There's no question about the importance of making a well-informed decision when buying a new car. It's a decision that can affect your finances for years, based on what you spend on financing and what you spend on repairs in the future.
Getting a good deal isn’t always easy. It’s difficult to know who to trust. Is your salesperson really on your team, or are they more concerned with their commission? Are the upgrades and added services a necessity, or simply one more way to make a little money?
We spoke with Ryan McPherson, Certified Financial Planner and the founder of Intelligent Worth, a fee-only financial planning firm in Atlanta, Georgia, and Rob Drury, the Executive Director of the Association of Christian Financial Advisors. Here's what they had to say about how to get the best deal on a car.
Do Your Homework
A new car isn’t a minor purchase and shouldn’t be treated as such. McPherson warned against making a purchase on day one. In fact, he believes that buyers should take their time, spending a week or more to find the right car. It’s a good idea to begin with thinking through what you want from your next car before you ever step foot in a dealership.
“Identify the type of vehicle and makes you wish to test drive,” he said. “For instance, you may be interested in 4-door sedans from Mazda, Toyota, and Honda. Do this to focus your test driving efforts on a limited number of vehicles.”
Then, he suggested visiting between three and five dealerships to take a few cars on test drives. These visits aren’t meant for making a purchase. Instead, you can spend this time narrowing down the exact make, model, and year you’re interested in, according to McPherson.
Choosing the Right Car
Once you are certain of the type of car you want, you can start shopping around for a good deal. Drury suggested starting the search for a good deal online, instead of in a dealership. This is a good way to get an idea of what is available and what a reasonable price for your preferred vehicle might be.
“If one is purchasing a new car, one can receive price quotes from multiple dealers,” he explained. “When making the inquiry, make it clear that the quote must be either the best price or highly competitive, and that a price must be given via email or that dealership will be eliminated from consideration.”
And, if a used car is what you are looking for, extensive research about local dealers will give you an accurate idea of what is available. Both Drury and McPherson recommended TrueCar, a site that crowdsources from buyers in your area to give a clear picture of what people are spending on cars similar to the one you desire.
“Try Edmunds.com TMV – True Market Value® and TrueCar,” suggested McPherson. “Both will give you an idea of what people are actually paying for a certain vehicle, new or used, in your area. While the data on these sites isn't perfect, it'll give you an excellent starting point.”
Negotiating the Price
“Before visiting dealerships to potentially purchase, submit inquiries online to see what the dealerships' internet sales departments are offering,” suggested McPherson. “Multiple offers may be helpful to eventually use one dealership against another.”
When the time comes to settle on the price with the sales agent, try to keep the process as simple as possible. Focusing on the overall price is most important, according to McPherson, who warned against getting too caught up in your monthly payment. Drury explained further why focusing on the monthly payment can hurt buyers in the long run.
“The most common ‘trick’ dealers employ to attempt to charge a higher selling price is to negotiate based on payment rather than price,” he explained, noting that many buyers are most concerned about how a monthly payment will influence their budget. This makes it easy for sales personnel to focus on this number, instead of the total price of the car.
“Raising the monthly payment by only $20 typically raises the purchase price by about $1,000,” he continued. “If financing, budget for and select a vehicle based upon monthly payment, but always be conscious of the selling price prior sealing the deal.”
Instead of being fooled by this trick, buyers should use the same line of thinking to their advantage, as a way to gauge if they are really getting the best deal available. According to Drury, car prices are incredibly competitive right now, which means many dealers will only markup their used car by a few thousand dollars. With overhead, commissions, and more, this doesn’t give them much wiggle room for negotiation.
“If the buyer threatens to walk over $10 or $20 on the payment, and the dealership is unwilling to move significantly to make the deal happen, the buyer can be reasonably assured that he is receiving a fair deal,” explained Drury.
Another thing to be aware of is how add-ons, like accessories and warranties, can influence the price. It isn't uncommon to discuss these after a purchase price has been agreed on, which will only inflate the final cost of the vehicle. It's important to be well educated on whether or not these added costs are necessary, and how much you're willing to spend making upgrades on the basic model of your vehicle.
About That Trade In…
Trading in an older car is a great way to lower the price of your new car. However, getting what your car is worth isn’t as simple as just driving it up the dealership. First and foremost, McPherson recommended negotiating the value of your trade-in apart from the price of the car you wish to purchase. More specifically, he recommended negotiating the price of the car you will purchase before you introduce the trade in at all. Next, you need to do a little research so you can be sure what you are being offered is reasonable.
“Get an offer from CarMax to know what someone will pay for your trade-in,” he suggested. “Looking up a Kelley Blue Book value for your used car and quickly scouring Craig's list will provide further data points. Remember, data is key when negotiating.”
Additionally, you might find that your dealers will try to use recently-auctioned cars to talk down the value of your trade-in. They’ll likely present with a list, highlighting the cars like yours that sold for lower prices. Turn the tables on them, be sure to point out the higher priced auction sales on the very same list.
Financing the Purchase
Paying for a new car in cash is the best option, but not everyone has the means to avoid financing their next car. If you must finance your next vehicle, then be certain that you wait to talk about this aspect until you've agreed on a price.
When talk of financing begins, make sure you’ve come pre-approved from another lending source.
“Large banks to credit unions to newer non-traditional lenders have made auto loan rates competitive, especially for well-qualified borrowers,” explained McPherson. “Before deciding on a lender, be sure to check area dealers' websites for financing offers.”
Coming prepared with pre-approval doesn’t necessarily mean you will end up going with an outside lender, according to Drury. Instead, it allows you the option to walk go with the better option if the financing offered at the dealership doesn’t meet your needs.
“It is usually advisable for the buyer to shop and secure financing before going to the dealership, then allow the dealership to offer even better financing terms,” he explained, noting that buyers with poor credit are more likely to get the best options from the dealership.