But it’s even more important if you’re buying used.
After all, used-car values are based on very specific factors, such as the age and mileage of the car, as well as options and wear-and-tear. You’ll need to know the approximate value of the vehicle before you even begin negotiating on it.
The purpose of this step is to make sure you’re an informed buyer. If you know the approximate value of the vehicle, you’ll know immediately if a dealer or seller is trying to overcharge you.
Never assume that the dealer has your best interests in mind.
After all, he’s trying to get as much for his cars as possible. Your job is to make sure he doesn’t, at least not in your case.
If you really want to go in prepared, print off the value of the car you’re looking to buy. Be prepared use it as a negotiating tool.
Few things get a car dealer to behave more than recognized third-party documentation.
3. Know the Value of the Car You Want to Trade In (HINT: NEVER Take The First Offer)
The same thing goes for the car you’ll be trading in. If you throw yourself at the mercy of the dealer on the trade in, you’ll have no idea if you’re getting a fair price.
You probably won’t; car dealers know how to sniff out a weak hand, and they’ll take full advantage.
Don’t let this happen to you.
You’ll get around the problem by knowing the value of the car you want to trade in. Once again, you can do this by checking the car’s value on Kelly Blue Book or Edmunds.com.
At the same time, be aware that valuations on used cars – which is what your trade-in will be – are more subjective.
For example, the condition of the car is a major gray zone. You may believe your car is in excellent condition, but the dealer may counter that it’s in average or even fair condition.
When you go on the valuation sites, be as objective as possible about this. Each allows you to rate the condition of your car, but you have to be as honest as possible.
Bring the car to a mechanic and ask for an evaluation of the condition – excellent, good, average, fair or poor. The difference in each classification could mean thousands of dollars.
If you’re accurate in evaluating the condition, you should get a pretty solid value of your car from the valuation sites.
Once again, print off the results – from both sites if necessary – and be ready to show them to the dealer when price negotiations begin.
You could even pore through local Craigslist ads to find comparables, if need be.
4. Better Yet – Have Your Down Payment BEFORE Going to the Dealer
Advantages
Unless you have the cash to put down on the new car, you’ll have to sell your current car yourself.
This will give you two advantages:
- It will remove the down payment hurdle, and
- Eliminate the need to rely on the dealer for trade-in.
#1 makes you a stronger buyer. #2 puts the dealer in a weaker position. It may not be as convenient to sell your own car, but it’s more important than it seems. Anytime you have to rely on the dealer for the trade-in/down payment, you’re leaving it to the dealer to decide how much that will be.
Let’s say your research indicates your car is worth $10,000. You have a $7,000 loan outstanding on it.
- If you sell the car, you can pay off the loan and walk away with $3,000 for the down payment on your new car.
- If you trade it in to the dealer, they might decide it’s only worth $8,000. That will leave you with only $1,000 to put down in your next car.
The difference will be made up by a larger loan, that will also include a higher monthly payment.
You owe it to yourself to try to sell your car on your own.
If you’re in a hurry, you can sell it to another dealer as a standalone transaction. Carmax buys cars this way, and they pay cash.
You’ve probably seen their commercials on TV lately – with the WBYCEIYDBO thing – “We’ll buy your car even if you don’t buy ours”.
You won’t get as much as you will if you can sell it yourself, but it will at least eliminate having to sell your old car and buy your new car from the same dealer.
The less control the dealer has, the more you have.
5. Get Your Financing Lined Up Before You Go to the Dealer, Too
Why You Should Get Approved First
Financing is an important profit source for car dealers, and you can make it work to your advantage.
Before you even go to a car dealership, first get a loan pre-approval from your bank or credit union.
In fact, shop around several banks and credit unions to see where you can get the best deal.
There are four reasons for doing this:
- Having your financing before you walk in the door gives you a stronger bargaining position with the dealer.
- It removes one more function of the sales process from the dealer, weakening their position.
- It prevents them from putting you into a high interest rate subprime loan (increasing their profit on the deal).
- Finally, it forces the dealer to give you a better deal than your bank or credit union, if they have one available.
How to Get a Loan for Your New Car
There are a lot of routes you can take to get your new car financed, from going to your local bank or credit union, as I mentioned earlier, to shopping online.
One of the best ways to guarantee you get the best interest rates and loan possible is to use a service like LendingTree to see all of your options.
What a Bad Credit Score Can do to a Car Loan
Real Life Case Study: I knew a young man – we’ll call him Ed – who found himself in a situation where he needed a new car immediately. He crashed his previous car and needed to get it replaced.
But he had a credit score of 500-something. No bank or credit union would give him a loan. But the dealer was only too happy to provide financing. It was a $10,500 loan for 72 months at 22.99%!
The monthly payment was about $265. Not only that, he got hit with a bunch of add-ons, like a prepaid maintenance program, and gap insurance – both of which he was told were mandatory.
It’s how the car business works when you’re playing with a weak hand. 18 months later, Ed raised his credit score by more than 100 points. He was then able to refinance the loan through his credit union.
At that point, the balance was paid down to about $9,000. He took a 36-month loan at 3.99% – a full 19 points below the original subprime loan!
The monthly payment stayed right around $265.
But, he chopped 18 months off the loan!
In doing so, he saved close to $4,800 over the life of the loan (18 months X $265). That true story shows why it’s important to clean up your credit before buying a car.
And, if you can’t do it ahead of time, do it as soon as possible after you buy the car. Subprime car loans not only have ridiculously high-interest rates, but they keep you locked in the loan longer than the car is likely to last.
Did I mention the 72-month loan was on a used car?
7. Factor in ALL Costs! (NOT Just The Sticker)
Add-ons that Impact Cost
When you purchase a new car, don’t be singularly focused on the purchase price alone.
That’s never the actual price.
There are a series of add-on fees anytime you buy a car, and that’s what determines the final buy price.
Add-on costs can include:
- State sales tax – If your state has a sales tax in place, and it applies to the purchase of motor vehicles, it can have a major impact on the final price of the car. For example, if you live in a state with a 7% sales tax, and you purchase a car for $30,000, sales tax will add $2,100 to the final purchase price. In some states, there are even county and municipal sales taxes added on top.
- Document fees – Simply put, these are extra fees the dealer adds on top of the purchase price. They can have various names. Some states limit these fees, others don’t. Where they’re imposed, they can add several hundred dollars to the final purchase price.
- DMV fees – All states impose these fees. They can be registration fees and/or title transfer fees, and they vary by state. For example, Illinois charges between $101 and $114 for your registration fee, plus $95 for the title fee.
Let’s do a quick example of how these fees affect the final purchase price:
New car purchase price: $30,000
State sales tax (6%): $1,800
Document fees: $500
DMV fees: $300
Final sale price: $32,600
As you can see, the add-on fees increase the final price of the car by $2,600, or almost 9%. That’s just a ballpark. In some states it can be lower, in others it can be much higher.
Don’t Forget About Insurance
Don’t forget to factor car insurance into your calculations. Just like financing your car, insuring it should come with careful consideration.
Get insurance quotes here to pick the best auto insurance options for you.
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The Cost of Owning a Car is Different from One Vehicle to Another
While we’re on the subject of cost, let’s take a moment to consider the ongoing costs of owning a car.
The Automobile Association of America (AAA) estimates the annual cost to be $8,469, or $706 per month. That’s just an average.
It ranges from $6,354 per year for a small sedan, to $10,054 per year for a pickup truck. Those figures are comprised of the following expenses:
- Depreciation (this is how much your car drops in value each year you own it)
- Maintenance and Repair
- Fuel
- Tires
- Car Insurance
All except car insurance will be approximately the same across the country. Car insurance varies widely by state.
For example, while the average car insurance cost nationwide is $1,318 per year, it ranges from a low of $864 per year in Maine to a high of $2,394 in Michigan. Those are just averages.
Premiums can also vary considerably based on the type and cost of the vehicle you’re purchasing. That’s why it’s important to get a car insurance quote from your insurance carrier before buying a new car.
Trading in a small sedan for a pickup truck could cause your insurance to increase by more than $1,000 per year.
You’ll need to know that before you make the purchase.
8. Timing is Everything – When to Buy a Car
Now that you’re prepared to get a good deal, by the numbers, let’s about when you should make your purchase.
This is super critical.
There are certain times of the year, or even the day of the week when you’re more likely to get a better deal.
Here are a few of the best times to buy a car:
The end of the model year.
Car manufacturers work on a fiscal year that ends August 31. That’s when they change their model years.
By the time August hits, they’re looking to get last year’s inventory off the lots. They’ll often discount those cars to move them quickly.
After all, they need room for the new models. You can usually find good deals straight through October, which is when they’re trying to close out the last of the older models.
Holidays.
Dealers often run BIG sales on certain holidays, particularly Memorial Day, Labor Day and Independence Day. Black Friday is another big one.
It has two advantages, one is that it falls on the Thanksgiving holiday weekend, and the other is car dealers are competing with Christmas shopping for business.
But the biggest holiday advantage may come between Christmas and New Year’s.
At this time of year, holiday celebrations and travel are crowding out car buying. At the same time, dealers are concerned with meeting year-end sales goals. Dealer bonuses may even hinge on them meeting certain sales levels.
This is a time of dealer desperation, which is a big advantage for you as a buyer. But what if you need one sooner and it’s not a holiday season?
When should you go?
Weekdays.
More people shop for cars on weekends, because they work during the week. Dealers are usually more anxious to make sales on weekdays.
Mondays and Tuesdays are particularly good days because they’re quiet.
But this brings us to the next point… you can REALLY save…
When you don’t need a car.
If you buy when you need a car, you might be desperate. But if you buy when you don’t need one, you’ll have a stronger negotiating position.
You’ll be thinking with dollars and cents (sense?), not just to fill an immediate need.
9. Leave Your Emotions at Home
This can be a tough one to pull off. After all, buying a new car is largely an emotional venture.
We’ve all heard the saying you are what you drive, and that affects the car buying decision.
It’s similar to buying a house – you’re not just buying a thing, but something that in some way defines both you and your lifestyle.
You have to detach yourself from that. After all, buying a car is first and foremost a business transaction. If your emotions are in control – i.e., I MUST have THIS car – your business sense isn’t. That increases the possibility of making a bad deal many times over.
After the new car high wears off, the reality of the car loan will set in. Only then will you know if you actually made a good deal. The time to make that happen is when you buy the car.
And that’s why you have to leave your emotions at home when you do.
Car dealers know how to exploit emotions – in fact, they’re banking on it. (Good pun, right?! I’ll see myself out.)
They can use your emotions to convince you to pay more for the car than you should, take options you don’t need, or even to put you into an upside-down loan.
None of that can happen if you approach the purchase as a business deal.
You may have to leave a thing or two on the table, but you’ll like yourself a lot better a few months later if you do.
10. Create Competition – Let the Dealer Know You’re Working With Other Dealers (Even If You’re Not)
Never go to a dealership hinting you need to buy a car right now, and from this dealer.
If you do, you’re setting yourself up to get your pocket picked. Instead, make it clear to the dealer that you’re shopping.
Drop a name or two for added effect. 🙂
The point is to make sure the dealer knows he’s in competition with other dealers for your business. They’ll respect you more, and give you a better deal.
10. Go Easy on the Options and Add-ons
Dealers can quickly raise the price of a car with options and add-ons.
Be careful with this. Just as you never want to over-improve a house, you don’t want to overload a car with too many options.
Not only will they raise the price, but they may not increase the resale value of the car by the same amount. Most cars today have options packages that have most of what you need.
It may be okay to add a couple more as preferences, but don’t get carried away with it. Also, be aware there are options and add-ons that either don’t add value, or you plain don’t need.
Examples include credit life insurance, extended warranties (beyond those offered by the manufacturer), special car colors or editions, and various treatments, like undercoating, rust protection, sealants, and fabric protection treatments.
All can run up the cost of a car quickly, while adding very little value.
12. Bring Help
Some people are born negotiators, but it’s probably safe to say most aren’t.
If you aren’t, the workaround is to bring a negotiator with you.
This is perfectly acceptable. You can bring anyone you want to a car purchase. You may also want to bring someone who’s knowledgeable about cars, especially if you aren’t.
The basic idea is to make sure you’re not going into the dealership alone. After all, the salesperson you’re dealing with won’t be alone.
She’ll have the support of her sales manager, finance manager, other salespeople, or anyone else she needs to make the deal happen. If you have a more passive personality, you’ll be outnumbered and overwhelmed.
By bringing one or more of your own people, you’ll level the playing field. You can bring a strong negotiator or car expert as an advisor, but don’t be afraid to bring other people just because.
The point is, the salesperson has a team, and you need to bring your own.
If nothing else, they’ll be there for moral support.
But more important, they’ll be there during the tense negotiation phase. They may even be there to keep you from making a bad deal.
If the car buying/negotiating process has any potential to make you go weak in the knees, this is a step you can’t overlook.
There really is safety in numbers, even and especially when you’re buying a car.
13. Never – Ever – Be Afraid to Bug Out
This could be the most important car buying strategy of all.
Never feel obligated to go through with the car purchase (some people do).
If you don’t like the deal being offered, or you feel uncomfortable for any reason, simply get up and leave.
Never allow a car dealer to intimidate you into taking a deal, or make you feel as if you’ll never get a car if you don’t buy this particular one.
There are more than 18,000 car dealerships in the US, so you don’t need this dealership, or this salesperson. They actually know that, but by getting up to leave, or threatening to do it, you’re letting them know you know it too.
Some dealerships and salespeople are experts at getting you to think you need them more than they need you. But the exact opposite is much closer to the truth.
This is why it’s best to shop when you don’t need a car. You can tell them you’re here to gather information, and you’re not buying a car today, period.
You can now take the decision home, sleep on it, and remove buyer’s remorse from the equation.
Final Thoughts On Getting The Best Deal On A New Car
Maybe you can’t use all these strategies to buy your next car. No problem – using just a few can make a real difference.
You’re not just looking to save money when you buy a new car, but to get the best car for the money you’re paying.
That should always be the ultimate goal.
Unfortunately, when you buy a car from a dealer, you and the dealer are natural enemies. You want to buy the best car at the lowest price – the dealer wants you to pay the highest price.
Your job is to make sure that doesn’t happen, and that’s why you need to be prepared ahead of time.
Pick the best time to buy a car, do your research, and get a screamin’ deal.
You’ll be happy you spent the time, and not the money.