How to negotiate the price of a car?

There’s no place easier to get suckered than a car lot. If you learn how to negotiate, haggling isn’t hassle.

Whether you’re buying new or used, salespeople make commission on price. The more you spend, the more they get.  Most of us drive around in 2-ton hunks of metal with no idea what they’re worth. (Or how to repair them.)

When it comes time to replace them, buyers head over to Kelly Bluebook to check the current value. If you think the car lots don’t know that we’ve got a lime green Ford Pinto to sell you.  Some owners are shocked by the depreciation, others are grateful for what they can get. But knowledge is power, right?

Just FYI – the dealership couldn’t care less about your trade-in. They will give you whatever it takes to close the sale.

This is the problem. Knowledge is power only if you know the right stuff. It’s why so many people get suckered trying to buy a car.  Most of us don’t. Let’s see if we can reduce the sucker quotient.

New or Used?

There are great pre-owned cars and fresh-off-the-lot lemons. Whether you buy a new car or used car, there are pros and cons to either purchase.

Whether you buy new or used, you want to get the best possible value. Notice we didn’t say price. Cars aren’t cheap. Cost is important but it’s not the only factor to consider. Check out the steps below to negotiate a deal that works today and looks out for you tomorrow.

7 Steps to Negotiate the Best Price on a Car

Here are the ways to cut a deal with the most-savvy salesperson.

1. Check the financing

According to Kelly Bluebook, in 2020 the average price of a new vehicle (across models and brands) is just over $37,000.  Let’s run through what you need to be checking when you’re getting ready to buy.

As always, money is where you start. Check the options on financing, particularly if you’re considering a used car. Unless you’re paying cash, the interest rate is an add-on to the sticker price.

There’s a good calculator at Cars.com. One of the better features is the Affordability tab. You put in the price of the car you want, and it generates the payment amounts. When you’re standing in front of that BMW you always dreamed of owning, it’s easy to get pulled into a financing deal that will break you a year later.

Think about that payment long term. Once that BMW has a little wear and tear – is the price tag going to be worth it? Don’t forget to check the resale value. A BMW I series depreciates 35% in the first year. This calculator shows depreciation rates on the make and model of most vehicles.

Be clear about how much you can pay monthly and how much of a down payment you’ll make.  Check your car buying history? Do you drive your car until it dies, or do you replace it every two years? Knowing the resale value makes a difference in the latter.

Just because you have a good income and great credit doesn’t mean you can’t get suckered. Don’t pay more money for a car just because you have it.

2. Research the vehicle

When you’re buying new, research the different makes and models.  The price of a vehicle is related to the trim level. Trim levels are variations on within the model – for example, four-wheel drive or front-wheel drive? Do you want a V6 engine or will a four-cylinder do?  The more familiar you are with the variations, the better equipped you are to negotiate.

Also, take a look at the options. This is where you can add on leather seats, remote start, or a DVD player in the back seat. Though there are options galore online, not all dealers will offer them. After options, there are packages, which are bundled options. They all cost extra.

When you’re buying used, it’s good to know the trim levels. When you’re buying used, be prepared to compromise. If you know the trims and options, you can make better decisions. List 2 or 3 trim levels you like. If there are options or packages you want – decide which ones are deal-breakers.

J.D. Powers Reliability Index has the most reliable vehicles from 2020 t0 2003. The internet is full of articles about the best-used cars and bang for your buck.  Honda and Toyota typically lead the list. When you understand the available financing, you may be able to upgrade to a better model.

Once you see a car you like, you can check out more than its repair history. Two great sites for the inside details on new and used vehicles are Truecar.com and CarGurus.com.  They help you understand market value and show the movement of a used car from one car lot to another.

3. Timing is everything

Car lots have quotas. They have a complicated inventory management relationship with the manufacturers. If you want to get the best deal on your car, go buy it at the end of the month.  Even better at the end of the month at the end of a quarter.

If the dealer is close to quota, he or she will be looking to make a deal. If they won’t budge – it means they are underwater, and one deal isn’t going to help.

4. All rebates are not created equal

Once they find the car they like, car buyers tend to shop around on price. It’s normal to see the price be close, if not the same, across most lots. Then you come across a lot with a much, much lower price.  You’re cautious, sounds too good be anything but a scam.  But then you see they’re offering rebates. Rebates aren’t a scam.

Until they are.

FYI – no one sells cars for less than market value. There are a gazillion rebates out there – if you qualify for them.  When a dealership uses rebates to drop the sticker price on the car, it’s just to get you on the lot. They think once they get you there, you’ll buy the car from them. After you’re done discovering just how few rebates apply to your purchase.

It’s the epitome of the car salesman stereotype. We encourage buyers to reward this lack of concern by walking out. If they’re willing to mislead you before you buy, imagine the quality of service you’ll get once they have your money.

5. Test drive the car

It’s time to head to the dealership, new or used.  Walk around the lot and see what they’ve got. Tell the salesperson what you’re looking for – color, trim, drive train, mileage. They will ask about your budget and try to get you to bump it up.

Be strategic and say your budget is 10% lower than it is. The salesperson will encourage you to look at vehicles that are higher than the price you set. Especially when it comes to the test drive. Everything up until you take the car out for a spin is based on data.  The test drive is where emotions kick in.

When you take a test drive, it’s about a gut feeling. You either feel comfortable in the car or you don’t.  That’s why the sales guy will try and put you in a car that you can barely afford.  It’s also why you never buy the car the day you take the test drive.

If you like the car, it’s really easy to get talked into buying it. Even paying more for it than you planned. Don’t do it.  Don’t listen when they tell you it will be gone if you don’t buy it now.  That’s a sucker’s bet, especially for a new car.

For a used vehicle, there’s more of a chance it could be gone. If you really can’t let it slip by, make sure you’re prepared to negotiate a fair price.

6. Prepare for the transaction

Once you’re ready to sit down to discuss the deal, you’ll be ushered into the office. A sales manager will pop into schmooze you for a minute. There’s a stack of paper to sign. It’s stagecraft.

The salesperson wants you to think he or she is in control of the deal. Not true. The buyer is always in charge of the deal. Nothing happens until you say it happens. When you internalize that power, you come from a much stronger position.

Know this: If you walk away, they will come after you.

If you go into that office, jabbering about how much you want the car, you’ve given up the power. They know exactly what buttons to push to get you to buy – and buy big!  It’s easy to get suckered when you’re emotionally attached.

Take a deep breath. Step back and remind yourself you’re buying a car, not marrying it.  Once you sign those papers, divorce is not an option.

 

7. Negotiate your Deal

Now’s the chance to get the deal done. We recommend setting an appointment to take one last look at the vehicle and complete the sale.

Once you’re ready to sit down, you’ll be ushered into the office. A sales manager will pop into schmooze you for a minute.  The buyer controls the deal, but a successful negotiation should satisfy both parties.  The dealership has to make a profit to survive. If you’ve prepared, both parties will walk away happy.

When it comes to a new car, never negotiate from the sticker price. That’s the price they want you to pay. Instead, look at the invoice price – that’s how much they paid for the car.  If you subtract the invoice price from the sticker price – you get the margin on the sale.

Somewhere in that margin is your best deal. Make sure the number you have in mind is reasonable.

More Information

There’s one other thing to know about the invoice price. It may not be the actual amount they end up paying. Manufacturers offer what they call a “hold-back” price. It’s a kickback of sorts – they pay back the dealer for selling the product.

Watch out for fees the manufacturers will try to push off on you. You shouldn’t have to pay for the “advertising cost” for Ford or GMC. Fees are an issue you need to monitor. It’s even more important when you’re buying a used car.  For example – do not pay any destination fees for a used car. Also, don’t pay fees for cleaning the car, advertising, or website maintenance.

Be Smart

If you offer $15,000 for a $32,000 vehicle  – it’s offensive. To be frank, it also makes you look like you don’t know what you’re doing.  This is the one time the dealer may very well ask you leave – and they won’t be coming after you.

It’s just not a good strategy. If you did end up buying a car there – you’ll always be that guy. It creates a contentious relationship that could filter down to service and repairs.

Here’s the Deal on Getting the Best Price on a Car

You can negotiate for the car you want and can afford.

  • The buyer is in control of the deal. Repeat that like a mantra. Nothing can happen unless you let it.
  • Do your research. There’s no excuse for being unprepared.
  • Keep your number in mind at all times.
  • Pick your dealership and your salesperson.
  • Never buy on the same day you take a test drive.
  • Don’t get pushed into a car you can’t afford long term.
  • No matter how much you want that car, be pragmatic – not emotional.
  • Remember the best deals satisfy both parties.
  • A dealer needs to make some profit to stay in business.
  • It’s never smart to offend the other party.

Never forget – you can always walk out the door.  And if you do it right, they will come after you. It’s the best part of negotiating the price of a car. 

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