Are you looking to buy a car? Before you head off to the dealership let me share with you some tips that I learned when I was a Loan Officer that will save you money. These tips were taught to me at a conference that I attended which was presented by a car salesman. All of these tips will help you to get the best price possible. I have used these tips for every car that I have purchased and have always walked away paying less than the MSRP (manufacturers suggested retail price).
Dealing with a car salesman can be a horrible experience if you don’t have the right tools to negotiate. Remember they sell cars everyday and you purchase a car maybe once every few years or so. They have experience on their side and will do whatever it takes to make the most money on a sale. It is very important that you follow these steps in the order that I have laid them out, any variance will cost you money.
- Know what you want. This includes the type of car and the options you want. Car dealers are very good at their job. If you don’t know what you want before arriving they may end up talking you into something that you don’t want.
- How much should I pay? Dealerships should end up making no more than around $500-$800 on the sale of a vehicle. It is your responsibility to arm yourself by knowing the MSRP (manufacturers suggested retail price) of the vehicle and how much the dealer paid for it (dealer’s invoice). Your goal is to fall somewhere in between these two numbers. Knowing this information protects you from being price gauged. To find this information go to Kelley Blue Book (KBB).
- Tax & Title fees. Arm yourself with your states current tax and title fees. Know approximately how much you will be paying.
- How are you going to be financing? Do you have money to put down? How much can you afford to pay each month? How many months do you want to finance? What is the average interest rate? A good place to find this information is at BankRate. Another thing you may want to check out is whether the dealership is offering a special interest rates. Now decide if you are going to finance through your bank or if you will be financing through the dealership. If you are going to use your bank be sure to get a pre-approval from them before going to the dealership. If you are going to be financing through the dealership keep that information to yourself for now.
- Get insurance quotes. Insurance is a monthly expense that needs to be considered when purchasing a new vehicle. It’s amazing how many people purchase new vehicles without getting an insurance quote first. As you know insurance rates vary depending on the type of vehicle. Know what you will be paying.
- Sell or Trade? What are you going to do with your current car? Decide whether you are going to trade it in, sell it yourself or keep it. If you decide to trade it in be sure to arm yourself with the value of your current vehicle. You can find this information at Kelley Blue Book (KBB). There are two values that KBB will give you (1) trade-in value; (2) private party value. The dealership goes by the trade in value and they will say whatever they need to get it below that figure. Before you head off to the dealership, make sure the car is clean, that all of the fluids are topped off and that the tires are properly inflated. Also, when you are calculating the trade-in value of your vehicle be sure to include your mileage and any extra option that it may have so that you can get an accurate value.
Best time to Buy
- Winter Months. Statistics show the this is the best time of year to negotiate prices. As new inventory arrives the dealers are anxious to sell last years stock meaning a better deal for you.
- End of Month/Quarter. Salespeople/dealerships are evaluated on monthly/quarterly sales performance and if they haven’t met their quota they are more likely to deal.
- Monday or Tuesday. Most vehicle sales are made on weekends when people have the time for the negotiation process. Shopping at the beginning of the week gives you more personalized service so that you are not feeling pressured.
- End of the Day. Salespeople are ready to go home, but if a serious buyer walks in the door a smart salesperson won’t say no. The salesperson is more likely to make concessions so that they get home.
Off to the dealership
- First Impressions. First impressions are very important. One thing that a salesperson does when they first approach you is assess if you are a potential buyer or just a lookey-loo. A potential buyer is someone who looks like they can afford a new car and thus will receive better service. This may sound a little silly, but dress up look the part of a buyer.
- Patience. This is a game of patience! Be prepared to spend a good portion of your day at the dealership. The more patient you are during this process, the more money you will save.
- KEEP THEM SEPARATE. When purchasing a new vehicle, you actually have several deals going on at the same time: the car, your trade-in, the financing and insurance(s). It is very important to negotiate each of these items separately. Dealerships are very good at manipulating the numbers. The more deals that they can combine, the better opportunity they have to jumble the numbers so that they can make more money.
- Negotiating the price of the car. The dealership will do everything in their power to talk about, financing, trade-ins and insurance while negotiating the price of the vehicle. The best thing for your wallet is to keep the conversation on the price of the vehicle ONLY. If they continue to push financing, tell them that you are going to pay cash.
- Negotiating the trade-in. Once you have negotiated the price of the vehicle then spring it on them that you would like to trade in your current vehicle. You’ve done the research so you know if they are giving you a fair price or not. Negotiate until you reach a fair value for your trade-in. The amount that you settle on should be deducted from the price that you negotiated for the new car.
- Keep a running total. Be sure to keep notes on the final figures that you settle on with the dealership.
- Negotiating financing. Now is when you are going to spring it on them that you want to finance. Did you know that dealerships receive incentives from the finance companies? The higher the interest rate the more the incentive is for the dealership. Their goal is to get the highest interest rate possible. Instead of working with you on the interest rate you’ll find them wanting to discuss the monthly payment. The reason why they do this is because they can manipulate the length of the loan to achieve a highest interest rate. Another thing that they will do to achieve the highest interest rate possible is work in a down payment, the higher the down payment the higher the interest rate. Your goal during this time is to ONLY negotiate the interest rate and the length of the loan. Once you have agreed, then you can discuss the down payment. Make sure to double check their figures on BankRate
- Insurances and Warranties. This is another area that the dealerships make money. Again they receive financial incentives to sell these products. All of the products that they offer you can be purchased for a lower price from private companies. If you are considering purchasing them from the dealership keep in mind that they are more expensive, they will be added to your loan and you will be paying interest on them.
- You are in control. Stay strong, be patient and stick to these guidelines. Keep in mind that they need your business and know that you have many other dealerships to choose from.
By the way, this process also works on purchasing used cars.
Please come back to share your car buying experience! We’d love to hear your tips!
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