Car buying is stressful. Think about it for a moment – most car buyers are at a distinct disadvantage when buying a new car. Most people only buy a new car at most, once or twice a decade. And you are going up against people who do this for a living. That’s like me stepping up to the plate against a Major League Baseball player. Sure, if I’m extremely lucky, I might make contact. But I’m never going to hit a home run.
While I can never quite level the playing field, I can make it a little more even. If I can get a little more information about the vehicle, pricing, and dealership tactics, then I have a better chance of getting a good deal. I still might not hit a home run, but if I know which pitch is coming, I stand a better chance of at least getting a base hit.
Step 1. Separate test drives from price negotiations
This sounds like a simple step, but it is an important step! Keep your test drives and your price negotiations separate. Visit several dealerships and drive comparable models of competing vehicles to decide which one is right for you. But here is the key – don’t sit down with the salesman to discuss price after your test drive. You are only there to gather information on which vehicle is right for you. You aren’t there to negotiate price – yet! Why is this important? Because if you start negotiating on a car you may end up buying it! Come back for negotiations when you have decided on the vehicle you want.
Step 2. Do your homework and choose your vehicle.
The internet is your best friend.You can use the web to research the type of vehicle that will best meet your needs, read consumer and expert reviews, determine rough price ranges, get a decent idea of your vehicle trade in value, and more. Chance favors the prepared mind and a little homework can give you thousands of dollars for your efforts.
Step 3. Get multiple vehicle price quotes.
With the internet you can get access to multiple new car quotes from dozens of area dealerships, or even dealerships that aren’t in your area if you are willing to drive or have a car shipped (some dealerships will even drive the car and deliver it to you). Check out the following locations for price quotes:
Step 4. Use the quotes for competition
Contact several dealerships regarding quotes, then contact them again to let them know about a quote you received from another dealer. You may be able to use these quotes against each other to lower the price. you should only use this method if you are ready to buy, and you shouldn’t use this too often with the same dealership.
Step 5. Keep the final price separate from payments
Paying with cash is the best way to buy a new vehicle, but if you have to finance your purchase, be sure to negotiate the purchase price only. Dealerships love to focus on the monthly loan or lease payment. Don’t fall for that trick! It’s easy to make a payment seem low when you stretch it out over 5, 6, or even 7 years, or if you front load or back load the terms of the lease. Instead, focus on the bottom line. Focusing on the total vehicle purchase price is the best way to ensure you know what you are paying.
Step 6. Line up your own financing.
You can almost always get a better interest rate if you line up your own financing instead of using dealer financing. Many car dealerships receive a kickback on loans they originate, and the higher the interest rate you agree to, the more money they receive. That said, it doesn’t hurt to give the dealership the opportunity to match your loan rate. If they can match the interest rate you would have received from your financial institution, you may be able to get them to give you concessions elsewhere if you finance through their lender. Remember, your goal is to get the best deal possible, and giving the dealer your lending business might be enough incentive for them to knock off a couple hundred bucks, offer free oil changes for a year, or something else of value.
Step 7. Shop at the end of the month.
Most new car dealerships have quotas and sales incentives. These can vary from dealer to dealer, but most of them involve reaching a total number of sales per month. Many dealers are more willing to make a deal at the end of the month so they can pad their numbers and possibly meet incentives. Some dealers are even willing to sell a particular model at a small loss if it means they reach an incentive that puts the difference (or more) back in their pockets.
Step 8. Negotiate the new car price.
If you weren’t able to negotiate a price via e-mail when you were getting multiple price quotes, then you will need to negotiate in person. make sure you have your research with you, including multiple price quotes and other relevant information. You also want to ensure you are comparing apples to apples and not apples to oranges, so be sure to take into account any extras or options included (or not included) with your vehicle. You also want to be on the lookout for the four square dealership technique.
The four square technique is a way dealers try to manipulate the purchase price, trade in value, monthly payments, and down payment at one time. Dealing with all four numbers at once can quickly become confusing, which is why dealers use this tactic. Negotiate each of these items separately, and if you decide to trade in your car instead of selling it, save that negotiation for the end.
Step 9. Look out for additional fees.
Many dealership fees are essentially made-up fees designed to pad the price – sometimes up to hundreds or even thousands of dollars above the rice you negotiated. Common fees that can be negotiated and possibly even eliminated include: document fees, window etching fees, undercoating, fabric protection, and many more. Also be on the look out for other items dealers want to sell you, such as additional warranties, services, or other high ticket items. Some of these are worthwhile, while others are nothing more than high profit generators for the dealerships.
Step 10. (optional) Use a buyer’s agent.
If all this sounds like too much work, then don’t worry. There are professional car buyers out there who will help you research the right car for your needs and will do all the negotiations for you based on the criteria you give them. They typically charge a couple hundred dollars for their services, but it will save you a lot of time and hassle, and potentially a lot of money. Be sure to research any buyer’s agent thoroughly before signing up for their services (be sure to understand what services they offer, how much it will cost, and other factors). And never send the purchase price of the vehicle to the buyer’s agent. That could be a red flag for a potential scam.
Bonus: How not to buy a car
When I was on active duty, one of our young Airmen decided he wanted a new truck. So he took a cab to the dealership, found the truck he wanted, and paid the full sticker price, without even trying to negotiate a lower purchase price. To top it off, he had very little credit history, resulting in a loan that was almost 20%! Yes, it gets worse. He had tickets on his records, so his insurance rates were quite high. He had very little money left from his paycheck by the time he paid his car payment and auto insurance (even with military discounts). He was stuck staying in the dorms each weekend because he couldn’t afford to go anywhere. It was an expensive lesson in how not to buy a car!
Great article Ryan. I’ve found the best way to get the lowest price is to find out what people are really paying for cars in your area rather than what the dealers tell you. You can find that information at truecar.com or the message boards at edmunds.com have threads for that.