For most of us, buying a car is the 2nd biggest “investment” we’ll make in our lives besides buying a house. I put quotes around “investment” because your average daily driver will never earn you any money; it will only depreciate as long as you own it. But there are at least some basic strategies when car shopping that will help you get the best deal you can.
Financing – Where Dealers Make Their Money
You can negotiate down the price of a car as much as possible, but where do you think dealerships make the biggest bucks when selling a car? It’s when you finance the car.
Of course going in with a briefcase full of cash is the cheapest (maybe not the safest) way to buy a car, but in lieu of paying all cash for your next car, one tip is to shop around for a loan before even walking into a dealership. Get the best rate and loan terms and have the loan ready to go before buying the car. It’s like getting pre-approved for buying a house; just make sure you don’t overspend.
Even if you have a loan ready to go, though, make sure you negotiate the heck out of that car price because we all know the car depreciates instantly when you drive it off the lot (aka try turning around and selling it for what you paid (taxes and all) to someone off the lot. Ain’t gonna happen.
Shop Early, Buy Late
I don’t mean show up at 8am and wait until the dealer closes to buy. I mean start shopping mid-month so you know what’s available, but wait until the end of the month when salesmen need to meet their quotas or unload inventory to get around the taxes and interest they have to pay. The same goes for waiting until the end of the model year.
For example, I was recently shopping for a Ram 1500. Now the model I wanted, fully-loaded, ran for about $55,000, but there was no way I would pay that much! I waited and waited, and sure enough the dealership kept adding more and more discounts. I didn’t end up pulling the trigger, but the last I saw, the truck was marked down nearly $14,000 to $41,000 and change.
Shopping early also gives you a lot of time to do you comparison shopping, test drives and online research on reliability, safety and residual value. Use services like Edmunds True Market Value to determine the going-price and dealer cost of your car and start negotiations from that point. You should never pay MSRP for any car!
As I said, cars depreciate as soon as you drive it off the lot, sometimes by as much as 10-20%. That’s why buying a new car is never an investment (unless it’s a special, limited edition, highly prized, first production number car and you hold onto it for decades). You’re usually better off finding a 2-3 year old car because either the car is still under warranty, just came off of a lease (so it’s low/average mileage and in good condition) or you can still easily get an extended warranty because it’s not too old. Just don’t overspend on an extended warranty unless you’re buying a brand known for expensive repairs (like the German brands…or MINI in my case).
Also, dealerships offer certified pre-owned cars that (usually) go through a rigorous checklist before qualifying for its own extended warranty. You do end up spending more for a certified car than one that isn’t, but it’s still cheaper than buying new.
Do Your Research and Use It!
You’re going to get tons of numbers and options thrown at you…so write it all down! The salesperson may not like this, but it will keep them in check, usually, on what they’re telling you if they know you’re taking notes. It’s not a legally-binding contract just because you wrote it, but if you show them your notes and ask if they are correct, it’s a good way to check their honesty or show that you’re serious about buying.
If you’ve negotiated down as far as you think you can go with one dealer, but it still isn’t as low as you would like, get a good faith contract written out with a 24-hour guarantee and then shop it around to other dealers. If they know you have a firm number and can quickly undercut their competition with little or no haggling, they’ll do it to make the sale. It may only be a couple hundred dollars, but it’s still money saved!
Lastly, do your research into the dealership itself. Don’t take for granted that the dealer is on the up-and-up. Get recommendations from friends, look for complaints with the BBB or internet forums and, in the end, be ready to just walk away from a deal if you don’t think it’s right for you. You have all the power in the negotiations and always remember that!