Purchasing a new car can be both thrilling and terrifying. Falling in love with a car is the easy part.
That usually happens the minute you get behind the wheel for a test drive and get a whiff of that new car smell.
The hard part is navigating the minefield of salespeople, sales managers, and finance managers while negotiating the sales price, payments, and finance terms.
By knowing a few tricks of the car sales trade, you will be able to go into battle forewarned and forearmed.
Trick #1: Appealing to Your Emotions:
The reason the salesperson insists that you take a test drive is not so you can make an educated car buying decision. They want you to feel emotionally invested in the vehicle.
When you get behind the wheel, your excitement automatically begins to build. By having you adjust the seat, mirrors, and tune the radio, the salesperson paints a picture in your mind of what it would be like to own the car.
They know that you are more likely to purchase and be open to negotiation while still on the emotional high of imagining yourself enjoying those leather bucket seats.
Tip #1: Sleep on It:
An impulse buy is fine when you are talking about a candy bar at the supermarket checkout but not when you are talking about an automobile with a five-figure price tag.
You should never go car shopping with the idea of making the purchase the same day.
If you see a vehicle that peaks your interest, go home and return the next day when you have had a chance to think about it clearly.
Trick #2: Negotiating Payments Instead of Price:
Once you sit down to discuss price, the salesperson will probably ask you what you are comfortable with in terms of a monthly payment.
We naturally find it easier to relate to the idea of a small monthly figure as opposed to the total purchase price with interest charged over the term of the loan.
By helping you get into your dream car at the lowest possible monthly payment, the salesperson appears to be doing you a favor.
In reality, he is distracting you from the purchase price of the vehicle as well as how much you will pay in interest. Remember, a lower payment will mean a higher interest rate and a longer loan term.
Tip #2: Focus on the “Out the Door” Price:
Start by politely but firmly letting the salesperson know that you only want to discuss the individual price of the vehicle at this time and not the monthly payments.
This will also help you uncover any extraneous fees that the dealer may tack on to the over price. In the end, you can save hundreds or even thousands of dollars by negotiating price instead of payment.
Trick #3: Dealer Installed Accessories:
If you test drive a popular car model, the chances are that the dealer has pre-loaded it with optional accessories that come at a high markup.
If you purchase that particular vehicle, you will end up paying for all of the pre-installed accessories.
While the extra bells and whistles may be nice, they can add thousands to the purchase price.
Be sure to ask the salesperson for an itemization of all optional accessories that have been pre-installed in the vehicle that you are considering as well as their cost.
Tip #3: Don’t Take Delivery from Stock:
While you are following the advice in tip one, consider whether the benefit of the optional accessories is worth the price.
For example, if you live in Minnesota, built-in seat warmers may be worth any dollar amount.
This same may not be true if you live in Florida. If you decide you do not want the dealer upgrades, you do have some options.
You can ask the dealer to custom-order the vehicle from the factory without the extras. The dealer may discourage you by saying that you will end up paying more, but this is generally not the case.
You may even end up paying less since you will take delivery immediately upon delivery, which allows the dealer to avoid financing fees for holding the car in inventory.
If the dealer requires you to pay a deposit for the vehicle, you should make sure it is fully refundable if you should cancel. A second option is to ask about the possibility of a dealer trade.
This involves an exchange of vehicles between dealers so that you can get the vehicle with the options you want.
Trick #4: Interest Rate Markup:
The interest rate you are quoted by the car dealer represents what they will be charged by the lender as well as an additional percentage charged by the dealership for their own profit.
In most cases, you can expect the interest rate quoted by the dealer to be approximately two percent above what the bank charges them.
By negotiating a favorable interest rate, you can save hundreds over the life of the loan. For example, a $23,000 loan at four percent over 72 months ends up costing $25,920.
By reducing the interest rate to three percent, the total cost drops to $25,200, which is a savings of $720.
Tip #4: Do Your Homework:
One way to prevent being overcharged on interest is to learn your credit score beforehand.
As a general rule, individuals with credit scores over 780 should expect to pay interest rates between 1.49 and 3.49 percent.
Customers with average credit typically pay between four and six percent. You can also talk directly to your bank to find out what they would charge.
Trick #5: The Incomplete Quote:
Many car buyers contact a variety of dealers to get verbal quotes on a specific vehicle model.
The salesperson may quote a price minus freight or destination fees in the hopes of enticing the buyer to the dealership. Once the customer gets to the dealership, the salesperson adds on the additional charges, which can add anywhere from $500 to $1,000 to the purchase price.
When told about the original quote, the salesperson says they are unable to honor that price without a written quote.
The salesperson is relying on the fact that you will be so tired of car shopping that you will be willing to pay the higher price.
Tip #5: Be Willing to Walk Away:
When calling for quotes, specifically state that you want the price including freight and destination fees.
If the dealer still tries to change the price quote once you arrive in person, be willing to leave and take your business elsewhere.
Once they realize that you are serious about walking away, the salesperson will likely honor the original quote.
Now that you are aware of some of the most common car dealer tricks, you should be able to navigate the car buying process with confidence and a minimum of stress.