Best Car-Buying Strategies for Year-End
It’s December and you’ve noticed the car showrooms advertising “the greatest deals ever – buy now!” Who doesn’t want a new car? But does the end of the year offer the best deal for you?
Buying a vehicle is a headache for 4 reasons.
- It’s overwhelming to compare. There are the hundreds of models and features, and no two dealers have exactly the same pricing – or exactly the same vehicles on hand. (But oh, yes, they’ll find anything you see elsewhere…just ask.) Frustration leads car buyers to breakdown – so they’ll settle to get it over with. What’s a little more money, after all?
2. It’s a really big purchase. Even prices for a no-frills car are staggering today. Roughly $31,400 was the average MSRP (Manufacturers’ Standard Retail Price) for new cars in 2017, according to J.D. Power & Associates. How much was that car payment…enough to make you hit the brakes? Hey, what’s a few more dollars?
3. It takes sooo much time. Buying a car is not a shopping trip of a couple hours. Research, test drives, going between dealers, comparisons, more research – consider your time an investment. My dad used to say, “once you look, you buy.” That’s because you’ve already invested so much time and you don’t want to start over (and the fact that you may have fallen in love with a model or color ; )
4. Then there’s the whole “negotiating-to-get-the-best-deal” anxiety. I get it – how often do you buy a car anyway? How are you supposed to be good at negotiating something you’ll likely do a handful of times? Comparatively, car dealers do it daily, so obviously you’re up against adept negotiators. No wonder we’re afraid we’ll make a mistake…dealers get good mileage out of our angst.
Is there any way to make car buying easier?
Whether it’s new or used, let’s take a look at how to banish some fears and be smarter about buying that car. If you’re getting a new car, you will probably buy from a dealer and not a private seller. You might find a used car at either. (Today we’re focused on commercial dealers. More on buying privately in another blog post.)
Three Buying Decisions, Not One
For most of us, purchasing a vehicle is really THREE shopping transactions that can happen nearly simultaneously. The dealer stands to make money on all three of your transactions:
- Arranging the car loan – Good for you if you’re paying cash, but most don’t!
- Trading in your old car – Most trade-in rather than sell it privately.
- Buying the new car – Which is what most of us focus on.
While it might seem easier (and less hassle) if you allow a car dealer to orchestrate the entire buying process, it will not be the most cost effective for you. With some planning and research, however, you can save money (maybe a lot).
So first, separate your thought process and approach the new buy, the trade-in and the loan each as its own transaction.
Put Yourself – Not a Dealer – in Driver’s Seat
Before stepping into the dealer showroom, check on-line to determine what car models and features you are actually interested in. Narrow your search to a couple of models that have the features you want – and that you can afford. This way, you’ll know what popular upgrades (extra add-ons bundled together, such as a “sports package”) the manufacturer would provide any dealer.
A good way to narrow down your model preferences is to answer questions such as:
- What type of driving will you mostly do?
- Do you drive by yourself or need room for others, for animals, for storage?
- Do you have a vehicle to trade in?
- Approximately how many miles will you drive annually?
- How long do you intend to keep the vehicle?
- Can you easily find mechanics and service for the manufacturer you choose?
- Are the models that interest you readily available or on back order?
- What kind of climate and terrain will you primarily be driving?
And then consider:
- Does it make more sense to buy a new or used vehicle?
- How much have you saved to buy the car?
How to Decide How Much Car You Can Afford
You may not be able to buy the car of your dreams.
Remember your monthly car payment is only part of what a car actually costs you each month. You also pay for these routine expenses:
- Car insurance
- License plates
- Maintenance (oil changes, new tires, etc.)
AAA estimates the average vehicle driven 15,000 miles/year costs $706/month = $8,469/year in 2017. For a new car, AAA includes $99/month for repairs and maintenance. To find average expenses for various models check Edmunds.com or Kelly Blue Book, and there’s a gas calculator at AAA.
A good rule of thumb to use is the 20% rule: The total of all your car expenses should be no more than 20% of your monthly paycheck. That’s the expenses listed above PLUS your monthly loan payment, which averages $504/month for a new car, according to Experian.
Your Next Car-Buying Step? Shop Financing
After you’re armed with the model and make of a car you might buy plus what you can afford, evaluate your financing options.
Unless you are paying cash, it’s best to have financing in place before cutting any car deal. The car dealer may offer you a better financing option to get your business, however, you should negotiate the price of the car FIRST and not your car payment. Otherwise, you pay too much. Accepting an interest rate even ½% higher costs you unnecessarily. And, do NOT even think about rolling over the loan on your old car to your new one!
You can get a new car loan from a bank, a credit union or a car dealer. Shop for rates online at sites such as Bankrate. According to Experian, the average monthly new car payment in 2017 was $504/month. So it pays to search out your best option.
As you shop for loan rates, remember you should:
- Make as large a down payment as you can.
- Keep your loan length as short as possible.
- Focus on Annual Percentage Rate — APR.
- Do not borrow more than you need.
- Reduce MSRP with affinity discounts or rebates (students, veterans, associations, etc.)
- Check financing incentives on manufacturers’ websites.
- Ask about hidden loan fees or surcharges.
If you find a decent loan rate at a bank or credit union, get pre-approved for the loan amount you will need. Have this ready when you go back to the dealer to negotiate. If the dealer does offer up a better rate, you can always change your mind. To be a good deal, the dealer would have to give you a lower interest rate PLUS the same or shorter repayment period than your pre-approval.
Sales Tactics to Recognize
Yes, the car salesperson will ask how you intend to pay for the car as you are shopping the showroom. (Any sales person wants to determine all his negotiating chips up front.) If you are pre-approved, you merely say, “I’ll be paying cash.”
If the dealer knows you must finance your purchase, he now has two ways to make money on you – the car and the financing – and his negotiation window has opened wider as yours narrows.
You’ve Kicked the Tires – Time to Negotiate
So you’ve picked out one (or two) new models you would be happy buying. Although each car has different features, both are in your price range and available.
- You’ve visited two different car showrooms to know how many each has in stock.
- You know the MSRP for each model.
- You did a test drive, maybe more than once.
- You’ve found you qualify for a $1,000 manufacturer incentive.
- You have a $600 rebate as an association membership benefit.
- You’re pre-approved for financing.
- Knowing you’re very interested, each salesperson wants your business and has provided you (verbally only) a price for each model. One dealership is offering an “extra sale this weekend only.” Both have invested time into “cultivating this sale” and want to seal the deal and move onto to another prospect. (Time is money for sales people!)
- Notice you have NOT mentioned you have a vehicle to trade – yet! (Yes,the sales person asked, however, you did not give away your intentions.)
This is the best time for you to negotiate. Your salesperson will say something like, “shall we write up this sale today? Or “don’t you want to drive this home today?”
Be ready with the amount you want to pay. Make your offer. Expect a counter offer. Expect to be kept waiting as your sales person “discusses” your offer with the manager. But you also may not get a counter offer, depending on how badly the dealer wants to make the sale that day.
Then, be willing to walk away. This is not the only car for you out there. (You did test-drive the car at another dealership, right?)
You’ll Have 1 of 3 Outcomes…
- You agree to the dealer’s counter offer. (Which may be the dealer saying, “Sorry we can’t budge, so our original price is the best we can do.”)
- The dealer agrees to your offer. (Congrats to you!)
- You say thanks and leave. (The dealer may call you back in a day or so, or you go to another dealership and make another offer.)
If your price is not accepted, do not think you’ve failed. What you’ve really done is find out the dealer’s parameters or the “I-won’t-go-lower-price.” Use this to negotiate your price with your second dealer.
Now for Your Third Transaction – the Trade-In
After you negotiate the lowest price you can, then it’s time to mention you might also have a trade in. Before you ask the dealer to value your trade, you can research on your own to find out approximately how much your old car is worth at a site like Kelly Blue Book or Edmunds.
Depending on how desirable your old car is, the dealer may offer top dollar. But maybe not.
Now, you have two choices: Either let the dealer have your trade-in and reduce the price of your new car by that amount. Or get a better price by selling your old car yourself, according to the value listed at Kellly Blue Book. To learn about selling a used car in your state, consult your county treasurer’s office.
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