Dealers often negotiate around a monthly payment because it is easy to understand and easy to stretch. The total purchase price, annual percentage rate, loan length, and add-ons determine what the vehicle actually costs.
Term length changes the picture
Extending a loan can make the payment fit while keeping the borrower in debt for six or seven years. More payments usually mean more total interest.
Cars also tend to lose value faster early in ownership.
Add-ons can hide in the financing
Service contracts, protection packages, and other products may be rolled into the loan. Financing them means paying interest on the add-on too.
Request the out-the-door price and itemized contract.
Compare offers before the showroom
A bank or credit union preapproval creates a benchmark. It also separates the price negotiation from the financing decision.
The best comparison uses total dollars paid, not only the monthly number.
Sources
- Consumer Financial Protection Bureau, Auto Loans Key Terms and Steps.
- Federal Trade Commission, Financing or Leasing a Car.