Finding a good deal is all about competition. Prices go down when multiple companies sell the same thing. Whether it’s buying a car, a big screen TV, or your monthly cable service, making sellers compete will get you the best price. This blog will show you that competitive shopping is the best way to get a deal on just about everything!
I was recently interviewed live on Fox News in Philadelphia. In the segment I discuss the Top Five Car Buying Mistakes you must avoid to get a good deal on a new car. Enjoy!
Do You Dave Ramsey? is hosting our guest post today on How to Defend Against 7 Sneaky Sales Tactics. Here’s a teaser:
…Sales Tactic #5: Breaking down payments. To overcome the “I can’t afford it” objection, a salesman may break down a figure into daily amounts to minimize the appearance of the overall cost. You’ll notice this tactic used for big items like financing a car or a home mortgage. They may say something like, “you can afford an extra $100 a month…it comes to only $3 a day, same as a Starbucks coffee.” But that same $3 a day adds up to $1100 a year pretty quickly!
Defense: Never be conned into thinking about price in terms of payments. Always negotiate the total purchase price, payments are secondary.
Can you get a better deal on a car if you pay in cash? Surprisingly, the answer is no! Maybe if you were buying Rolling Stones tickets in a parking lot, but if you want to buy a car, financing will probably get you the best deal.
Let’s forget for a moment that you will obviously pay more over the life of a loan due to interest and just consider how the payment method affects the purchase price.
If you take away one of their profit centers, do you think that will help your negotiating position? Nope. So use financing to your advantage. Make the deal as if you were financing the car, but if you are paying cash or making a large downpayment, wait to mention this until after you’ve settled on price.
If you will be financing, just be sure the dealer’s financing offer is comparable to low financing quotes you can get online. Higher monthly payments from a high interest rate could easily outweigh any gains you make from a lower car price.
As for credit cards, it’s highly unlikely a dealer will allow you to pay this way. Merchants pay 2-4% in fees to the credit card companies for accepting payments. For most retailers, this is a cost of doing business, but for car dealers it could completely wipe out their profit margin. However….
…many dealers will let you put your down payment on a credit card. As long as you have the money to pay it off immediately, I always do this to get the points!
There are many other factors to consider when deciding between financing and paying cash. Do you have enough cash available? Do you have good credit? Can you make more money investing than you would pay in finance charges? Consider these questions first, but keep in mind that financing is an option that may help you get a lower purchase price.
How do you like to pay for a new car?
Photo by: Emsago
Edits by: BFS
I recently wrote a post about avoiding car buying mistakes that covered the whole car buying experience including research, test-driving and car insurance.
Now I’d like to get a little more specific and point out critical missteps that will cost you money while negotiating a car.
Car manufacturers and dealers purposely hide their cost structure from the general public. Their intent is to make it difficult for average folks to evaluate a car purchase. The car industry makes more money if you can’t determine what is a fair deal.
To help shed some light on the subject, here is a car terms glossary that breaks down common car terms and how they should be interpreted.
| Car Price Term | Description | Negotiable? |
|---|---|---|
| MSRP (Manufacturer's Suggested Retail Price) | This is the "sticker" price required by law to be shown in the window of a new car. The manufacturer decides a retail price for each model (base MSRP) and then adds on the retail price for each option. The dealer is free to charge more or less than this recommendation from the manufacturer, but MSRP is a useful guideline for both you to evaluate comparably equipped cars to each other. | No need. Each dealer will set their own price and give you a quote using this as a guideline. |
| Invoice Price | The price paid by a car dealer to the manufacturer for each car. This price is the same for every dealer across the U.S. However, this is not always the bottom line. There are rebates and incentives to both consumers and dealers that occasionally allow you to buy a car below invoice price. | No need. This is the price to the dealer, not you. |
| Your Target Price | An arbitrary number we use to give you a goal to shoot for. Never mention this number to a dealer since you do not want this to be the lowest you can go. A common formula is invoice price + 2%, but this does not factor in car popularity or current promotions. Edmunds TMV® is a good source to set a target based on market conditions and current deals people are getting. | No need, this is a guideline for your own benefit. In some cases it is possible to buy below invoice, so again, never mention your target price. |
| Quoted Dealer Price | The price you are quoted from the dealer. Since most dealers will not include taxes, tag, or title in their quotes, it’s easiest to use this price to do your comparisons even though it is not the final “out the door” price. | Yes. |
| "Out the door" Price | The final dealer quote including all options plus taxes, tag, or title. | Yes. |
| Destination Fees | The amount charged by the manufacturer to send the car to each dealership. It is the same for a specific model regardless of the dealer's location. | No. Dealers usually pass this fee along to customers directly and it is rarely negotiable. |
| Holdback | Usually a small percentage (2%-3%) of MSRP that is returned to a dealer once a car is sold. This money is typically used to help dealers pay for finance charges they have accrued while keeping unsold cars on their lot. Keep in mind this is a "refund" of money to the dealer for what they originally paid to buy the car from the manufacturer. | Usually not. Since it is basically the dealer's own money, they are often not thrilled with the idea of passing this money along to the consumer. |
| Factory-to-Customer (or Manufacturer) Rebates | These rebates come direct from the manufacturer to you. Edmunds can tell you what incentives and rebates are available in your area. | No. The dealer has no control to negotiate them since they are direct from the manufacturer. |
| Dealer Incentives | Unadvertised cash that goes from the manufacturer directly to the dealer to help boost sales of a particular model. Dealer incentives can be more common at the end of a model year to help clear room for newer models. | Yes. This extra cash to the dealer gives him flexibility to negotiate. |
| Documentation, Dealer Prep Fees, and Add-ons | These fees are a big source of margin for dealers. They cover administrative costs but are often much higher than the actual cost incurred by the dealer. Many add-ons such as fabric protection, paint sealant, and VIN etching can be performed yourself with kits from an auto-parts shop. | Yes. These fees and add-ons are usually negotiable. |
While it’s useful to understand all of these car terms, do not get hung up on specific fees and rebates. It can be a hassle researching and in the end you’re only playing into the dealer’s shell game. They shift around fees and rebates into different categories to try to confuse you. When you negotiate a car price over email, you will ask the dealer to give you a total price that beats their competitors. In the end, they can shift around fees and incentives all they want, but you only need to be concerned with the bottom line and getting it as low as possible.
Photo by Johnath
Most of us dreamed of that magical day when we would turn 16 and could legally get out on the road. It’s a very exciting time and you’re anxious to have the freedom to go wherever you want without having to rely on a parent or older sibling to get you there.
If you’ve never owned a car before or are helping someone else through the process, here are a few things to consider as a first time car buyer before making the big purchase.
It’s important to understand that there are many aspects that affect the total cost of owning a new car on top of the price you pay at the dealership. The biggest factors are:
There’s nothing wrong with buying a used car! Did you know that new cars typically depreciate 20% the moment you drive off the lot? If you’ve been saving money for a $22,000 car, that immediate $4,400 loss can hurt! Teach your kid a good investment strategy and put the extra money into the best 529 plan and buy used. If you do opt for a used car, make sure to order a vehicle history report before you buy. Saving yourself from a lemon or expensive maintenance is totally worth the $30. Also consider taking the car to a mechanic for an inspection before buying.
Whether this is your first car or your 5th, make sure you negotiate the best price. More on that here.
This is probably your biggest challenge. Some lenders will work with people that have little history or bad credit, but you can expect to pay high rates. If you don’t have the cash to buy a car outright, your best bet may be to get a co-signer for your auto loan. If you have a parent or relative willing to vouch for your creditworthiness, this is a great option. In the long run it can also help you build credit if you make your payments on time. Keep in mind though that if you miss payments, you not only damage your own credit, but the co-signer’s as well.
Understand the total cost of ownership before deciding if you can afford a new vehicle. Create a budget that includes all your costs and strongly consider buying used. If you opt for a new car, make sure you get online car quotes and negotiate with multiple dealers over email.
And although it should go without saying, please remember to always wear a seatbelt and don’t drink and drive.
Can you think of any other tips we’ve missed?
Many people have asked us this question. The answer is simple, absolutely not!!! Now if you want to buy a car online, there are some perfectly safe sites like CarsDirect, and they will give you a low price guarantee. However, it’s certainly understandable that you may not feel comfortable dropping 10-30 grand into an online shopping cart. We are strong advocates of negotiating online, and that almost always leads to a physical purchase at the car dealership.
The reason it’s in your best interest to negotiate online is that you can make multiple car dealerships compete with each other to offer you the best price on a new car. If you were physically at a single dealership, there’s no competition and the salesman has far less of an incentive to give you a competitive price. On the other hand, if you get Internet car quotes, each dealership knows they must give you a competitive offer.
Your best bet is to go to a dealership, take a few test drives, and then go home! Get on your computer and negotiate over email with multiple dealerships. Once you’ve settled on a specific car and price, THEN go back to the dealership to finalize the sale. You’ll still have a chance to kick the tires and examine the merchandise before you sign on the dotted line.
A new car is probably the third biggest purchase you’ll ever make. Many people would say it’s the second biggest, but c’mon, weddings are expensive! At any rate, if you’re going to spend that much money it’s worth doing everything in your power to avoid expensive car buying mistakes. Here’s what to look out for:
Image by zhizoid
