Tips for Buying a New Car

March 18, 2013

Diligent research and assertive negotiation are the keys to buying a new car. Learn about research, talking to dealers, and the best trade-in practices.

Buying a new car doesn't have to cause headaches. In fact, understanding some general tips can be better than consulting a new car buyers' guide. This is because what constitutes the best new car for one person might not be the best new car for the next buyer. Good tips work for just about any buyer in any situation.

  • Choose early. You should get an idea of what your needs and budget are for a car. Then test drive the various makes and models that seem a good fit. This should help you narrow the list down to one or two. From there you can make your final choice. You should do all this early in the buying process
  • Research thoroughly. When you are negotiating with a car dealer, you are talking to an expert. In order to balance out the business relationship, you need to become an expert, too. Research the car you plan to buy in detail, including manufacturer incentives, option packaging and different pricing. If you have a trade-in, research the pricing numbers on that, too
  • Don't let the dealer set the timetable. You should set a specific date range for making the actual purchase of the car and stick to it. Once you are in the dealership, they will do their best to push you to close that day. Don't let them control the buying situation. If they give you the rush-to-close approach, they get control. Be ready to walk out unless you feel you can confidently assert yourself in saying "No" repeatedly
  • Be ready to walk. If the dealer's terms don't seem like the best deal you can realistically get, then don't take the deal. This applies even if you are at the end of your buying schedule. The party that is less committed to needing to make the deal has more power in the business relationship. Being ready to walk away puts you in that position. There's a good chance when you head for the door, the salesperson will follow with a better offer. Even if you make it out of the dealership, they will probably call in the next day or two and sweeten the deal
  • Don't bundle. Dealers like to focus primarily on the monthly payment amount and bundle all the pieces of the deal together (car pricing, warranty package, trade in, financing) to get that number. This allows them to hide parts of the deal you might not find as attractive. Negotiate each piece separately
  • Scrutinize warranty packages. Depending on your particular situation (for instance, if you plan to trade in within a couple of years), a warranty package might not be a good value for you. In addition, car dealer packages are not always priced as competitively as some after market warranties. Research these just like the car itself to make sure you're getting the best deal
  • Research trade-in values. You should research trade in values if you plan on trading a car to help with your car purchase. The easy option would be to just trade-in the car at the dealer to make an easy transaction. However, if you are looking to increase your amount of money toward your car purchase, you should try to sell your car privately. You will get more closer to the "retail" value than the trade-in value
  • Get financing. If possible, try to secure financing before you go to the dealership. This is for two reasons. First, it is much better knowing you have money to pay for the car before you buy it. That is the best way to buy a car. The other reason is because if you get financing from the dealer itself, you will likely lose money. The rates from private lenders are much better. Not to mention, dealer financing throws in a couple extra percentage points called dealer reserve, which helps make the deal that much more profitable for the dealer
  • Negotiate assertively. Don't be afraid to negotiate. Just because you see the sticker price on the car, does not mean it is what the purchase price will be. You should research the dealer invoice prices, which are readily available online. This is the price that the dealer pays, and you can usually get a price near their cost due to incentives from the car manufacturers

Should You Trade In Your Car as a Down Payment?

When it comes to buying a new car, lots of drivers look for shortcuts and ways to maximize this important deal. But some of these strategies work better than others. Using a car trade-in as a down payment on a new car is usually not advisable. Here are some things to think about if you are considering this option.

A Car's Trade-In Value Is Relative
Any driver who thinks that their used car will bring a premium trade-in price at a dealership should do some thorough research. Most pre-owned cars will only bring a fraction of their blue book value as a trade-in price. Dealers taking trade-ins have to worry about doing the paperwork twice, presenting the used vehicle on a lot or re-selling it, and all of the costs associated with that temporary ownership. You can be pretty sure they won't give you a break on trade-in price because they don't want to take a loss. One common problem is that your trade-in probably doesn't match the type of car that the dealer likes to sell. Otherwise, you wouldn't be hunting on his or her lot and looking to turn in your old vehicle for what is there. Basically, any car owner can be sure that they will have to sacrifice some dealer cost for a trade-in. You can use blue book value as an estimate, but often the dealer will be less than flexible on how they will value your old car or truck. Most sellers get a much better price in a private sale than with the trade-in deal.

Trade-In Value and Overall New Car Cost
There's another problem with using the trade-in value as a down payment on a new vehicle. Savvy buyers who don't want to end up paying mountains of interest try to make their down payment as large as possible. However, a lot of dealer's representatives are trained in different ways to balance a trade-in credit with higher overall costs. In other words, they may counter the savings you get from your trade-in by raising rates on financing or prices on extras like warranties. In the end, your trade-in savings may be very small. If you're relying on them for your down payment, you may end up financing almost all of the new car cost. This adds up to be a lot of money over time.

Bulk Up Your Down Payment
A much smarter way to go about your down payment is to sell off some assets that you have in order to get a great big chunk of money that you can use to cut down on financing for your new car or truck. Buyers who put down a large down payment see their overall costs shrink quickly. Bigger down payments cut interest amounts and may even shrink interest rates, because the buyer looks like he or she has more buying power.

Consider these things when you're going to the lot. Think about using your trade-in as an additional "bonus" down payment, while providing a good solid lump sum up front. This is a good chance at owning your new vehicle free and clear while it still has value left.

How Trade-Ins Work

In buying a new car, it's helpful to have an idea of how the trade-in value works for drivers who want to put the value of their owned vehicle toward an investment in a new one.

A dealer takes an old car off of a driver's hands and grants them a "trade-in value" as a reduction in the cost of a new vehicle. However, there are some issues to be aware of in this transaction.

Trade-Ins Are Not Owned Free and Clear
If a trade-in vehicle is still under financing, it may not be a great idea to trade it in. In these cases, the dealer often promises to pay off your trade-in, but that's not always what actually happens. The dealer may include a "rolled over" loan on your trade-in along with new car financing. In a total package, it can be hard for the buyer to figure out exactly what's going on.

Old Trade-Ins
Sometimes, a dealer will tell you your car has "negligible value". This means it's not worth the dealer's time to re-sell the vehicle due to age, cosmetic factors or any other issues that make the resale value low. In these cases, you're better off selling your old car in a private sale, offering it to a friend or family member, or donating it to charity.

Dealer Cost
A dealer will only give you trade-in-value for what they can expect as a sale price after the costs of keeping it on the lot, titling it over and doing all of the prep work, such as getting a new inspection sticker (this can be costly). That's why it's usually a better idea to sell your old car yourself. In a private sale, you may be able to present the car well to a buyer, but to a dealer, who is a professional, you won't get a break, especially if your car doesn't happen to be desirable for their own lot.

Think of the trade-in value as a "convenience cost" for you, that makes up for the work you would have done to find a buyer. Don't think of trade-in value as a "gimme", or something that a new car buyer is somehow entitled to, or you could wind up sorely disappointed on the dealer's lot.

Getting the Most Out of Your Trade-In

When it comes to buying a new car, negotiating a fair price on your trade-in vehicle is often one of the most difficult parts of any new car deal. Frankly speaking, you will almost always get more money for your trade-in if you sell the car yourself. However, if you are uncomfortable with trying to sell the car yourself or simply don't have time or the patience to do it, there are ways that you can improve your chances of getting a better offer from the dealership. However, you should always remember that dealerships are not only in the business of selling cars for a higher price, they're in the business of saving money on the vehicles that they purchase also.

The Dealer Perspective
The first thing you should consider about your trade-in vehicle is why the new car dealership wants your vehicle in the first place. The reason is quite simple: profit. Dealerships earn more money on used cars than they do with new cars. This is because new car dealerships are generally very adept at purchasing trade-in vehicles at a price much lower than they are actually worth. Dealers then invest a little money in tuning up the vehicle, detailing and washing it and then selling it at a higher price.

Your Trade-In's Actual Value
You should know how much your vehicle is actually worth before you ever visit the dealership. Check out websites like the Kelley Blue Book pricing guide to get accurate market price information about your used vehicle. The site will allow you to enter specific information about your vehicle as well as describe its overall condition and then give you high and low average selling prices as well as the average trade-in vehicle value. Make sure that you have this information and take it with you when you visit the dealership--but do not let anyone see it until the appropriate time.

Make Sure It's Clean and Running Well
Before you take your trade-in vehicle to the dealership, invest a little money in it by cleaning it up and having it professionally detailed. While a professional detail is not a cheap service, it can help you get a lot more money offered to you for your trade-in. Also, consider performing a minor tune up to make sure the vehicle is running as well as possible.

Negotiating the Deal
First of all, don't even mention your trade-in vehicle until the appropriate time. If at all possible, park your trade-in vehicle across the street or a block or two down from the dealership. While you should never lie in the negotiation process, when the salesperson asks you if you have a vehicle to trade-in (and they will), simply ask if they saw you arrive in a vehicle. If you're not comfortable with this, try to avoid answering the question at any cost, and just keep the sales team wondering.

You should never forget that buying a new car and selling your trade-in vehicle are two separate transactions, and should be treated as such. Therefore, always negotiate the price of the vehicle you want to buy before you enter your trade-in into the equation. If you don't, the dealership has many ways of making it appear that you're getting more for your trade-in than you actually are.

While following the above advice can help you get more money for your trade-in, you should also consider that the dealership will never give you the retail value for your trade-in car or truck. You need to be reasonable with the amount that you're willing to accept. By visiting websites like Kelley Blue Book, you will have already found value accurate pricing information as to the approximate value of your vehicle. If you need to receive more than that, you should always consider taking the time to sell the car yourself. Trading in your vehicle is quick and convenient, and you need to consider that that in itself is worth a lot.

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