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Navigate through some financial literacy basics by viewing these quick, informative personal finance videos from Khan Academy.

Getting a Good Deal

If you think of the negotiating process of buying a car as a dance, you'll find it a lot more tolerable and you might possibly enjoy it. It's just two people suggesting and redirecting. And remember - you have the advantage. You have a long line of salespeople who would like to dance with you. If one isn't a good dance partner and isn't working with you to nail down a price, feel free to say, "Good night," and find yourself another dance partner.

Another good attitude adjustment before you start: dealerships try to average a specific amount of profit on each car they sell. People who pay too much allow there to be people who pay too little. With some preparation and education, you can be one of the latter.

Dealers will pressure you to make all your decisions in a single day. They've been doing this for a long time. They have all the scenarios mapped out. So when they react, they're acting with experience. For you, it's probably unfamiliar territory so that when you react, you may be acting with emotion. Dealers and salespeople know how to use that to their advantage. So slow the process down, sleep on decisions overnight and it could save you quite a bit of money.

Also, the more proactive you are and the more you take control, the better the result. Educate yourself. Understand how the car business works. Know what price the dealer paid for the car and have some alternate financing options.

Some strong negotiation moves and redirects can help you come out ahead:

  • Keep a neutral outward attitude. Don't sell yourself. If you give the impression that you could take it or leave it, a salesperson will work harder and be willing to give more to sell you.
  • Avoid financing questions. Even if you don't have the money, tell them you're paying cash. They won't hold you to it. But it will force them to concentrate on the current price negotiation and not see a long-term strategy to inch up their profits.
  • Be prepared to haggle back and forth for a while. The salesperson might try to tire you out with a prolonged negotiation session. Don't give in. Stay strong and save money. Keep in mind an extra hour of persistence could save you a few hundred dollars.
  • Watch for the good cop, bad cop move. The salesperson will tell you that he or she really wants to give you the price you're asking for, but he or she will have to ask the manager. You may feel like the salesperson is on your team at that point. Just remember who signs their checks. It's you versus them.
  • Ask to see the invoice. If they are dead-set against showing you the invoice, there's a reason why. They're probably offering you a bad deal.
  • Shop for a car later in the month. There are a lot of bonus and rebate programs that are based on monthly sales quotas. If a salesperson or dealership is short of meeting goals at the end of the month, you might find more willingness to sell the car cheaper in order to get the extra sale.

There are some no-haggle dealerships, such as Saturn dealers. If you are really opposed to the negotiation dance, head there. The dealership is still making the same average profit on each car but there's no way for them (or you) to use bad negotiators to an advantage.

Let's Talk Price

Before you talk price, there are some terms you should know:

  • Invoice Price This is the wholesale price the dealer paid the manufacturer before any rebates or incentives. Do some research on this number. If you can find out what the dealer paid for the car, you'll know what the profit is on each car. Then you're ready to strike a compromise between letting the dealer make a living and getting a good deal for yourself. The Internet is a great source for this information. Use it to decide on a number you're willing to pay. Print out the invoice price when you find it and bring it with you to the dealership for back-up.
  • MSRP - Manufacturer's Suggested Retail Price Also called the "sticker price," this is the number on the car window. Don't pay this! It's just a starting point for negotiations. If the model you're interested in is in high demand, you probably won't get much lower than this number.
  • Dealer Incentives Manufacturers sometimes give dealers extra money, bonuses and rebates for selling overstocked and undersold cars. Find out if the car you're interested in buying has any dealer incentives attached to it. Then subtract that amount from the price you're willing to pay.
  • Holdback The manufacturer often gives money to the dealership to help reduce operating overhead expenses - the cost of running the dealership. It's often 2% to 3% of the sticker price. This information may not be very helpful in the negotiations, but if it comes up, you'll know what it is.
  • Sales Tax The sales tax is the same tax that's charged on everything from candy bars to umbrellas. However, don't try to go to a different county to avoid a higher sales tax. They charge it based on the county you live in, not where you buy the car. This cost, of course, is non-negotiable.
Beware Of The Add-On

The dealer will probably offer all kinds of add-ons after you've negotiated the price. The dealer makes extra money on almost every single one of them. You may find add-ons are included as if you have no other choice. You do. Feel free to refuse them. It will help if you know what these add-ons really are:

  • Destination Charges Some manufacturers charge separately for shipping the vehicle to the dealer. You can't get around this. But check the sticker to make sure it wasn't already included in the price.
  • Licensing and Registration Fees These are necessary, but call your state's Department of Motor Vehicles to make sure the dealer hasn't padded this price.
  • Extended Warranties These are also called service contracts. Just buy a car with a good service history and an extended warranty should be unnecessary.
  • Dealer Prep Part of a dealer's job is to get the car ready for you and it's one of the things the dealer gets paid for. Don't pay this twice.
  • Credit Insurance This insurance will pay off your car loan should you die while leasing it. As long as you have life insurance, this also is unnecessary.

There are many other fees that may be added. Ask directly what each one is for. If it seems unnecessary, it probably is and you should refuse to pay it.