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. There have to be better ways to buy a car, and I think there are.
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 ) One of the best ways to buy a car: 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?
When I bought a new car, I negotiated the price and got them to email it to me in writing before I even showed up at the dealership. I did this with several dealerships until I got the price I wanted. Then, I went to the dealership I had selected to pick up my car. With this method, I got my vehicle around 8K under MSRP.
Julie – That’s a valuable suggestion. You’ve used technology, in this case email, to handle the negotiations. It’s easier to be tough on email than face to face, so this is an option if you don’t know anyone who can do the negotiations for you.
The dealers need to make a deal, and that’s our ace in the hole.
Great tips. I would add “be willing to buy used.” The depreciation of new vehicles (once driven off the lot) is appalling. Why not buy something 2 or 3 years old and let someone else take the hit.
Ken – Excellent point; but that’s tomorrow’s post!
I just bought a car and had a fun experience at the dealer. I had my hand forced a bit as my engine needed to be replaced on my toyota highlander (that I had owned for only a year and a half) so I used that as a bargaining chip to get a better trade in value- knowing all the bad press they have going on. I enjoy the wheeling and dealing aspect. Even though I get a little bored when they make you wait every time they need to check with the manager. thanks for the posting tips!
Ted, I understand from a neighbor who sold cars for a number of years, that the process of the salesman going into the managers office for a private pow wow is part of the game they play. The salesman goes in to “beg” on your behalf, fighting to get the coveted approval for the deal you want, but they’re both really on the same side of course.
If you’re a wheeler-dealer type by nature, you’re in a good position walking in the door. Personally, I think the best company to buy from is the one most recently injured–they’ll be more anxious to please the customer.
Excellent advice. There is no excuse not to be informed when you can find lists like this on the internet. Thanks again!
Thanks Elliot! That’s so true, all of the information we need is not only out there, but easy to find on the web. There’s no reason to allow ourselves to be put into a position of ignorance when we’re sitting in front of a fast talking salesman. He can’t make us do anything we choose not to.
You can avoid number 7 altogether by using internet sales. Many dealerships now offer internet specific sales with no negotiation necessary, and with KBB online you can check prices and look for deals. Internet sales managers are typically paid a bonus for volume and do not make the same comissions per car that a typical salesman will make.
If it is a used car, set up an appointment with your mechanic and take the car for a test drive and have it checked out. I bought my last car this way for 2k under blue book.
That’s a valid point, but some people are better at business than others, so I’d still have someone with a stiff spine if you don’t feel strong enough to do it yourself.
#2 is very important. Walking in with pre-approved financing gives you the upper hand in negotiations.
Mike – it also forces the dealers hand if they want your business, and they do. The financing is an important part of the revenue stream for the dealership as well.
Valuable tips,i have that standup and leave policy and it worked mostly,but keep in mind you should use this tactics at the last round to squeeze the maximum out of them.At initial stage use normal negotiation tactics to bring them down and finally hit the nail with this technique.
Great list Kevin, along with Kelly Blue Book another site I used to do my homework and lock in the best price when I was recently buying a new car was truecar.com
This is a fantastically written article. It successfully clarifies all the queries of buying a car. Car purchase is not like buying a coffee from Starbucks. It needs much more research and analysis. Also, the right kind of attitude is very important. The dealer needs you to buy his car and you have several other options. Don?t forget this. It will help you to negotiate sternly.
Well put. The car dealer needs your business, and that’s your biggest advantage. They’re skilled at playing harball, but that’s just part of the game. Hang tough and you can get a solid deal.
Hi Jose–If we aren’t willing to walk away from a deal we’re hooked and we’ll get taken. I think it’s very imporant to let anyone we’re dealing with know that we will walk. Dealers need us more than we need them.
My favorite car buying story was when I walked into a dealership for lunch, test drove a vehicle (Used, but it was the car I wanted) and offered them 17k, about 2k below their asking price. I told the salesman that I had 10 minutes and I had to get back to work and that if they accepted that I would be back that evening to pick the car up. He came back from the “tower” and said they accepted the offer, I was actually surprised since it was a three year old expedition that was probably in the 30k range when new. But I went back and picked it up that evening.
The one thing I can’t stand about dealerships is when they try to work around the “Monthly Payment” you are willing to spend. They will do everything in their power to put you into something far more expensive then you want or need. Know the Price range you are looking to spend and don’t let them steer the sales pitch towards a monthly payment.
Hi Jose–Keeping your focus on the monthly payment is a dealer favorite. If they can “get you into a payment”, you won’t even notice that you’re paying too much for the car.
I’m guessing that what made your deal work was the 10 minute thing. They saw a deal on the fly and decided to take it. YOU created the sense of urgency in this case, and they took the bate. Excellent strategy Jose!
Thanks Kevin, I think the most important point is one you made. the “nuclear Option” is the ultimate tool whether you are buying or selling. Many a counteroffer is made to the back of a prospective buyer or seller as they walk away from a deal!
Hey Kevin,
These are great tips to make a wise purchase of a car. I usually believe in getting a second hand car, and that also a big and hefty one. This way I can make my dream of driving a great vehicle and that also at an affordable price. So, benefits at both ends. Thanks for the tips.
Hi Aayna–Like you I’m also a big fan of buying used. When you do, you don’t end up getting stuck with the new car premium that vanishes the momeent you drive the car off the lot. And like you said, you can get the car of your choice, where if you buy new you may not be able to. It’s a compromise, but a good one.
Everyone has mentioned Used car vs new thought I would pipe up about some great experiences with buying the demo. The one they test drive for interested buyers.
Its usually more than 10% cheaper than the brand new and often has less than 1000 (mile or kms depending on where you are). You still have a new car warranty and smell. And when you drive off you don’t get belted with losing 1/6 of the value of your new car as soon as it hits the pavement.
Hi Mike–That’s an excellent suggestion. But I’d continue to use all the strategies above so that you get an even better deal. Dealers will resort to the usual tricks to get you to pay more, even on a demo.
It’s a sign. I was about to buy a new car when I came across your article. Thanks for the useful tips.
Hi Joy–Funny how that works! I’m glad to be there in the nick of time.
I’m saving up and planning to buy my very first car in the near future, and i thought it was so easy to purchase one. And then I came across your article and I never thought that car dealership can be pretty scary! Thank you very much for sharing what you know. I’ll be even more careful and think over about my plan of purchase.
Hi Veronica–Glad to be of service.
The excitement of having a brand new car. Your article was very informative. I’ll be following your tips when I decide on trading my old car for a new one.
Thanks Stacey, that’s the highest compliment!
I never thought purchasing a car can be a mind-boggling experience. Well, I have to think things over once again. there are so many aspects to consider when purchasing a car. it’s not just a simple swipe of one’s credit card. Thanks so much for this!
Hi Kelly–Buying a car is very much a give-and-take situation, and it could cost you thousands more if you don’t come out on top in the exchange.
I used to think that buying a car is like buying groceries. Too easy. But after I read your article, I never thought that all the steps can be quite complicated. Careful planning before the actual purchase is needed, even for impulsive spenders.
Hi Calra–I’d say especially for impulsive spenders (car dealers LOVE them!). The reason you have to plan and be prepared is that you’re going up against a carefully crafted process designed to maximize revenue to the dealership. None of it is accidental! If you don’t have counter strategies, you will always pay too much.
I usually buy second hand cars and I bring along a mechanic to check the kinks and possibly negotiate a good price. I recently bought a Ford Explorer at almost half the price of what you’d pay for a brand new one.
Hi Kristine–Used cars are the better deal in my opinion. But this article is aimed at those times when you might prefer to buy brand new.
My husband and I are about to buy a new car. He tells me that he knows what he’s doing but I’ll still be showing him your article. Thanks for the very helpful information.
Hi Kristine–I hope the article helps. Just following 2-3 of the suggestions can save a lot of money.
There are a lot of car dealerships which offer a lot different promos. Some are better than the others. We just have to consider a lot of things. Thanks for these wonderful tips.
The world is very ironic. I am a car dealer and I was reading your article (well written and I agree with some of the info and disagree with some too). But, on the bottom of the article is an ad for a car lead aggregator. Basically, your making money off of the ad on the backs of the people you are trying to help. They read your article, put their info in and then get slammed with offers from tens of dealers in their marketplace. I’m not saying it’s wrong to get paid for what you do (whether you are a writer, a nurse, a cop or a car dealer who invests dearly in our local communities), I’m just saying that life if more complicated than it appears. It’s hard to be a true consumer advocate in a capitalist society where we’re all looking to get paid for what we do.
Hi Jill – That’s an issue I DO struggle with. I’ve even written about it. As a blogger, we sign up for ad packages. It’s an assembly line approach to advertising that streamlines the process for both advertiser and publisher. The system matches ads to the basic content of the article. So anything about cars will have ads for new cars. I could be writing a post about the evils of cars, but ads will pop up encouraging people to buy new cars.
What’s even more ironic, is when I write about the evils of credit cards (one of my favorite topics) and ads show up hawking the lowest rate credit cards, or debt consolidation credit lines.
Like all bloggers out there, I can’t run this site without ad revenues. In doing so, I am “compromising my beliefs” – preaching against something on one hand, but getting paid by the purveyors of it on the other.
Unfortunately, the world isn’t a pure play anymore (if it ever was). We all have to make a living, and that means accepting certain practices that we would rather not. In order to live a pure life, you’d have to drop out of mainstream life and join a monastery. I’m not prepared to do that, and I have a family to support that would keep me from doing it anyway.
As a Christian, I sometimes take heat for supporting companies that “support” abortion or gay marriage, as if that should be the litmus test of who I should do business with or recommend. I counter that no company (and no person) is completely pure, and if I were to follow that strategy, I’d have to drop off the planet.
So let’s say we all have to accept necessary evils in order to make a living. I’m not happy about it, but it’s the world we live in.
Seriously, thank you for your observation, it’s a very valid one, and a real conflict for most bloggers.
There are a lot of good ideas in this article. I sold cars for years and now I help folks save money the next time they buy/lease their next vehicle. “I Never Wore Plaid” Insider secrets from a former car salesperson.
Congratulations Joel, you’re now one of the good guys! I don’t mean to attack car sales people, but there is a predictable routine they go through that’s part of the industry standard, and it isn’t beneficial to car buyers. The only way around it is to have a multi-part strategy to deal with what you know is coming at every step of the process.