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Getting the Best Deal on Your Next New Car

By Edward Choi - Jul 31, 2008
Getting the Best Deal on Your Next New Car
We get a lot of questions from our readers, and one of the most frequently asked questions is regarding getting the best deal when buying a new car. Here is an edited summary of what we usually tell our readers.

Before You Get to Negotiating
Make sure you know what you want. Some folks just know what they want. It's either a brand of car they've had before, seen before, driven before, or was recommended by someone they trust. Some other folks do a painstaking research and come to a decision. No matter how you may have come to the decision, you have to do one thing before you completely make up your mind - test drive. New car is not cheap and you get to spend a lot of time in it. Make sure you test drive and like what you are committing into. Go to a dealership and ask if you can test drive the car. You can tell them that you are in the market to buy a car in the next couple of months (because you should do this a couple of months before you actually buy the car), and make sure that they don't talk you into buying anything that day. Touch and feel the car, and make sure that you like the car and you can live with all the flaws it may have. Print out a list of top 5 pros and cons done by the car owner reviews, and bring it to the test drive and see if you are ok with the cons.

Steps to Saving
Step 0: Know yourself, especially your financial skills. A lot of car buyers walk into a dealership without having any financial background. If this is you, you will let the dealership make a lot of money off of you, and/or reckless borrowing can potentially ruin your financial credit. Here is a checklist:
1. How much upfront cash can you afford without causing a significant dent on your savings?
2. What kind of monthly payment can you make without having to sacrifice your everyday luxuries, such as eating out or buying clothes?
3. Do you know how the interest rates work? Pop quiz: if you take out a 60-month loan at 6% interest on a $25,000 car with $5,000 down payment, how much is your monthly payment and how much would you end up paying for the principal vs. interest? If you don't think you can answer this, bring someone who can to the dealership or the bank where you arrange the financing.
4. Do you have a bank or a credit union that can set up financing approved for you before you buy a car? Well, if you don't, you should get one. When you apply for an auto loan at a bank, they will let you know up to how much you can borrow and how much your monthly payment is going to be, at what kind of interest rates. And shop around for the best rates as well. A simple way of thinking about it is - money is just like any other commodity you buy and sell. Banks buy and sell money, and the interest rate is the price you pay. Some banks sell money at lower prices, aka lower interest rates.
Dealerships play a broker role when it comes to financing, and brokers make money by charging a fee or additional interest. If you want the dealerships to make some money, then you should go through them as a financing source. You really should go through them only when the manufacturers are offering special financing deals or leasing deals, which can be arranged only through the authorized dealers. If there are no special financing incentives from the manufacturers, you can almost always get better rates from your local bank or credible online banks. Getting your financing arranged before buying the car is one of the keys to saving money, because it gives you the freedom to shop for the best financing deal available to you.

Step 1: Find out if there are any manufacturer sponsored incentives. Incentives can come in different shapes and forms - cash, purchase financing, leasing, free gas, etc. Cash rebates will let you buy the car at lower price, and financing or leasing will let you have lower monthly payments. These incentives can influence your purchasing method. But negotiating the price is always the same. Based on the negotiated price, you calculate the monthly payment using the appropriate rates. For example, if a car had 1% financing incentives and no cash rebates, you first negotiate the car price as low as possible and then apply the 1% rate to figure out your monthly payment based on the negotiated price. The best source for finding out manufacturer's incentives is usually the manufacturer's own website.

Step 2: Find out exactly how much the MSRP and invoice prices are on a car of the exact configuration you want. Manufacturers' web sites usually have the most accurate car configurators, and they will give you the exact MSRP. You can use other popular car sites to configure the same car and find out how much the invoice is on the car. As you configure a car, try two to three different configurations, and decide what you can live with and without. You may not be able to get the exact car you want, or you may have to wait several months for one. Read owner reviews and hear what they like about certain features and pros and cons of the cars. Print out your top two configurations with their MSRP and invoice prices.

Step 3: Use an online shopping tool to get multiple dealer quotes. Almost all dealers have two separate sales departments: online and walk-in. The online sales team almost always works separately from the walk-in sales team. Because the online consumers are usually savvier price shoppers, the online sales teams can sell you the car at a price that they used to consider wholesale. You can get to the same price with the walk-in sales team, but it will take you a lot of time haggling and negotiating. The key is that you can easily make dealers compete for your business by using these online shopping tools, and it's a much easier and faster way to get to a lower price. Despite what they say on their sites, almost all online shopping sites are pretty much the same. They almost all have the same dealers covered. (Disclosure: ReviewCars.com offers MakeDealersCompete service. We recommend this service to our friends and family.) Because most of these sites have similar dealers covered, if you ask for price quotes multiple times on different sites, you will stop getting responses. After you ask for a price quote, here is what you can expect to happen:
a) Most of the dealers will call you or email you within a few hours. Most of them will give you a price, but some won't. Make sure that you write down or print out all the prices you get. If a dealer doesn't give you a price over the phone or email, tell them what kind of prices you have been getting from their competing dealers and ask if they can beat it. After going through this process, you will have a pretty good idea within a day or two of how much you can buy your next car for. One easy way of negotiating is setting your target price over the dealer invoice. You should let the dealer make at least 2% over invoice. If the car's invoice is $25,000, letting them make $500 sounds like a great deal. If there is a manufacturer sponsored cash rebate on the car, make sure to subtract the rebate from the invoice price. Just keep in mind that every car has different market demand, and for some hot cars, you will be lucky to get 5% over invoice. So stay flexible.
b) Ask if they have the car of your configuration in stock or if they can get it for you. Most likely you will be able to get the car of your configuration, or at least your second pick. You may have to wait several days, or may end up paying a few hundred dollars more if you really want to get your first pick and if it is a hard to find configuration.
c) They will ask you if you have your financing arranged already. We hope that by this point you have. Tell them that you do, but also tell them that if they can get cheaper financing for you, you will consider it. Make sure you know how financing works, and if you don't, bring someone who does.
d) They may also ask if you have your insurance done. Car dealers work as an insurance agent, and they make money by charging a fee. We hope that you already have good auto insurance at a reasonable premium, and that you can switch the coverage to the new car with a phone call. You can use an online service to find the best insurance rates as well.
By now, you are probably ready to walk into the dealership that offered you the best deal and buy the car. Allow 5-6 hours to spend at the dealership.

Step 4: Keep track of your car and paperwork. Once you get to the dealership, make sure you talk with someone from the internet sales department. Bring all the prices and printouts of car configurations and inventory search you may have done. When they show you the actual car, the first thing you should do is writing down the last 5-6 digits of the VIN. Keep this number at all times, and make sure that all your paperwork has the same VIN before you sign them. Make sure they show you the dealer invoice with the right VIN that you wrote down. Before you do any kind of paperwork, check out the car carefully. YOU MUST TEST DRIVE THE CAR. Pay close attention to how the car accelerates, handles, and brakes, and make sure you don't hear any rattling noises. If you hear rattling noises, most likely you will have to live with them. Rattling noises are the most difficult to fix, no matter what the salesperson tells you. If you can't live with them, find a different car. Find any scratches or dents or door/window/trunk not closing property or making weird noises, and if you do, tell them to fix it. Even new cars can get scratches and dents from transporting. If you are happy with the car, you will sit down with the "desking" department, aka financing department. They finalize the deal. You will sign about 5 to 10 different forms, and hand over the payment. If you have decided to go with manufacturer's financing or leasing deals, make sure you bring a calculator to double check the numbers. If you don't know how to do this, bring someone who can. Make sure again, that all papers' VIN matches with yours.

Step 5: Buy the accessories with discretion. If you have so far followed our advice, you are probably letting the dealer make only about 2% over the invoice (minus any available manufacturer rebate). That's not much for the dealers, so they will do their best to make more money. So as you are sitting down to sign 5-10 different documents to finalize the deal, they will offer you the accessories to buy. The accessories include the infamous "protective coating", car security system, extended warranty, service plans, roof rack, spoiler, decorative painting, embroidery on seating, gold plating on this and that, etc. Our advice to you is this: buy them only if you need them. Our guess is that you don't really need any of them. If you do really need them, you will be able to get a better price elsewhere if you are willing to shop around, or ask them if they can offer you discounts on them ("internal pricing", "customer special", etc.). If you are not sure if you need them, say no to everything and tell them that you will think about it.

Step 6: Pay attention at delivery. After you have signed the papers and the payment is handed over, they will sit you down to do a delivery. They will explain to you all the details about different features and how to do some of the basic operations. By this time, they should have cleaned your car inside and out and possibly filled up the tank. If they haven't, ask nicely that they do so, and tell them that you will give them completely satisfied markings on a customer satisfaction survey. Make sure that your new car's VIN is the same VIN as before. (Most of the dealers don't do the switches like this anymore, and they may get offended by you checking. But just to protect you from the very minority of dealers who still do the switch, you should check.) Make sure your new car does not have scratches or dents. If they do, tell them to fix it.

Use your best judgement.
The best advice we can give you is, use your best discretion. We understand that this is not a complete list of things to consider. And you may not be able to get the price you want even if you followed every single suggestion we made in this article. Use your best discretion. We do hope that you will get the best price possible on your next new car purchase.

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