Buying a car from a dealer is no easy feat. The dealers and financers have been professionally trained to deceive and coax you out of as much money as possible. Luckily, with the right mindset and information on your side, you will be able to defeat the bullies of a traditional dealership.
Firstly, before you even think about going to the dealership, decide which car you want to purchase. What is most important to you? Longevity, resale value, mileage, safety, etc.? Write out a list from most important to least and research on the internet what car works for your wants. For instance, if you’re looking for a simple family car that is compact, affordable, has good mileage, does not require more-than-routine maintenance, has high safety ratings, and will last for over ten years, then a Honda Fit may be the car for you. Or if you’re looking for a masculine car that looks sleek and has a durable engine, then possibly a Dodge Challenger may be your choice. No matter what car you’re looking for, do your research even if you already think you know what car you want. Maybe you’ve always dreamed of owning a certain sports car just because of how it looks. But after some research, you may be surprised to know that the vehicle is far less from dream worthy. Too many horror stories have been revealed where car shoppers did no research and just picked what seemed to be the best car for them at the time.
Once you have one or two car choices in mind, search the internet for dealerships near you that have your vehicle in the color you desire. Don’t hesitate to look for a car that may be somewhat far away. If you can’t get a better deal at a dealership except for one that’s over 50 miles away, it is worth the extra few bucks in gas and time to at least check it out.
Next, go to Edmunds.com and get price quotes for the cars. One of the many great things about the internet is that you can actually haggle online instead of doing it in person. Unlike truecar.com, Edmunds can tell you the invoice, delivery, and advertising cost of a certain car at a certain dealership so you know what a good price offer for the vehicle should be. To be frank, dealerships HATE Edmunds.com. Better yet, it even submits personally requested price quotes from the dealers who will then determine what they will offer you for the vehicle in an email. So let’s say you select a price quote from two dealerships for the same car that has an MSRP of $20,000: one comes back with a price quote of $19,000 and another comes back with one of $18,000. You can then call the dealership that originally offered $19,000 and tell them that you have an offer of $18,000 from a rival dealership and you want to know if they can do better. If they say they will do better, than ask them to email you a guaranteed new price quote (just in case they want to retract their offer when you get to the dealership). If they offer to match the price, tell them that matching does you no good because you’d rather go with the guys that were nice enough to offer you the lower price to begin with; this other dealership would have never even offered the lower price if the cheaper guys didn’t do it first! So tell them that you’re not interested in being matched. You want them to beat their offer, otherwise there will be no deal. Then of course you can call the other dealership that offered you $18,000 and tell them the other dealership offered it for less and so forth. However, do not try to lie and tell other dealerships that you were offered less than what they emailed you. The dealership WILL call the other dealership to verify the amount offered. Try to get price quotes from multiple dealerships including those up to 100 miles away. If you can save hundreds or even thousands of dollars, the extra gas and time is worth it.
Next, if you’re going to get a car loan, get preapproved by your bank or credit union first. This gives you two advantages: 1) you will know if you can actually be approved for the price of the car (don’t forget to add a few thousand extra to account for DMV fees and taxes) and 2) you will probably get a much lower interest rate than what the dealership’s lender can offer.
At this point, once you have a guaranteed offer and a preapproved car loan, show up to the dealership and test drive YOUR vehicle. The reason I capitalized “YOUR” is because sometimes dealerships will have you drive their test model which may have more features and drives perfectly. But then when you buy the actual car, it doesn’t have the features and something may be wrong with it. After you’ve signed the contract, they no longer have an obligation to fix any issues and you’re stuck with the problems.
Once you’ve decided that you want this vehicle, tell them you’re going to buy it but you want it for $500 less than what was agreed over the phone plus some free accessories (like floor mats and splash guards). This may not work, but it certainly can’t hurt to ask. They may tell you that you’re already getting a good deal from the internet guarantee so they can’t go lower. Sometimes, this is actually true, but you never know when it’s not. If they deny your requests then ask them to either take $500 off or include the accessories. They may agree to one or the other. If they deny you again for both, ask for $250 off or a free accessory. If they still deny your request, it is then up to you to decide whether you should walk or just be happy that you’re already getting a great deal from the internet guarantee and go with their offer.
Once you’ve agreed on the price and possible free extras, then it comes time for the REAL fun: financing. Because a lot of people sometimes aren’t very well versed in terms of car loans, the dealership will use certain mischievous tactics to confuse you and cost you money. Some typical tactics they use are:
Incorrect sales tax: California’s current sales tax is 8.5%. Make sure the sales tax dollar amount they have listed on their proposal is in fact 8.5% AND is based on the ACTUAL sale price of the vehicle. It may be 8.5%, but they may base the tax on the TOTAL FINANCE CHARGE. So let’s say you’re approved for a 3% APR for 5 years and the vehicle is $15,000; the total you will pay including interest in a total of 5 years will be approximately $16,300. What the dealerships do sometimes is base their sales tax rate against the total financing cost of $16,300 instead of the actual sale price of $15,000. So instead of paying $1,275 for the sales tax like you should (8.5% of $15,000), you’re paying $1,385.50 (8.5% of $16,300).
Miscategorized sale price: They also might try to put the finance charge of the vehicle in the sales price field. They will tell you that they need to include the finance interest with the sale price as the actual listed price. So like in the example above, they might list the sale price as $16,300. Guess what? They’re double-dipping! They are basically now making the sale price $16,300 instead of $15,000 and THEN charging interest on the $16,300, making your total price after 5 years almost $18,000 total! Be sure the SALE PRICE FIELD in their proposal is EXACTLY the amount that you agreed on earlier.
Reneging on an offered APR %: The situation above allows the dealers to offer you a low interest rate. They know they’re jacking up the purchase price so they don’t mind if you get a low APR. Once you call them out on the situation above, they may come back and now tell you that the APR % is higher. Tell them you want the original APR that was offered before or you’re walking. If they offered the low APR % before when they tried to screw you on the purchase price, there should be no reason why they can’t give it to you with the price YOU BOTH AGREED ON to begin with!
Telling you they cannot process your bank loan’s offer and that you have to go with THEIR preferred lender: You were preapproved by your bank or credit union. If their lender can’t offer a better rate, there is NO reason why your preapproved loan offer cannot be processed. They will try to tell you that the offer you were given by your bank was in “a best case scenario” and this is the REALITY. They will make you think that YOUR bank lied to you when you were preapproved so that you will take a higher interest rate with their preferred lender. If your bank preapproved you for a 3% APR, you are guaranteed that rate! Do not let the dealer lie to you and tell you that THEIR lender’s APR is lower because your bank’s preapproved APR went UP. If their lender is HIGHER, do not go with theirs. If it is LOWER, however, then it can’t hurt to go with theirs. If you do happen to go with their lender because they’re offering a lower APR, make sure that their lender does not charge prepayment penalty fees for paying more than the minimum payment. If your minimum payment is $250/month, try to pay $300/month instead to save money on interest. Even an extra $5/month is better than nothing. But first make sure that their lender will not charge you extra for paying extra!
Lying about the price: Going back to negotiating on the sale price, they dealer may bait and switch the agreed upon price during the financing phase. They may tell you that the prices of the cars just went up today and so your original agreed upon offer is too low. This is NEVER true! The MSRP is quoted by the manufacturer, not the dealer. Tell them to show you on the internet that the prices have gone up according to the manufacturer (like Honda). If they show you some kind of print-out that shows an increase in sale price, then ask to go with them outside to the lot and tell them that you want to watch them remove all the advertised posters on EVERY car since they are supposedly now “incorrect”. They will back down and say they were misinformed or some other lame excuse.
Miscalculation of the total cost: Be sure to have a calculator handy and add up every one of their stated costs and be sure the total is the total you come up with. Sometimes they will actually put the right amounts in every field but somehow the total field (the one that actually matters and determines what you’re going to pay) is higher. Also, be sure to question every cost. If they have a “delivery fee” or “advertising fee” listed, tell them to take it off. Delivery and advertising fees are included when a dealer buys the car to sell on their lot; it is not your responsibility to pay them. Also, if the car has added features and they have them listed for you to pay for them, tell them to include those features for free or remove the features and the associated charges for them. They cannot charge you for something extra that they installed that you didn’t ask for. It actually COSTS them to remove features so most likely you will get those added features for free. No matter what, do not pay for any added features. This includes extended warranties, window tinting, floor mats, rustproofing, paint protection, etc. They can all be purchased somewhere else for a fraction of what the dealership wants to charge. Also, for things like rustproofing and paint protection, most good car manufacturers these days already do those tasks when they’re making the car before they even ship them out to the dealers in the first place!
All in all, you must maintain your composure and never back down. Until you sign all the final forms, you can always walk away if you feel like the dealership is taking advantage of you. Be sure to receive copies of ALL documents that you sign with the dealer and financer! When you receive the information in the mail a couple weeks later, double check that nothing has changed on the documents. If you signed for a $250 monthly payment and the one that shows up in the mail is $300, call the dealership and tell them to fix their error or you will be contacting law enforcement and filing a suit for mail fraud.
One last piece of advice: never fall for their guilt trips. You may want to leave or ask for a lower price after they may have spent hours with you. They may ask you if you even care about the time they spent with you and if it’s worth anything to you. They may say that the dealer needs to make a profit to feed his family. Remember, the dealers get paid even if they don’t sell a car that day AND this transaction is about YOU, not THEM. Don’t ever let them, or yourself, forget that!
Overall, this may seem like too much hassle and you’d be fine with just going to truecar.com, getting a measly $200 off, and calling it a day. It IS unfortunate that car buying is such a hassle, but in order to receive a price that the car is WORTH and to not get screwed during the financing phase, you NEED to be PREPARED and VIGILANT. Thousands of dollars are at stake and for most middle or low-income families, thousands of dollars matter! That’s a sizeable amount that could go towards your kid’s college tuition, retirement, paying down other debts… shoot, even if it’s blown on a vacation getaway, it at least still gets more use than overpaying for a car. Do your homework and save YOUR money!