays for parts?
- Who performs the repairs? Can repairs be made elsewhere?
- What are the cancellation and refund policies?
- What is the deductible? By raising the deductible from $50 to $100, you may save hundreds or thousands of dollars on the cost of the service contract.
Information for Dealers
In addition to following the Unlawful Trade Practices Act, dealers must also comply with Oregon Administrative Rules.
The Attorney General's office CANNOT approve advertisements. We also cannot represent private parties. However, if a dealer or marketing company has questions about Oregon law and what is permitted under Oregon law, you may call us at 503-934-4400 and we can try to answer your questions, as time permits.
