When you’re negotiating a car deal, knowledge is power. The more knowledge you have – about the price of a car, about how dealers try to up their profits, and about when to say no and walk away – the better car deal you can negotiate.
Here are some tips for negotiating a car deal:
Step 1: Research the type of vehicle you’re interested in
There are many excellent Internet sites that tell you the invoice cost of the vehicle and the cost of add-ons such as additional safety features or special value packages. Print out the information so you can compare it with what the dealer offers when you’re negotiating the car deal.
Step 2: Get pre-approved for a car loan
Dealers are in a position to make a lot of money when they provide the financing, potentially at your expense. If you agree to a higher interest rate than what the lender is offering, for example, they get to keep the extra cash. When you get pre-approved, dealers also aren’t able to use one of their favorite tools in negotiating a car deal: Selling you a car based on monthly payments, which can mean stretching out the payments and costing you thousands in additional interest.
Step 3: Don’t start out telling the dealer you have a trade-in
You want to negotiate the best price for the car you’re buying before factoring in a trade-in. Dealers can make it seem that you’re getting a bigger break on the price of the car by upping the supposed value of the trade-in when you’re negotiating a car deal. You’ll get a fairer deal if you talk about a trade-in after agreeing on a purchase price for the new car. (Remember that dealers will not pay more than wholesale for your old car, which is less than the private-market price.)
Step 4: Offer between $100 and $500 over invoice
Dealers already are making money on the “dealer holdback,” a discount manufacturers provide dealers to help defray advertising and other costs. Also, remember that the Manufacturer’s Suggested Retail Price, or MSRP – the price listed in the printout in the car’s window – is significantly higher than the dealer invoice price. Here’s where that pricing research you did earlier will help you negotiate the best deal.
Step 5: Be prepared to walk away
Dealers know you are more susceptible to sales pressure right after you’ve driven the car, so they don’t want you to leave and think things over before you’ve finished negotiating the car deal. They hate losing a sale, so if you have to, threaten to leave and be ready to follow through.
Step 6: Resist the back-end add-ons
Once you’ve negotiated the car deal, most dealerships are just warming up. They will try to sell you insurance, extended warranties, special coatings, detailing and other “services” that increase their profit. Experts say most of these add-ons are not worth the money, although some people like the peace of mind that comes with an extended warranty.
Finally, drive home in your new car, secure in the knowledge that you’ve just negotiated a great car deal.
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