The Single Most Important Thing to Know About Buying a Car!
If there is one thing to know when you go into the dealer to buy a car it is this:
You are there to negotiate the price of the car!
One more time: You are there to negotiate the price of the car – period – end of story. Not the monthly payment, not the add ons, only the price of the car.
You are not negotiating your monthly payment.
Your monthly payment is a mathematical function based on the price of the car. Yes the dealer can add padding here to make extra profit, but if you have done your homework you will know what type of loan you should qualify for. Better yet, if you are taking advantage of special financing rates there really is no way to add padding without you knowing. For example, if you are offered 0% financing and you are buying a $25K car with $5K down over 60-months, your payment is $333.33 + Tax. The question should be whether or not you can afford the $25K. If you have your references, you will know exactly how much the car should be and what any changes in price for add-ons or better deals will do to the monthly payment.
With Leases, it is much more difficult. This is where dealers like to negotiate monthly payments because they can hide many costs into what feels like a good deal. If you lease, you have to know the entire picture, understand depreciation, lease factors, and how down payments work. Remember in a lease, you are paying for the depreciation of the car set by the bank. Down payments should accelerate the payment of that depreciation and not pay down the residual. It is not always easy to tell, but if you add all the numbers and compare to traditional leasing you will get an idea of the interest and value you are paying. Even then, if the deal could seem good like .9% financing, but if you plan to turn the car in then the residual is important because the more it goes down the more you have left on the table. Use caution when leasing.
You are not negotiating your down payment.
Plan to pay the typical fees (license, registration, etc). Anything beyond that you should already have set in your mind and planned out ahead of time. The only need for a down payment is to reduce your monthly payment. Again, it is a simple mathematical calculation using a loan calculator or amortization schedule. References on what and how to use these tools can be found in older posts on this site. The only other reason for a large down payment may be due to poor credit. If this is your reason, know it going in and learn what the banks will expect of you.
You are not negotiating the term of your loan.
This is something you should know upfront. The longer you extend the term the lower the payment, but it comes at higher interest and an increase cost to the overall car purchase. You should determine what works for you before you go into the dealer. When numbers start flying, they can throw a curve ball to you that sounds good, but in reality, is worse for you.
You are not negotiating your trade in……ok maybe some negotiation here.
In reality most dealers are only going to give you low blue book trade-in value. If they give you more than that, your probably losing somewhere else. Key here is don’t expect much above the low blue book number and be mad when that is what they offer to you. Part of the negotiation tactics are to miss-guide you with insulting offers and put you on the defensive. This clouds your judgment on other issues and typically allows them to win the negotiation. If you want to get more for your trade-in, sell it. I have even set up arrangements with car dealerships that if I can’t sell my car in a certain period they will still give me the same offer. Needles to say, I have never had to take the car back to the dealer. Usually, the offer is so below market price that even a 10-15% increase in the price they offer you will still be far below market that you will sell your car in no time.
I highly suggest reading “Dealerships Rip You Off With The “Four-Square,” Here’s How To Beat It” from the consumerist.
It illustrates eloquently how this piece of paper is used to guide you through incorrect negotiation. It is designed to focus your attention on the points such as I have listed above. Over the last five years, I have bought a few cars and helped many others in my family. On all of them, I have avoided using the paper. One dealer, however, tried to use the paper so I grabbed it and wrote the following:
0 – down
Price equal to 10K below sticker
$1 per month
Dealer sign here___________
I put them on the defense and consequently did not buy a car from them.
I can not stress enough that preparation is your weapon. If you come prepared with your facts and know the math behind your offer, you can then concentrate on the price only. You will walk out from the dealer with a good deal and not have to burn time or your hard-earned money.