How-to Buy a Car– What You Need to Know so You Don’t Get Ripped Off

There are arguably two major purchases that a 20-something will make: real estate and a car. Many of you reading this are in the car buying market and would love to know what’s the best way to buy a car?

I work with car dealers as part of my job. I see the deals from both sides. Salesmen aren’t evil. They are out for your money. Here’s how you can apply some of my car buying tips while looking to buy a car…

Negotiate Everything when looking to buy a car!

Did you know that absolutely EVERYTHING is negotiable when you’re looking to buy a car? The price is the largest obvious haggling point, and if you plan to pay in cash that may be all you need to know. Have a price in mind before entering the dealership so you don’t get blind-sided by a few different sales techniques. I like Kelley Blue Book”s valuations and will only pay that price or less.

Negotiate the interest rate even when buying a car with bad credit.

For everybody who needs to use financing (myself included until our car account is bigger), you can usually negotiate on the interest rate, the cost of warranties, the cost of insurance policies, and the cost of dealer add-ons. To be completely honest, I have never purchased an extended warranty, insurance policy (except GAP at a bargain price), or dealer adds, BUT some people swear by them, so I want you to know that they are also haggle worthy.

The interest rate is the big one. If you qualify for the manufacturer specials – like 0% for 36 months, 2.9% for 60 months, etc – those cannot usually be beat. Period. Take them if you can get them if you were going to finance your car anyway. Check around for other bank rates and credit unions if you want assurances.

But, if you’re buying a used vehicle, don’t qualify for the special rates, or there are no special rates being advertised for the vehicle you are buying (check manufacturer websites), then you can and should negotiate down your interest rate. Simply check what rates you’d be qualified for from other banks or credit unions before you go to the dealer. If you know a credit union will give you a 5% loan, then you know that you want a loan for 5% or less from the dealer, right? If the finance guy offers you 7% and says that’s the best he can do, ask if he’s sure since you won’t sign the deal at that rate. He’ll either find a better rate with a different bank that the dealer uses or will stand pat. If he refuses to budge, calmly leave and come back with your own financing later. If you rather get pre-approved for a loan, that would work too. I usually don’t spend the time on that unless it’s necessary. It will save you hundreds and sometimes thousands of dollars to simply work for the best rate possible.

Use the same language when discussing the rest. For a GAP policy, don’t pay more than a total of 4% of the price of the car. That’s a standard rate for a policy that will cover the negative equity of your vehicle if it’s smashed or stolen.

What about extended warranty when buying a car?

If you want an extended warranty, I’d check online before going to the dealer. You can usually get one for $1000- $2000 depending on the vehicle, so use that knowledge when discussing prices.

The best way to buy a car is…

The best way to buy a car is to remember that knowledge is power. Know what you want, how much you are willing to pay, what interest rate you can get, and what options you want before you ever set foot in a car dealership. Never give them the numbers you know. That would just make it easy for them to beat them by just a few dollars. If you want the best deal possible, keep your numbers to yourself and keep saying that you would need better in order for this deal to happen. When they finally stand pat after prodding, you can decide whether that’s a deal you are comfortable with or not.

Watch out for the paperwork!

Please remember to read all of the paperwork before signing. The retail installment contract is the most important piece of paper you sign since that is your legal deal. Read it carefully, make sure you understand the numbers, and feel free to ask if something looks hinky. Hinky is to be expected, so read carefully and work the numbers for yourself (I actually bring a calculator with me).

Looking to sell your car?

I’ve bought two cars in the last 5 years and have gotten fair deals. I’ve followed my own advice and NEVER traded in my old cars. You’ll get a way better deal by using Craigslist 99% of the time. Look up what you could sell it for yourself before leaving the house. It’s easy to say no when you know you can do better.*

What’s the best tip for buying a car with bad credit?

You should simply try to use cash. You have two options when you use cash since you’re buying a car with bad credit:

1. Offer exactly what you want to pay. Period. They can either take it or leave it. That’s the way I’d work it with cash.
2. Don’t tell them you will be paying in cash until the deal is SOLID. They will negotiate better if they think financing is in the mix since that makes them thousands of dollars usually. Remember, these guys work on commission and they’ll get paid in the next two weeks even if you’ll be paying for the next 5 years. I have no patience and this feels a little too sneaky for me, but it has worked for quite a few people that I know.

Doesn’t this make you want to buy your next car with cash? Yeah, me too. Hope this helps and good luck!

This was a guest post from Crystal of Budgeting in the Fun Stuff.