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 how-to buy a car.
This is a guest post from Crystal of Budgeting in the Fun Stuff: an open financial diary. It’s a blog created for those in the next step– financially stable but not enough to do absolutely everything.
I work with car dealers as part of my job. I see the deals from both sides. Salesmen are not evil, but they are out for your money. Here’s how you can apply some of my car buying tips and learn how-to buy a car.
Negotiate Everything!
Did you know that absolutely EVERYTHING is negotiable? 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 & more…
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 are 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.
Let’s talk extended warranty
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.
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.*
Doesn’t this make you want to buy your next car with cash? Yeah, me too. Hope this helps and good luck!
{ 12 comments… read them below or add one }
Oh, and the finance manager is the one that logs in your car deal. Feel free to work with the salesman on the price as much as you want, but the real stuff happens in the paperwork office. The salesman is getting a commission off of the sales price (front-end) and the finance manager is getting commission off of the extended warranties, insurances, add-ons, etc (back-end).
I buy my cars from auctions only. Either a public auction, or I’ll go through my “guy” for the dealer’s auction. The “guy” has his dealer’s license, I tell him what I’m looking for, he talks to me on the phone while he is scouting them out, and I pay him a small fee. Bing Bam Boom! I got a new car for cheap! No negotiations, no hassels, no problem!
@myfinancial,
How would someone else be able to find a person for that? How do you make sure the car isn’t a lemon? I love the idea if it works that well!!!
Budget, he is a friend of the family who also just happens to have his dealer’s license. I don’t know how one would go about looking for a person just to do that for them, sorry!
As far as making sure the car is not a lemon, that’s all up to the dealer, and a risk you have to be willing to take. At the auctions you are allowed to start the cars up, check everything you want, and they all have lists of whats wrong with them, if anything. My friend or I will always pick something with low miles, and cars with things that are either easy fixes, or no fixes at all!
Before the auction actually starts, there are hundreds of people just (including myself) just in the massive parking lot taking notes on which cars they like, starting them up, keeping note of which cars they will want to bid on when the time comes. It’s actually a really fun experience!
Check out a government auction, you can get PLENTY of GREAT cars from those! My current and previous cars were govy’s, as are both of my siblings!
I will check one out…that sounds neat. Can you give us an idea of how much good cars usually go for? Does it save money from buying used directly from owners (like on Craigslist)? I’ll be in the market in 2-3 years, so this sounds kind of awesome!
Well about 6 months ago I got a 1999 Ford Contour for $1100, had to put $700 into it, and works great! 47,000 miles, runs fine, was a USPS car back in the day. I know it’s nothing special, but I’m paying off DEBT!
Don’t let my purchase fool you, there are MANY cars/trucks/SUVs to choose from. You would be surprised what they have at the government auctions. Last time I was there they had some NICE mustangs, REALLY nice Caddys, all kinds of SUVs, all kinds of other cars, there is so much! the lot is huge, there are thousands of cars to choose from.
Hey, I’d be happy with a $1800 car that works! Thanks for the info!
Does offering cash for the car help in negotiating the price of a car these days? I would think if you had enough to buy the car with cash today, you would get a better deal. Although a lot of money is made by financing the car. Does anyone have any insight into what would be better?
@BibleDebt
In my experience, you have two options with cash:
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) Do not 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.
Hope this helps!
I swear by Edmunds and Consumer Reports. Look up the invoices prices as well as what the car is going for in your area. Get pre-approved for a loan before hand and have an interest rate for the manager to beat. My first car the finance manager offer my something in the 6 range. I showed him my pre-approval in the 4 range. He came back with 3.6%.
Watch out for alarms!! Its the last part of the deal and where the finance manager has a last chance to make up commission/profit. Odds are you don’t need what they offer. They may very well try to scare you into getting an alarm you do not need.
Don’t buy GAP insurance from a dealer! Buy it from a credit union or similar and save several hundred dollars!
You can save off of GAP from the dealers too…just know what you’re willing to pay up front.
For my Chevy Aveo, the dealership quoted me $300 total for GAP. I said they were nuts and it immediately went down to $140 (which was better than the $160 I found elsewhere). I paid my car off in 2 years instead of 5 and was refunded $80 as well (you have to go back to the dealership and file for the refund, but I thought it was worth it).