Negotiating with car dealers – 6 steps for success
- Know the vehicle’s value before starting to negotiate a car deal.
- Determine your budget before car shopping, but never tell the salesperson your monthly payment target.
- Get an auto loan preapproval before visiting a dealership.
- Have the dealer make the first offer. Their price might be lower than what you’re willing to pay.
- Negotiate car price first, then trade-in value, and then add-ons.
- Be reasonable while negotiating a car deal, but walk away from pushy salespeople.
Some people are born knowing how to negotiate with car dealers. Other car buyers dread haggling for the best price at the dealership. No matter which camp you’re in, buying a vehicle requires solid research, diligence, and patience.
These requirements apply today more than ever as supply chain disruptions and microchip shortages hound automakers and dealerships. For buyers, less inventory means fewer discounts on new vehicles. Meanwhile, the strong demand for used cars pushes record-high prices.
Be a savvy shopper and prepare for your car-buying experience before heading to the dealership or buying a car online. Read on for valuable tips and tricks as we help you learn how to negotiate a car deal.
What affects car price?
Automakers set the manufacturer’s suggested retail price (MSRP) for new cars. The MSRP is found on a new car window sticker, known informally as “the Monroney.” Federal law mandating a label affixed to a car’s window to display basic information about the vehicle.
The sticker price is the traditional starting point for negotiating the price of a vehicle. Supply and demand principles are clearly at play in the current car-shopping environment. The global microchip shortage and resulting automaker production delays affect dealer inventories. As such, several popular models are challenging to locate. Hard-to-find vehicles currently mean even harder-to-find deals, and as a result, some buyers are paying well over MSRP.
Supply and demand affect used car prices, too. It’s a tight market with low inventory levels for various reasons. Improving manufacturing quality means cars can command higher prices. Plus, people are hanging on to cars longer.
Do your research first
Know what vehicle you want before you get to the dealership or begin any bargaining online. Get online to find the MSRP for your desired model and trim level. Check the fair market value of the car you’re interested in and mention it in your conversation with the dealer to indicate you’ve done your research.
Know the car’s value
You must have a solid base to stand on before negotiating begins. Use a car valuation tool to help determine an estimated average price range for the vehicle that interests you. Having a good idea of the new or used car’s value in advance allows you to have a target price in mind when you step onto the dealer’s lot.
Don’t get attached to one car
Buying your next car is a significant investment, and the process can bring stress that pulls your emotions. Remember that buying a car is a business transaction. Your goal is to obtain the best price for a vehicle that suits your needs.
In today’s market, it’s more important than ever to avoid becoming attached to a vehicle. Always keep a backup plan if a deal doesn’t go through as expected. It isn’t always possible, but it’s best to purchase a car when you don’t need it immediately because you have the time and ability to step away from negotiations.
Automobile production slowed during the pandemic, and manufacturing hasn’t returned to its previous volume. If you do find the model you’re looking for at the dealership, you may have to pay more for it than you initially expected.
Determine your budget
Determining how much to spend on a car involves how much you can afford. A car calculator can help you establish the payment amount you want. Use it to develop a budget for your vehicle based on several factors like sales tax and interest rate.
Setting a budget can define how you prefer to spend your money. Your personal preferences contribute to setting the budget for your new ride.
Some personal finance experts suggest a “20/4/10” rule of thumb to help determine your car budget.
- Put down 20% of the vehicle’s price.
- Finance the purchase for no more than four years.
- Maintain transportation costs below 10% of your monthly income.
However, every person’s situation is different. Just because a formula indicates you can afford a certain amount doesn’t mean you need to spend that much. Many people pay less for their cars because they designate more money for dining out or entertainment. Some people spend more of their budget on automobiles because they don’t go on expensive vacations.
Consider your priorities when deciding how much to spend on your next car. Monthly transportation costs include the loan payment plus insurance, gas, and auto maintenance.
Using an auto loan payment calculator can help estimate the monthly car payments for your next vehicle.
Don’t answer this question
The most important tip to remember when negotiating a car deal is this: Do not tell the dealer how much you want your monthly payment to be.
It’s common for a salesperson to ask potential customers some variation of, “How much do you want to pay each month?” Although you have figured out how much you can afford to spend monthly for your next car and the car payment, don’t let that figure become a point of negotiation.
If you announce that you’re shopping for a $500 payment, the dealership will see that you get it. The dealer can stay in the ballpark by using a longer loan duration to lower the payment with a higher interest rate. Another dealer might nudge the “out-the-door” price up to get closer to your target by wrapping additional — and possibly unnecessary — fees and packages into the monthly figure.
Get preapproved for a loan
Financing at the dealership might be convenient, but their offers might not be your best option. Getting preapproved for an auto loan before you start shopping for a car is beneficial for several reasons.
- Helps buyer to be more realistic. Applying for loan preapproval forces you to be honest and realistic with your budget.
- Get different rates. It allows you to shop for the best interest rates from several lenders.
- Gives you the upper hand. It also provides negotiating leverage at the dealership.
Cash vs. financing
When purchasing a car, you can finance the purchase with a loan you pay off over time or pay with cash on the spot and be free and clear of interest and monthly loan payments. There are pros and cons to both ways of buying a car, and what is best for you depends on your financial situation.
In general, buying a car with cash gives you the upper hand in negotiations, and you can easily walk away if you don’t feel satisfied with the deal. With preapproved financing, you can step inside the dealership as if you were paying with cash. It allows you to concentrate on the price of the car and avoid getting lost in confusing financing details.
Focus on the car price rather than financing
Monthly numbers can obscure the actual cost of owning a car. Avoid falling into the monthly payment trap of higher interest rates and extended loan lengths that can add thousands of dollars to what you actually pay for the automobile.
And be careful with lengthy loan repayment periods, such as those with 72-month terms — and even longer. New cars depreciate as much as 60% over five years. If you trade in the vehicle before the loan gets fully paid, you may still owe more than the car is worth.
Shop multiple dealers
Once you’ve shopped around to get the best loan financing rates, it’s also a good idea to shop multiple dealers. You’ll get a better range of prices for specific vehicles and, therefore, a better chance of getting a good deal.
Competitive markets and periods of low inventory can limit the benefits of this tactic. You may need to act quickly as soon as you find a car that meets your needs.
How to negotiate the best price
Typical buyers use their car negotiating skills once every few years at most. Car dealers might use their negotiation tactics several times each day. To keep up with these professional negotiators, do your research before visiting dealerships. Pricing is the most basic information to have in your arsenal. Know the fair market value of the vehicle you want.
Try to get the dealer to make the first offer because their price could be lower than what you’re willing to pay. If you make the first offer, it should be a few thousand dollars less than the MSRP but within a realistic range. Be sure to present them with offers you received from other dealers.
Some dealerships offer a “no-haggle pricing” approach and say the price you see for the car is the price you pay. Although attractive to some car buyers, the technique does not necessarily produce the lowest price.
Focus on one price at a time
The dealer wants to profit from the vehicle sale. Dealerships often try to make money by combining the individual pieces of the overall transaction: the car price, trade-in credit, financing details, and add-on purchases such as extended warranties. This negotiation technique is good for the dealer because they can provide a good deal for one piece while making money on the other parts.
The dealer’s tactic can be risky for you, mainly if you have concentrated on the monthly payment more than the total cost of the car. If you are using the dealer’s financing, they could agree to a lower price, but that comes with the cost of being in debt longer and paying more in loan interest.
It’s better when you avoid upcharges and focus on negotiating individual pieces separately. Begin with the bottom-line price of the vehicle you’re buying. When you’ve agreed to that price, shift to the value of your trade and then any add-ons. Consider finding another dealer if they aren’t willing to work with you using this method.
Don’t be afraid to counteroffer
Negotiating doesn’t come naturally to everyone. Put any fear aside and counter the offer made by the dealer.
Remain focused on the price of the vehicle you want to buy. Don’t be distracted by the salesperson bringing trade-in value or other things into the equation. Concentrate on the amount of money needed to drive the car off the lot today.
Know the out-the-door price
Don’t agree to a deal until you know the “out-the-door price” for your car. In addition to the automobile’s cost, fees can accumulate when the paperwork comes. Sometimes known as “doc fees” (for documentation) or “TTL fees” (for tax, title, and license), these costs can include necessary charges for sales tax and DMV registration.
Make sure you discuss all of the dealer fees before signing any papers. Some fees are unavoidable, and others are not. Explicitly ask the salesperson if the price includes all fees and whether they are required so the dealer can come clean about any extra charges appearing on the final paperwork. If new costs crop up after this, be prepared to walk away and find a different car at a more honest dealership.
How to find a car deal
You don’t have to look far to find advertised specials for new cars. You should look carefully at the fine print, though. The good deals getting promoted sometimes apply only to specific models or trim levels. Check on incentive offers before you go to the dealership. Be sure to enter your ZIP Code when you visit the manufacturers’ websites since many offers are based on the location.
With current demand high and supplies low, dealers have little reason to discount vehicles. Be aware that most auto manufacturers have slashed incentive spending to well below pre-pandemic levels.
Still, look for financing promotions and incentives while doing your car-buying research. Tell the salesperson that you saw an advertised special. Otherwise, they might not let you know that a promotional offer is available.
Some car buyers find that dealers are more open to negotiation toward the end of a month if they need to reach their sales goals.
Financing and lease deals can be an excellent way to save money on your car purchase. These incentives, or cash rebate offers, can mean significant savings if you qualify. There are many new-car incentives, including some noncash inducements or upgrades that automakers use to prompt you to visit your local dealer.
Do your research to see if automaker incentives will work to your advantage. Don’t let incentives dictate your purchase, and remember that there is more to buying a vehicle than getting a so-called good deal due to big discounts.
Bring a trusted family member or friend with you to the dealership, especially when it’s time to sign papers. Even seasoned car buyers can overlook details, and having another person on your side can help keep everything in check. Dealerships are very good at selling things that you don’t necessarily need. A friend can assist with evaluating needs and wants.
Your backup person should have an eye and ear for details, remain objective, and supplement your negotiating skills. Your companion doesn’t need to be a car person but should be a voice of reason that can help keep you from feeling overwhelmed.
Always check the paperwork
Without exception, you must read over everything before signing any paperwork. Avoid paying any hidden fees by asking questions, and be comfortable with the answers you receive.
This is another time when having a backup person can be helpful. They can raise questions about things the salesperson skimmed over or give reassurance about your decisions.
Know when it’s time to walk out
You should be reasonable while negotiating and expect your dealer to be reasonable and deal fairly.
Don’t be afraid to walk out if a salesperson is too pushy or if you feel they are dishonest. Even during times of low inventory, there are other vehicles to buy from different dealers. Sometimes, politely leaving the negotiations can lead to a dealer representative stepping up with an offer for a better deal.
Your final negotiation
Once you reach a verbal agreement with the salesperson, you will go to the dealership’s finance and insurance office to complete and sign the paperwork. In most cases, the person there will present various warranties, maintenance plans, and other fees to you.
Question everything you see on the invoice, including the extended warranty. Do not sign anything until you understand what’s in the agreement. Make sure all fees listed were those discussed and agreed upon.
This story originally ran on Autotrader.com.