Buy a New Car

Let's say you've decided to invest in the new car or truck. Sure, you can probably get a better deal with a used car, but you've probably decided that the risks of driving a second-hand car or even third-hand are not worth saving some extra cash. You're willing to shell out the extra bucks to get a car fresh off the lot, so you'll want to make sure you get what you want without getting ripped off.

Steps

Taking Control from the Start

1. Do your homework. Being in control from the start is all about knowing what you want and knowing how to get it. Car salespeople can seize control from people who don't know what they want by trying to sell them a car that's not right for them. Don't let that happen to you: Be prepared. Know what you want. Take ownership of your car search!
   • Get the most recent annual auto issue by Consumer Reports magazine, which is usually put out in April. Consumer Reports will give you a wide range of reports — everything from the best cars priced under $25,000 to the worst cars of the year.
2. Talk to people. Nothing beats a good old-fashioned conversation with a human being. Why is that? Because reports made by "industry experts," while valuable in their own right, might not hit home with Mr. and Mrs. Smith. Solicit feedback from people you trust about the cars they love.
3. Figure out your priorities. What's most important to you in a new car? Do you have a small but growing family you need to accommodate? Look for roomy sedans and/or minivans with stellar safety ratings. Do you have a job in sales and want to project an image? A sports vehicle or coupe might fit the lifestyle. Do you plan on hauling or towing cargo on a regular basis? A truck is probably what you're looking for. Try to match the vehicles you're interested in with the lifestyle you want or have. You won't be as happy if your needs and your car are at crosscurrents.

Getting Serious about Price

1. Narrow down your search by drawing up a budget. You've done the initial research, and maybe you have half a dozen cars you're interested in. Now comes the hard part — making a budget. Because financing is so ubiquitous these days, it can be tempting to overestimate what you can actually afford in monthly payments, as well as the type of interest rate you'll get. Making a reasonable budget based on your financial facts will further winnow down the cars that you can afford.
   • How much of a down payment can you make? The larger the down payment, the less you'll have to pay over the life of your loan. It's likely you'll pay lower monthly payments as well.
   • Decide what to do with your current car, if you have one. Usually, you'll be able to get more for your current car if you sell it yourself than if you trade it in. On the other hand, it may take significantly longer, and include much more hassle, selling it on the open market.
   • Figure paying about 10% in fees, taxes, etc. when you determine how much you can truly afford. For example, if you set a budget of $25,000, that doesn't necessarily mean that you can afford a $25,000 car; that's because a total of $2,500 will probably be added on to the MSRP, making it $27,500.
2. Determine the invoice price. The invoice price is the price that the dealership paid for the car. This price will probably be one of the most important bargaining tools in your arsenal. Still, it doesn't tell the full story. For one, the invoice price doesn't factor in advertising, promotion, display, and sales costs that dealers pay for the vehicle. And dealers traditionally only mark up new cars 10% more than the invoice price. It's possible that asking for a vehicle at or just above the invoice price will cost the dealership money. So use the invoice price, but don't abuse it.
3. Find out other important price points. The MSRP is the "manufacturer's suggested retail price," and it's exactly what the name implies. The manufacturer usually sets the MSRP so that dealers can still make a profit while offering customers a discount on the MSRP.
   • The fair purchase price is a weekly-updated report on what actual buyers are paying for specific cars in current market conditions. This average transaction price is good to look at as you decide what you feel comfortable paying for a new car.
   • Be prepared for the market to fluctuate. Like any other market, the market for new cars fluctuates. A popular car in short supply will most likely command a price above the MSRP and even above the fair purchase price.
4. Get an insurance quote on the models that you're looking at. Insurance is a necessity in many states, and the truth is that certain cars — sports cars, or super- or turbocharged cars — can add a hefty amount to your premium. You'll probably find it helpful to talk with your insurance dealer about possible cars before you pull the trigger. You could end up exceeding your budget if you have to tack on an additional $150 per month in insurance costs.
5. Decide how you'll get financing, if you need it. If you don't have enough cash to pay for the entire sticker price of the car, you're going to have to finance. Financing means that you make an initial down payment, and pay for the rest of the car with monthly payments, which are influenced by an interest rate the lender is willing to give you. In general, the higher your credit score, the less you'll pay in interest rates. The higher your monthly payments, the less you'll pay for the car over the life of the loan.
   • Sometimes, the car dealer will offer you very attractive financing options, such as 0% financing deals, which means you pay 0% interest on the money the dealer gives you. These offers, however, are usually only extended to the buyers with the best credit. The dealers lure you in the door with an attractive teaser rate, and then when you fall in love with a car, say that you're not eligible.
   • For the most part, getting financing from a dealer isn't going to get you the best deal. Getting financing from you local lender or credit union will usually give you a more attractive rate. Unless you have perfect or near-perfect credit, if a dealer asks you how you intend to pay, tell them you're paying cash. (You don't actually have to pay cash, but you can use the money from outside financing to bankroll your car purchase.)

Making the Deal

1. Set your sights on three models that you'd be happy driving off the lot. If you've got your dream car, that's fine too, but it doesn't give you as much flexibility if you're bargain-hunting. Go to the manufacturer websites and configure your vehicle(s) with the options you want. Get the invoice prices and MSRPs for each of these cars, and print them out (along with the details of the configuration you want). Finally, look to see if there are any manufacturer incentives available for the car you want, such as $1500 cash back or a $500 rebate for recent college grads and/or those in the military.
2. Test drive your cars. Take them for a drive. So far, your search has been pretty theoretical and very methodical. It's time to have fun and experience what it's actually like to test drive the models you've been fantasizing about. Here are some tips for making sure you get the best of the test drive and not let the test drive get the better of you:
   • Take note of how everything feels to you when you test drive, especially your gut reactions. Small problems during the test drive can be magnified later if you do buy the car, so it's best to listen to your instincts.
   • Try not to show any outward emotion when test driving. Your adrenaline may be pumping, and you're probably excited, but experienced salespeople will pick up on this and exploit it.
3. Call up several local dealers and start to get quotes. When you call the dealership, ask to speak to the internet sales manager or the fleet sales manager. Don't speak with the "traditional" car sales worker, as they typically won't discount as much as a internet sales or fleet sales manager. Here's what you say:
   • Say:"I'm looking for a [year/make/model] with [state your options]. Do you have any of these in stock and if so, how much are you selling it for?" Tell them you've already test-driven the car. Emphasize that you need a quote over the phone.
   • Start your bidding at the invoice price minus rebates, plus 1%. You can do this by multiplying the invoice number by 1.01. For example, if a car has an invoice cost of $15,000, and a cash back rebate of $2,000, then $15,000 - $2,000 = $13000 x 1.01 = $13,130.
   • If possible get the quote in writing (fax or e-mail), along with any options, taxes, and DMV fees, so that you can show other dealers. Confirm the price before visiting the dealership.
4. Call other internet managers and ask them to beat their competitors' prices. After calling five to seven dealerships and getting prices, you're probably around $200 from the lowest price you can get. Call back the dealerships you spoke with and ask them if they want to beat their competitor's price. Resist any invitation to go to the dealer. Do this with as many dealerships you feel comfortable haggling with, or until the price drops below the fair purchase price or close to the invoice price.
   • When you've finalized a deal over the phone, ask the internet sales manager to print out and fax over a worksheet detailing the final price, along with any options, taxes, and fees. If you don't get a worksheet from an internet manager, it's safe to assume they're not ready to sell you the car for the agreed-upon price.
5. Drive to the dealership you negotiated the lowest price with and show them the worksheet. In most cases, because the brunt of the legwork is done and any feints now will be easily detectable, the dealer will sell you the car right then and there. If they don't sell you the car at the rate they promised, simply walk away. It's a powerful statement that says "I'm not here to play around." Most salespeople would rather close a sale than let you walk out the door.

Avoiding Common Mistakes

1. Never sign a contract without double-checking. If you don't understand a part of the contract you're signing, don't sign it. Ask the dealer to explain. If they consciously mislead you about a part of the contract, they could be subject to major fines and even jail time. Take your time to go through any contract or worksheet the dealer sends you and double-check that it doesn't contain any funny stuff.
   • Unscrupulous dealers will sometimes increase an agreed-upon interest or add a warranty to your car without telling you. This is illegal, and it's called "packing payments." It's easy for the dealer to change your monthly payment from $347 to $357 because it's difficult to spot and it's "only" $10. But that $10, over the life of a 48-month loan, becomes almost $500 for the dealer. Don't get scammed by packed payments.
2. Don't buy unnecessary extras. Like soda at a fast-food chain, extras are where the car dealerships make a lot of extra money. Ask yourself what is truly necessary and what is merely satisfactory. At the end of the day, do you really need rustproofing on your brand new car, or are you just too tired to put up a fight?
3. Don't get cajoled by four-square worksheets. If you see your salesperson brandishing a four-square worksheet, tell him you'll walk away unless he puts it away. Four-square worksheets are pieces of paper that salespeople whip out in desperate attempts to fool the buyer. Essentially, here's how they work:
   • The sheet in divided up into four quadrants: Trade-in value; purchase price; down payment; and monthly payment. The salesperson keys in on what you're most concerned about (maybe it's lowering your monthly payment), and reduces the payment in one square while increasing the payment in another. The worksheet looks logical, but it's more like a three-card monte trick. The dealer uses this piece of paper principally to confuse you.
4. Don't focus solely on the monthly payment. Shrewd salespeople will come up to you and ask you how much you want to pay a month for a car. Agreeing to a monthly payment before you've agreed on a final price of the car is a certain recipe for paying way more than you need to. Think about it. If a salesperson gets you locked into a monthly payment first, he can massage the final price of the vehicle depending on how many months he uses. That's not good. Always agree on a final price before talking monthly payments.
5. Don't let a car salesperson make you feel bad. People who sell cars are a different breed of salespeople. They can be very adept at manipulating emotion in order to close a sale. It's a good idea to try not to let emotion get in the way of making a huge financial purchase, especially when that emotion is being staged by a salesperson.
   • For example, don't let them harass with something like: "You don't haggle with the cashier at the supermarket for a gallon of milk do you?" They are simply trying to guilt you into doing things their way. Respond by saying that in the grocery store, you don't have to worry about paying more for milk than the person before you did. Tell them that no-one has ever financed a gallon of milk.

Tips

• They can afford to sell at invoice because of the hold-back and dealer fees; that's all the profit they deserve, but don't expect to pay invoice for a high-demand/low-supply car.
• Don't forget the Internet department! You can often get a lower price by requesting it through the dealer's website.
• It's better to shop for a car during off-peak hours - weekday evenings, for instance.
• Another way to get a salesperson to give you the price you want for a car is by pre-qualifying for a loan elsewhere and walking in with a check pre-written for the exact amount that you want to pay for a car they have in stock. Most salespeople will be unable to resist this "take it or leave it" proposal, so long as your price is reasonable (around 3% above the invoice price).
• Do not believe everything that a car sales man says. His job is to make you buy the car for the most expensive price.
• Be informed about the cars you are interested in, do your homework and compare new cars on sites that allow you to do side-by-side comparisons to help determine which features are available on what models. Don't be afraid to ask questions and follow up with more research.
• Buying at the right time is important. At the end of the year the dealers just want it off their lot.
• Be nice! Most sales managers tend to give a better deal if you don't act like a jerk.
• Cars that are in high demand, or are hard to find (or both) will be more difficult to negotiate around.
• Bring a friend who lacks interest in the car in order to stop you from paying too much. Or if you're married or with a significant other play good/cop bad cop. They will always do better if you have to leave and come back later. This doesn't mean for you to be a jerk, but just firm and know what you want.

Warnings

• Don't let a salesperson check your credit report unless you've gotten an offer that you're serious about signing. Frequent inquiries into your credit report can lower your score. Instead, get your credit report yourself (which won't affect your score) and bring it in with you to get an estimated finance rate.
• If the dealer suggests inflating your earnings in order to get a better interest rate, tell them no because you will be liable for fraud and the dealer won't be liable.
• If you are financing this purchase, the dealer F&I person may try to "pad" your interest rate, meaning they will charge you a higher rate of interest than what was quoted to them by your lender. In order to avoid this, be sure to ask the "buy rate." This is the rate given by the lender. You should not pay much more than this, and you might be better off negotiating a flat fee rather than a higher interest rate, which could cost you more in the long run.

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Sources and Citations

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