Too many consumers unquestioningly accept the pricing they are given when buying a car, never call other dealerships for competing quotes, and pay hundreds of dollars for dealer add-ons and fees – and still feel like they got a "good deal."
Setting a Target Price
Once you have determined the exact make and model of the car you want, you will need to set a target price for your purchase. Your target price offers a measurable goal to help you stick to your financial plan. Before shopping, don't forget to decide on your car's "trim" level. Some trim levels will be basic, while others may add nicer tire rims, a sunroof, or leather seats. You'll need to know the trim level to set a target price.
If you're buying a new car, try a Google search for the "dealer invoice" price on your exact vehicle. Also, search for current "dealer incentives" that the car's manufacturer may offer. Many websites publish this information free of charge. Your price target should be the dealer invoice and less if incentives are offered. If you can avoid expensive add-ons, paying close to the dealer invoice is considered a good deal.
Determining a target price can be a bit more difficult if you are buying a used car. Used cars vary in condition, mileage, and accident history – all of which should affect the car's fair value. The official NADA Guide and Edmund's True Market Value (TMV) are a couple of good sources of information to help guide your search.
The NADA guide should be available at your local library (the free online version includes less information), and it lists three prices for each car – dealer retail, trade-in, and bank loan. After adjusting for mileage and condition, a reasonable target price is between trade-in and retail. Edmund's TMV estimate is available free of charge at Edmunds.com. It offers a region-specific estimate of what cars like the one you want are selling for. That TMV estimate is a reasonable guide to follow.
When buying a used car, we also suggest ordering a CarFax check when you've found a car you are seriously considering. The CarFax service aggregates public records on vehicles, including reports filed when a car is in an accident.
Negotiating Price
Negotiating the price of your car doesn't have to be uncomfortable. After all, you are trying to give the dealer thousands of dollars!
Once you have determined the target price for the car you want and found a vehicle you like, it's time to start the negotiation process. The best way to ensure you get the best price is to avoid making on-the-spot decisions under pressure and to call multiple dealers to compare "best prices" on comparable cars.
When talking with a salesperson, keep in mind that they are gathering information on you and your attitudes about purchasing the car at the same time. For example, they may ask if you need financing or if you plan to pay cash. If they think you are financing, they may ask what your target monthly payment would be – information they can use to eventually sell you the car (along with an expensive financing package) at a higher price than you would typically pay. Focusing on the total price (including fees and financing costs) and comparing shopping works to ensure you're paying an appropriate price.
Some people want to be agreeable and have a hard time saying no. Others don't want to hurt a salesperson's feelings and feel responsible to the salesperson if they don't buy the car. Many people are uncomfortable with the negotiation process. Don't let a salesperson talk you into making a decision that is uncomfortable to you.
Armed with your target price, you have more knowledge than many consumers. When you agree to a deal, you are giving up on the possibility of finding a better deal elsewhere, so make sure you are sure before signing a contract. Don't be afraid of disappointing the salesperson by asking for the details in writing for you to review at home or with a friend. Plus, if a salesperson is unwilling to provide the deal in writing, you should probably look elsewhere anyway.
Once you agree on a price, remember that you may need to make more decisions that will affect your price. You may be offered extended warranties, pre-paid service agreements, and other options when signing the paperwork. Make sure you only buy what you truly want.
The Takeaway
Car shoppers didn't invent the way cars are sold. Your task in negotiating is to pay the lowest price. If you're uncomfortable negotiating, services in your area may assist you, or you could shop with a trusted friend or family member to help you navigate the process.
