Make a list of what you’re looking for in a car. Doing your homework, like most things in life, is a good idea, especially when purchasing something as expensive as a car. Often, this means knowing what you want to get out of your car. Make a list of what you’re looking for in your new car. Some criteria include:

• Age
• Appearance
• Performance
• Safety
• Reliability
• Size
• Comfort
• Fuel efficiency
• Cost
• Resale value
• Transmission type
• Engine size
• Miles/kilometers per gallon
• Current mileage (if car is used)
• Color.

Organize the list in terms of how important the criteria are to you. What aspects of your would-be car are you willing to budge on, and which aspects do you need to find in your would-be car? Many people say they want safety, reliability, and mileage in their car, when in fact they’re looking for performance, comfort, and appearance. Be honest with yourself; it will make the buying process much easier.

Consider the advantages and disadvantages of buying a new car. The smell. The feel. The touch. Buying a new car can be like a religious experience, but it can burn a hole in your wallet if you’re not careful. Carefully weigh the advantages and disadvantages of buying new based on your situation:

• The advantages:
  • Freedom of choice. You can buy the car of your dream vs. being limited to the cars that are available.
  • Better financing. If you do decide to finance on a new car, your financing rates could be better than if you bought a used car.
  • Getting new features. New cars are stocked with new cutting-edge features such as interactive touchscreens on the dashboard, additional sensors and reversing cameras.
  • Knowing what you’re buying. When you buy new, you have an excellent idea of exactly what you’re getting; there shouldn’t be any uncertainty lurking the background about the car’s history.
• The disadvantages:
  • Spending more money. This one’s a no-brainer. You spend more money on a new car than you do on a used one.
  • Immediate depreciation. As soon as you drive the car off the lot, it loses about 11%^[1] of its value. This is informally called the “lemon effect.”
  • Higher insurance costs. It’ll cost more to insure that brand new convertible.
  • Ambiguous information for model year. Is the model you’re buying a workhorse or a defective wreck? You can’t really know until later on — sometimes much later on.

 

Consider the advantages and disadvantages of buying a used car. Used cars are a great deal for many people: they’re relatively cheap and the consumer has idea of what to expect out of the car. Still, there are some disadvantages associated with buying used. Know them before you pull the trigger.

• The advantages:
  • Cost. Buying that car fresh off the lot sure can be expensive; buying a similar car from a classified listings can be drastically cheaper.
  • Better insurance rates. Insurance companies know that drivers of used cars tend to be more cautious and price their insurance accordingly.
  • Less depreciation. Your car will depreciate less if you buy used, because the initial depreciation was so drastic.
• The disadvantages:
  • Higher dealer markup. Dealers know that they can make a killing on used cars. Buying a used car usually means a significant dealer markup.
  • Higher financing. It usually costs more to finance a used car.
  • Higher/more maintenance. Used cars usually need to be maintained more often and for more money.
  • Unknown mechanical and accident history. When you buy a used car, you don’t necessarily have any information on who drove it, how often it was serviced, or whether it got into any accidents.

 

Decide on a budget. Give yourself a budget, regardless of how much you’re spending or what kind of car you want to get. Your budget will keep you from overspending and will tell you when and why to walk away from a bad deal.

Go to dealerships with no intention of buying. If you can, try to go on a day/time when the dealership is closed so you can browse freely and not be bothered by any sales pitches or arm twisting. If salespeople do approach you, tell them you have no intention of buying, and are just doing market research, and would prefer to look undisturbed. If they continue to hassle you, walk away and go to another dealership: you probably don’t want to buy from a dealership that doesn’t respect the customer’s wishes.

Figure out what the dealership paid for the car(s) you’re looking at. This is called the “invoice price,” and it’s relatively easy to get on the internet. Arming yourself with the invoice price lets you haggle starting low and going up, as opposed to starting high and going down. It’s a much better position to be in.

• Make sure you find the invoice price with all the available features you want. The invoice price doesn’t mean much unless it actually matches the features of the car you’re trying to buy.

Get online price quotes to use as bargaining chips. Use websites such as Autobytel.com, VINSnoop.com and PriceQuotes.com to shop for quotes that you can use as bargaining chips when you actually decide to negotiate in person. Many dealerships will also have an online branch that will get you a quote in a couple days; use them!

Get your finances in order before you go to the dealership. For the best possible bargain, it’s essential to have your financial game plan laid out before you set foot on the dealership. This includes:

• Knowing your credit score if you intend to finance. You can get a free report once a year from each of the three major credit reporting agencies. If you haven’t done so already, get your credit score.
• Shopping around for a loan from a bank or credit agency. Getting a loan directly from the dealership can be a bad idea. Get a loan secured before you walk into the dealership; the dealership might be able to beat the price, and if they can’t, you know you’ll be able to finance your car another way.

 

Be willing to walk away at any point in time. A smart buyer knows that they have the inherent bargaining edge if they choose to use it: being willing to walk away. A person who isn’t willing to walk away from a deal — at any point in the negotiation process — is likely a person who will overpay for their car.

• A smart dealer may try draw out the process, making you feel like you’ve invested a good amount of time in a car, and that walking away is the same thing as abandoning that investment. Don’t fall for that trap. Know that any time you spend researching or negotiating, even if the negotiation falls apart, is an investment in itself and will eventually pay off.

If you plan on keeping the car for a good while, forget about leasing. Car dealerships know that they can generally make money off of people who decide to lease a car. The prevailing myth that leasing a car is always bad isn’t quite accurate; if you plan on keeping the car for less than three years, it’s an okay deal. But if you want to hold onto your car for a good deal of time, paying that lease will usually leave you worse off than if you negotiated to buy the car.^[2][3]

Walk away if the salesperson brings out a four-square worksheet. Better yet, tell the salesperson up front that you’re prepared to walk away if they bring out a four-square worksheet. A four-square worksheet is a clever mechanism the dealership uses to massage the numbers, getting you to agree on an inflated price. It’s a three-card Monte trick the dealer uses. Don’t get scammed.

Negotiate on the final out-the-door price. Dealers will try to “sweeten the deal” (ostensibly for you, but really for them) by adding on services, perks, etc. onto the price that you initially agreed on, making you feel bad about or guilty about not accepting because it’s “agreed on.” Don’t get fooled by this.

• You can say something like: “I’m only prepared to negotiate on the final out-the-door price. If we can agree on a number, I expect that number to be the final number, not the starting point for another negotiation.”

Know the salesperson’s tricks of the trade. Not all salespeople are slimy and wily, but a lot work in the car industry. Knowing the tricks of their trade will help you be prepared when you sit down to negotiate.

• Don’t fall for the guilt trick. Don’t feel guilty for refusing an offer that you know is bad. A salesperson might make you feel guilty for “wasting his time” after taking a test drive. This is their job. Don’t feel guilty. They certainly don’t, their priority is to make a sale.
• Know that salespeople will start negotiating with an achingly, ridiculously high number. It’s their way of “breaking” you, and making you feel like the number they’re willing to come down on is actually a good one. If you know the invoice price (the price the dealer paid for the car), don’t be afraid to walk away from an insultingly high bid.
• Know the commission structure. After a “holdback,” the salesperson gets about a 10% to 25% cut of the difference between the sales price and the invoice price. The higher the total sales price of the car, the more money the salesperson makes in commission.

Try this clever trick, if you’re willing. Decide exactly what kind of car you want to buy. Locate several dealerships in the area that have that make and model of car. Phone each one of the dealerships up and tell them that you’re planning on buying such and such a car at 5 PM from the dealer that gives you the best price. Tell them you’re not negotiating, aren’t willing to come into the office until the price is agreed upon, and that you want an out-the-door prices (taxes, everything included).

• The dealer may not want to play this game with you, but they’d be missing out on an opportunity to sell a car (something a dealer hates to do). Assure them that if they can give you the lowest possible offer, you’ll take their offer.

9