Worried about getting swindled and embarrassed at your local car dealership? You’re definitely not alone; we’ve all been there.
With knowledge comes power, and in this article, I’m going to share with you 5 insider tips to help you save thousands of dollars on your next trip to the car dealer.
So, no more overpaying. It’s time to get a great deal!
And if you haven’t read Part 1 of “How to Buy a Car for Less Money,” I would suggest reading that first. In that article, I shared some crucial insider tips that could save you even more money on your next car purchase. Trust me, you don’t want to miss that one!
Now, let’s dive into part 2!
Tip #1 – Trade-Ins
One of the first questions your salesperson will ask is, “Do you have a trade-in?” This isn’t just small talk—it’s a crucial part of their negotiation strategy.
Why? Because trade-ins are a major profit center for dealerships. Your response to this question can impact how much they’re willing to charge you for your new vehicle.
Trading in your old car might seem like an easy way to reduce the cost of your new ride. But here’s the catch: dealerships often offer less than your car’s true market value since they need to make a profit when they resell it.
While it’s fair for businesses to seek profit, you need to ensure the deal benefits you as well.
Dealerships understand that trading in your car can be an emotional process, and they use this to their advantage.
If you get too attached to the car you’re test driving, you might end up paying more and getting less for your trade-in. They hope you’ll fall in love with their car, which might cloud your judgment and lead to a deal that favors them.
So, how should you respond to the question, “Do you have a trade-in?” I recommend saying either “no,” “I’m not sure,” or “I don’t think so.”
Whatever you do, avoid saying “YES” right away. Why is that? By saying “YES,” you might limit the dealer’s willingness to discount their vehicle off MSRP, as they’ll try to balance the deal in their favor.
Additionally, knowing your trade-in’s true value before stepping into the dealership is crucial. Also, if you have the time and energy, selling your old car privately could earn you even more money towards your next car.
Tip #2 – Never Pay MSRP
One of my most important fundamental rules for buying a car is never pay the Manufacturer’s Suggested Retail Price, or MSRP because it’s typically set higher than the car’s actual market value.
The MSRP allows room for price negotiations, and typically has a 3 to 7 percent markup built into it. Although, depending on the model and its current demand, MSRP markup can even range from 0% to 10%. Like most things, it is going to come down to supply and demand.
If a vehicle is selling like hot cakes, expect little to no discount off the MSRP. However, if the dealership has an abundance of a specific model on their car lot and they aren’t selling, you can expect to negotiate a nice discount.
So just imagine. You want to buy a car that has a sticker price of $40,000. If the dealership agrees to knock off 7% off the MSRP for you, that would bring the vehicle’s price to $37,200.
That discount, in this case $2,800, is significant and might even cover the interest you will be paying to the bank for your loan, if you are not paying the car off immediately.
And as I stated earlier, remember, when you first talk to dealership, it’s wise not to mention any plans to trade in your old car at the beginning of negotiations, as that can decrease what they are willing to take off MSRP.
Tip #3 – New VS Used Cars
Should you buy a new or used car? The question of the ages.
When deciding between a new or used car, there are pros and cons to both options. A new car offers the latest technology, has hardly any miles, comes with a full warranty, and provides the peace of mind that comes with knowing the car’s complete history. However, new cars are more expensive, cost more money in insurance, and depreciate very quickly.
Used cars, on the other hand, are generally more affordable, have cheaper insurance, and have already experienced the steepest declines in depreciation, meaning you might get more value for your money.
But buying a used car carries some risks since you might not know its full history, the warranty has already expired, and it could require some costly maintenance.
Before buying a used car, I always suggest checking its value on reliable sources like Kelley Blue Book to ensure you’re getting a fair price.
And if you don’t happen to be an auto mechanic, pay one that you trust to check out the car that you are considering buying. The small fee you pay them upfront will be well worth it in the long run.
Also, it’s worth noting that dealers typically have room to negotiate on used cars also, so don’t hesitate to push for a better price.
Tip #4 – Paying Cash for Your Next Car
Tip #4 is paying cash is your little secret.
When paying cash for your next car, do not let the dealer know this up front. Why is that? Dealers make money on financing your vehicle. So, if you tell them you’re a cash buyer, they are thinking, “well there goes our commission from financing this deal. Now we are making less money on the sale of this car. We need to get money out of them from somewhere else.”
With this in mind, your best way to navigate this is to finance the deal, and never mention to them that you have the cash to pay the vehicle outright.
But here’s the catch, you must make sure the loan does not have a prepayment penalty before signing it. And once you get your first statement or installment in the mail, you then pay off the entire loan.
Tip #5 – Dealership Add-Ons
Lastly, tip #5 is to avoid the add-ons.
Dealerships often push add-ons like scratch and dent protection, leather coatings, and gap insurance because these are high-margin products for them. Why do these push these add-ons. Well, that make a lot of money of course and they could care less if you need or can use any of it.
Here are 5 quick tips to help you successfully navigate these addons. Talk to Your Insurance Agent: Before visiting the dealership, discuss your coverage with your insurance agent. You may find that some add-ons duplicate coverage you already have through your auto insurance, credit card, or the vehicle’s warranty.
Consider Your Needs: Depending on your driving habits and where you live, some of these protections may not be necessary. For example, if you usually park in a garage and away from other vehicles, scratch and dent protection might not be useful for you.
Gap Insurance: If you’re financing the car, gap insurance can be valuable. It covers the difference between what you owe and the car’s value in case of a total loss. Often, you can get gap insurance from your insurance company at a much lower rate than what the dealership offers.
Evaluate the Cost vs. Benefit: Some add-ons, like leather protection, might not significantly affect the car’s resale value, making them a poor investment. Consider whether the extra cost is worth it based on your personal circumstances.
Convenience: Buying add-ons at the dealership might be convenient, but remember that rolling them into your financing means paying interest on them. So, if you’re financing, your going to pay even more for your car.
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If you don’t already know me, my name is Sonia Narvaez. I’m a licensed CPA and wealth-building strategist with over 25 years of experience.
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