10 Ways to Buy a Car Without Getting Ripped Off

By Kevin M

Buying a new car has never been one of my favorite things to do. It’s not that I don’t absolutely love the idea of having a new car, I sure do! But the flaming hoops you have to jump through at the dealership to buy a car takes some of the fun out of what should be one of the most exciting events of your life

Car dealerships offer an attractive and convenient package of services that make the car buying experience much easier:

• They have the new cars we want (aaahhh, the new car smell!)
• They’ll buy our old cars from us, sparing us the trouble of selling them ourselves
• They provide financing, saving us from having to shop at banks

One stop shopping at its best—but with this ease and convenience comes a high price. Because dealers have all the car buying bases covered, they also have the upper hand at the bargaining table. The minute we walk into a car dealership, we’re at a built in disadvantage. We want a certain car, and the dealer has it—along with everything else necessary to help us get it. How could THEY ever lose?

They can’t, unless we take steps to remove the power from the dealer and stack the deck solidly in our favor.

1 ) Make sure you aren’t “upside down” on your current car

Get the payoff balance on your car loan; get the approximate book value of your car (see #4 below). Compare the two; is the loan balance higher than the car value? If it is, you shouldn’t be buying a new car. In the car business, that’s called being “upside down”, and no small number of late model car owners are in that boat. Rapidly depreciating car values combine with low- and no-down payment financing to make it happen.

Car dealers will tell you that you CAN buy a new car even if you’re upside down. What they aren’t as quick to say is that the deficiency—the amount by which your loan balance exceeds the value of the car—will be rolled into the new loan, putting you in an even deeper hole.

2 ) Line up your financing in advance

Many people like the relative convenience of dealer financing, but this can work against us on two fronts. First, dealer financing is a major revenue source and they will pad it, raising the cost over the term of the loan. Second, relying on the dealer for the loan as well as the car transfers all of the bargaining power from us to the dealer.

Apply at your bank or another non-dealer source, and get a pre-approval letter. That letter will improve your bargaining power, and force the dealer to offer better loan terms than the bank if they want your business. That’s a win-win for you.

3 ) Have your down payment ready before you go to the dealer

Sell your old car, rather than trading it in. Carmax buys cars even if you don’t buy from them, and will provide a window during which their offer is good. At a minimum, get an offer before going to your dealer so you’ll know if the dealer offer on your trade-in is a good one.

4 ) Get the real value on the car you’re considering

Kelly Blue Book is a widely recognized car valuation service, and you can check values on their site for free. Get the value of the car you wish to buy so you’ll know what a good deal looks like. You should pay no more than the value indicated.

Get the value of the car you already own as well. They’ll provide a range of values, and the one that’s lowest will be most relevant. That’s the minimum value you should get from a dealer. Anything less, and you’ll know the dealer is cutting you a bad deal.

5 ) Don’t get locked into working with a single dealership

There are more than 20,000 car dealerships in the United States—that’s an average of 400 in a typical state. Take advantage of those numbers, and shop between dealers—and let the ones you’re working with know that you’re doing it. You have options—make sure the dealer knows it as well.

6 ) Refuse add on’s

Credit life insurance, extended warranties and undercoating—you don’t need any of these but the dealer will tell you that you do. Practice saying “no” before you get to the store!

7 ) Bring a negotiator in case the going gets tough

It’s sometimes said that “The man who represents himself in court has a fool for a client”; so it is when buying a car. Unless you’re a hard-nosed, seasoned negotiator, never go into a dealership alone. Bring along a trusted friend or family member who is, then step back and let them handle the give and take. Car dealerships are set up to weaken our bargaining power; never underestimate what you’re walking into when you enter one.

8 ) Be ready to use your “Nuclear Option”—get up and leave!

If the final deal isn’t to your liking get up and leave! Never forget that the salesman, his manager and the finance guy all need your business, more than you need their car. You can go down the road to the next dealer if the one you’re talking to doesn’t cooperate. The dealership staff know this, but will do a very credible job of convincing you that it isn’t true. Don’t fall for it! You have the power, and walking is the greatest demonstration of it – especially with a cash down payment and pre-approved financing in your hand.

9 ) Don’t lease a new car

Lease transactions are more complicated than straight purchases, and for that reason alone, they should be avoided. There’s too much room for fine print and gotcha provisions, none of which will work in your favor. With leases all of the good news—the money saving provisions—are on the front end. And you know what that means—all the bad news is on the back end when you’ll be trying to get out.

10 ) Keep your emotions in check!

You’re buying a car and the heartstrings are tugging; after all, in America, you are what you drive. But more important, you’re entering a business deal.–never forget this! Your emotions have enormous potential to put more money in the dealer’s bank account. Put your business hat on and stow your heart until the purchase is done.

So now you’re armed and ready to deal from a position of strength—now go cut your best deal on a car!

Can you think of any other strategies that will improve your bargaining position in buying a new car? Do you have a car buying experience you’d like to share—good or bad?