Buying a car is probably the second biggest purchase a person will ever make next to buying a house. Over the years, surprisingly, owning and operating many cars may actually cost more than owning a house. One of the biggest mistakes that individuals make when purchasing is a car is that it becomes completely emotional. Car salespeople are extremely adept at getting individuals to commit to more than they need by up-selling additional features in the showroom. As a car buyer, there are many things to be aware of when going in to negotiate the purchase of a vehicle. Don’t go into a dealership with no strategy and end up paying more for a vehicle than is absolutely necessary.
Do Research Before Going
There are many sites devoted to giving out the dealer invoice cost of the car. Sites like www.carcostcanada.com or www.edmunds.com will give you the dealer cost of the vehicle for which all negotiations should start from. There will always be additional promotions or rebates from the car companies themselves that could even further lower the cost of the vehicle. Dealerships are like resellers for the car companies. They buy and sell vehicles and take a cut from doing the marketing and selling. In order to get the greatest discount, a car buyer wants to remove as much as possible from the cost of the middle man. That is why doing research prior to purchasing a car is important. Knowing what a dealer pays will set a baseline for negotiations.
Car enthusiasts and experienced Internet users will find a plethora of information on car user forums and message boards that are littered with stories and experiences from other car buyers. Often times, people who have bought cars from specific dealerships will post about their experiences and the cost of their vehicles. This is a good starting point for determining what car a buyer can budget into their own purchase.
Keep The Emotions In Check
Walking in an announcing “I need to buy a car now!” will get the sharks swarming in seconds. Getting super giddy on seeing a folding out cup holder will no doubt have the salesperson salivating when they show off the power seats. Keep the emotions in check! Buying something so big is an emotional purchase. Keeping cool and calm and trying to think objectively when buying a car is key to not getting overwhelmed and up-sold on something that is unnecessary. Who doesn’t want a heated, 8-way adjustable seating with a leather trim? I’m sure it sounds amazing, but it’s probably overkill.
Better decisions are made when the mind is clear and the heart isn’t racing. Being spontaneous or impulsive on a car purchase will most likely lead to buying a vehicle for a price that is much higher than someone who is more patient and meticulous.
Never Negotiate Based On Monthly Payments
It’s surprising how many individuals will negotiate their vehicle purchase based on their monthly budgets. It’s great to have a working budget and understand where money goes on a monthly basis, but it shouldn’t be the basis of large purchases. The fact that an individual can carry the monthly balances doesn’t mean that the purchase is prudent or that they are getting the best deal.
Salespeople are savvy at downplaying the extra costs associated with extra features. “Want the sunroof? It’s only going to cost an extra $15 a month!” That sounds like a great deal. Stop getting that expensive coffee and muffin at Starbucks and switch to Tim Hortons and that’s it. What the salesperson forgets to tell a car buyer is that it’s a 72 month purchase plan and the buyer just ended up paying an additional $1080. Does the sunroof sound so cheap now?
Negotiate The All-In Final Cost
When trying to determine the final price of a vehicle, the best approach is to negotiate what the final cost will be with all taxes, environment fees, freight and interest payments included. A car buyer should have a general idea as to what his/her budget should be before entering the showroom. This means that if the salesperson is up-selling a more expensive model or selling more upgrades, the buyer should be aware that it is out of the budget.
Make sure any stated price includes all the extras that go into buying a vehicle. Salespeople are great at giving a price, “It’s only $22 000”, and then after all is said and done they go back to giving the monthly payments right before signing the paper. “Hey you’re only paying $250 a month. It’s a great price!” These little tactics will hide the fact that there are additional fees. For instance, what’s the cost of borrowing? How much is going towards interest versus the principal of the car? Did the buyer get the best interest rate that was available? Unlike buying a home, the interest rate on vehicles is fixed, this means that the entire cost of borrowing should be known at the time of purchase.
Always know the final price of the car in total. This allows the buyer to work backwards to figure out the size of the payment he/she can afford. If the desired total cost off the car is $30 000 all-in and financing is done over 5 years, then the maximum monthly payments would be $500. This would include everything: taxes, interest, principal, fees, etc…
Never Mention A Trade In
If it’s not the first car for the car buyer, there may sometimes be some form of collateral that may be offered such as a trade in. As a general rule of thumb, when negotiating for a car, never mention a trade in. Go into negotiations as if the vehicle was being paid in cash. Not only will the salesperson be pressured into giving you the best price possible, because they think they are getting all the money up front, but the salesperson has a lot less to play with in terms of fancy financing, or manipulating the value of the trade in.
Trade in values of vehicles are essentially a bargaining chip that car salespeople will take advantage of. They can easily give you a better trade in value for the used car and give less discount on the new car. A car buyer will feel like they are getting great value for their old clunker, but in fact they could have walked away with a better price on the new vehicle. Let the salesperson give their best offer before dropping the fact that there is a car to trade in. This forces them to subtract off their already negotiated price.
Don’t Take Long Financing
The worse thing that a car buyer can do is to purchase a car and have it break down before the payments are finished. It’s so common for auto dealerships to offer 72 or even 84 month financing for vehicles so that the monthly payments can be lowered. If the buyer drives the vehicle a lot every year, it’s not unfathomable that the car will develop problems or even die before the financing terms are up. This means the car buyer will constantly be in debt just paying off vehicles because of the long financing terms.
The general rule of thumb for purchasing a vehicle follows the 20/4/10 principle. Put a 20% down payment on the vehicle. Finance for no longer than 4 years and the monthly expense of the vehicle should not exceed 10% of gross income. If the car buyer is looking to purchase a vehicle where these rules cannot be met, then the vehicle is too expensive.
Don’t Be Afraid To Walk Away
Never feel the need to buy the car when negotiating. Car salespeople smell desperation and weakness. They know that car buying is an emotional purchase for most people and if they can convince the buyer through pressure tactics, the dotted line will get signed. The fact is, if the car buyer sticks to their guns and doesn’t budge from his/her desired price, then the salesperson will have nothing to gain. Remember that the car buyer has all the power in the negotiation. They need the buyer’s business not the other way around!
Walking away as the car buyer is never a bad idea. It’s almost guaranteed that the salesperson will follow up with a call or go running out to convince the buyer that there is a better deal. If there is no sale, there is no commission. It’s as simple as that.