Car Buying Tips

Negotiate for the vehicle and financing separately. When you have an idea of how much you will need to borrow, apply for a loan. Don’t assume all loans are created equal—it pays to compare. In addition to your credit union or bank, check out online lenders. With a pre-approved loan, you know your true buying power.

Make your down payment as generous as possible. This reduces monthly payments and interest on the loan. If you don’t have good credit, you will need a larger down payment, because you won’t qualify for the lowest interest rates.

To calculate monthly payments, you need to know the vehicle price, down payment, interest rate, loan terms (number of months), value of your trade-in, and any cash rebate that you can put toward your down payment.

The loan term and interest rate determine how much you will pay for your car over and above its price. Interest is spread out over the life of a loan and varies from month to month.  In comparing loan offers, remember that federal laws dictate that lenders must clearly define the Annual Percentage Rate and total amount of interest you will pay.

As an alternative to traditional car loans, you may be eligible for a home equity loan or line of credit with lower rates. These can be attractive options, because the interest may be tax-deductible.

Buying a vehicle is all about supply and demand. If you want a convertible, don’t shop for one when it’s balmy outside. If your taste runs to an all-weather 4-wheel drive sport utility vehicle, don’t shop when snowplows are working overtime.

Let’s look at your best opportunities seasonally, during the month and during the week.

Seasonally. Experts say the best times of the year to buy a car are during the last two weeks of December, and to a lesser extent, between July to October.

Car lots are often nearly deserted during the winter holiday season, which motivates dealers to cut costs. At year-end, they’re trying to break sales records.

July through October, dealers clear lots to make way for the next year’s models, which means they will be ready to make a deal and may be willing to give up all or part of any incentives to make a sale.

Best Time of the Month. Most dealerships chart sales on a monthly basis, and sales managers like to build campaigns around monthly sales quotas. Bonuses are set up to reward salespeople who meet or exceed quotas, so shop at the end of the month and hope for a hungry salesperson.

Best Time of the Week. Dealerships do the most business on weekends. This can work to your advantage in two ways. Arrive at the dealership early Saturday, because there might be a bonus for the salesperson who sells the first car of the weekend. Come back Sunday afternoon, when the sales manager might be eager to make a weekend quota.

Take your time. The salesperson will want to close the deal with you and move on to the next prospective buyer, but make a counter-offer. Once you have the lowest figure, ask for it in writing and say you need a couple of days to think it over. This might prompt the salesperson to go even lower on the price to make a faster sale.

Do you see a huge gap between the Manufacturer’s Suggested Retail Price (MSRP) and your preferred monthly car payment? Leasing could be your answer.

Payments will be lower when you lease, because you’re paying for an extended rental contract. In effect, you’re paying for depreciation on the car, plus finance charges. And, you’ll pay a specified penalty for any extra mileage.

Leasing can work to your advantage, but be careful. Fully investigate dealer costs and incentives, and expect to pay a hefty initial payment (called the “cap cost reduction”).

For the 24- or 36-month term of a lease, you could drive a more expensive car than you could otherwise afford. However, when the lease is over, you won’t have a vehicle to keep or trade-in for a different model.

Over the long haul, purchasing a car is cheaper than leasing. Cars depreciate most during their first two years, and that’s the minimum term of most leases.

You might pay more over three years to buy a $30,000 car, possibly spending $5,000 more than you would to lease it. But after three years, you would own an asset worth about $19,000.

A car drops an average of 20 percent in value when you drive off the lot, and insurance costs are lower for older vehicles. Therefore, buying a used car can be financially smart.

But, why buy someone else’s problems? A car could look good but be a rental that was never maintained. In that case, you’d be happier with a new car.

Before deciding what to do with your used car, determine its wholesale market value. Consult N.A.D.A. Official Used Car Guide^® and Kelley Blue Book^TM, which are available online and at local libraries and credit unions.

Trading In. Will you buy a new car right away? Are there factory incentives or special offers at a dealership? If so, the dealer will be motivated to offer you a higher trade-in price because there will be a larger profit margin on a new car sale.

If you have an older vehicle, take it to three used car lots and ask what they’d give you for it. Then average the three offers and add ten per cent. Unless your old car is a classic or an absolute creampuff, you’ll have a tough time persuading a dealer to give you much more than this amount, because the same car probably is available cheaper at an auction.

Selling. Dealers are most interested in well-maintained cars that are less than five years old with no body damage and low mileage. Their offers will be low, so they can make a profit during resale, of course.

If you believe you can sell your car quickly, or if time is not a factor for you, try selling it yourself. And if the car isn’t in absolutely tip-top condition, a private buyer likely won’t mind a few minor imperfections.

Donating. Donating your car to charity may appeal to your social conscience and your pocketbook. If your vehicle is valued at greater than $500, your federal income tax deduction will be limited to the charity’s “actual selling price.” To receive a deduction, you are required to include a statement of sale with your tax return.

If the charity gives your donated vehicle to individuals in need instead of selling it, you are eligible to deduct the vehicle’s true market value. Determining your car’s true market value is up to you, not the charity, because the IRS would consider that a conflict of interest.

If the declared value of your car is more than $5,000, you should have it professionally appraised to corroborate its true market value. Some charities cover the cost of an appraisal provided the car turns out to be worth at least that much.

If you intend to take a deduction for donating your car, you must itemize your deductions on Form 1040. Consult your tax advisor for details.

Recycling. Suppose you have an old car that needs expensive work to conform to environmental regulations. Or maybe it no longer runs. If you’d just like to get rid of the vehicle, a car recycling service can help.

You can find a list of vehicle removal services by doing a simple internet search of the term – vehicle disposal. Typically, one of these services will pick up your car and title, tow it away for free, and pay you a little something for the privilege. Some services pay cash, and others offer prizes, coupons, or airline tickets.

Sometimes they’ll detail it, make a few low-cost repairs, and then auction it off to used car dealers. Often, a car is cannibalized for parts or sold for scrap metal.

Nontraditional car-buying options are increasing. Alternatives range from one-stop superstores and no-haggle dealerships to brokers to online buying services.

One-Stop Shopping. Superstores and “no haggle” dealerships sell convenience. Sign a few papers and you have a new vehicle. However, this is probably the most expensive option. Sellers offer attractive pricing made possible by their low trade-in values, higher financing rates and penalties attached to early loan payoff. While a low financing rate may be advertised, don’t be surprised if you can’t get it.

Brokers. Auto brokers, who typically charge a flat fee of around $500, can save you time by finding your dream car and attractive financing. They can even find a buyer for your trade-in. They also can save you money if they buy below dealer invoice or have special deals with fleet managers. However, some dealers add a broker’s fee into the price of the car. Another risk in hiring a broker is that just about anyone can represent him- or herself as an auto expert, so check references. Your safest bet is to hire a broker after you have secured at least two prices on your own, so you have a basis of comparison.

Buying Clubs. If you belong to AAA, Costco, Sam’s Club, a major credit union or other powerful buying group, you may qualify for dealer discounts, which are usually non-negotiable. Dealer networks often agree to limit profits to a pre-determined percentage for club members, and specific makes and models may be excluded. Sometimes, deals are limited to specific sales events.

Online Services. Through online services, prospective buyers submit their model and option requirements to dealers in their region and typically receive e-mail offers with guaranteed pricing.

Keep in mind that just because a price is offered on the Web doesn’t mean it’s the best price. Dealers can belong to several services, so get competing quotes. Also, make sure the car offered is in stock and available for a test drive.

Discount Sites. Several auto dealers participate in discount referral services such as FordDirect.com. The sites are free to buyers. However, some fee-based sites also are doing business online. The opportunities and risks related to online buying apply to discount referral services as well.

When you search for a dealership, pay particular attention to the service department. While there’s no need to take a new vehicle back to the dealership for the maintenance required to keep the warranty in effect — and many customers choose to go to independent garages for this work — you will need to return to your brand specific dealership for any warranty repairs. This is the only way the manufacturer will pick up the cost of the work.

Find a good dealership by asking your friends and neighbors for recommendations. Be sure to ask if they experienced any difficulties with their vehicles. If you can find a dealership that helped a customer with a hard-to-fix problem, you’re on the right track.

Questions to ask:

• Can the dealership’s service department make appointments within a reasonable timeframe?
• Are prices close to estimates, or are they typically asked to okay additional work at added cost?
• Is the work done right the first time, or are follow-up appointments often necessary?
• Does the dealership delay repairs for lack of parts?
• Is the car ready when promised?
• Are the interior and exterior of the car clean when the vehicle is picked up?
• Is it easy to drop the car off before the service department is open and pick it up after closing?
• If they have a free loaner program for service customers, can you really get the free loaner?

Ask a dealership customer service rep or service manager a few questions related to a vehicle you’re considering buying:

• What is the service schedule for the vehicle and how much will parts and labor cost?
• Does the service department recommend deviating from the manufacturer’s suggested service requirements? If so, why and in what way?
• Does the manufacturer require any special lubricants or service procedures not generally available outside the franchised dealership network?
• Does the manufacturer make diagnostic information available to non-franchised shops? If the dealership says yes, verify that answer with your favorite independent automotive technician.
• What have customers who bought this model found to be problematic?
• Are any service or repair procedures sent to another facility?
• What procedures does the shop follow for early drop-off or late retrieval of a vehicle? Can you make a service appointment and wait for the work to be completed?
• How long does it take to get an appointment for standard service?
• Does the shop have evening and weekend hours?
• Does the dealership offer a shuttle service, loaner cars or rentals? If there’s a shuttle, will it take you where you need to go and pick you up again? If the shop offers rentals, what does it charge service customers?
• What is the training schedule for the shop’s technicians and to what certification programs do they subscribe? Many service technicians are ASE certified, and their certificates are often posted for easy inspection. Does the staff collectively have a wide range of certifications and are they all current?
• Is the dealer’s repair shop an Approved Auto Repair facility? If it is, AAA has reviewed many of these matters and more regarding the shop’s operation. You should also know that, as a AAA member, your local club will help resolve any dispute you have with the shop, as long as you identify yourself as a AAA member before repair or service work begins.

If you understand some of the basics of how a dealership does business, you stand a much better chance of getting the best price on a new vehicle. It’s helpful to recognize that you are actually negotiating on several fronts.

Think of a box divided into quadrants. This box represents your negotiation with a car dealer. The dealer sees four opportunities to build profit: Price, Monthly Payments, Trade-in, and Financing. Most buyers fixate on just one of these issues. This gives the dealer the opportunity to “lose” gracefully. . . then make the most of the other three opportunities for profit.

*based on 60-month loan

Price. Your first challenge is to determine what a new car is worth. The “Total MSRP” sticker on the window represents the base Manufacturer’s Suggested Retail Price, option packages, and destination charge. This is not what the dealer paid for the car. They paid the Factory Invoice Price.

You can locate the Factory Invoice Price (also called Dealer Invoice) using AAA AutoMaker®.  However, the actual cost to a dealer may be even lower due to manufacturer holdbacks and dealer incentives.

Monthly Payments. “If I can get your monthly payment down to. . .” Car dealers say this a lot – probably because it works. Their goal is to shift your focus away from the true selling price. Buy only on the basis of the total price, not the monthly payments. You’ll pay less.

Trade-In. You will probably get the best price for your current car if you sell it privately, but this can be time-consuming. If you trade your car at the dealership, be aware that you may be so emotionally attached to it that you could become sidetracked, haggling over its true value. In other words, you focus on one quadrant of the “box” – which you may win – and lose the overall negotiation.

If you do not owe money on your old car, you can put the dealer’s offer toward your down payment. If you owe less than the dealer’s offer, you can pay off the loan and use the difference as down payment. The worst negotiating position is “upside-down” – owing more on a trade-in vehicle than it is worth.

Financing. Arrange your own financing. Walk into the dealership with a pre-approved loan. And don’t mention it until you have the rest of your deal in place. Selling financing boosts dealer profits. Each dealer typically gets an incentive from a lender each time a submitted loan is approved.