How to Buy a New Car the Right Way

How to Buy a New Car the Right Way

Next to buying a home, buying a new car is right up there as one of the largest and more stressful financial decisions you’ll make. After all, buying a vehicle is a commitment and your decision will likely stick with you for a few years and become an integral part of your life. That’s why most people have so much difficulty making this important decision and why there are so many salesmen and dealers using tricks to manipulate the sale, which could cost you thousands. But if you go into a new car purchase with the right information, know the questions that must be asked, and the tricks to avoid, it will be a quick and painless transaction.

Start by Researching Cars Online

Before you even step foot into a dealership, you’ll need to do your homework. If you walk onto a car lot and don’t have much of an idea as to what you want, the salespeople will smell the blood in the water. This doesn’t mean they will automatically try to put you into the most expensive vehicle, but you’ve given them a blank canvas to where they can make a bunch of different vehicles and features look like great options, and the better everything sounds to you when you haven’t done your research may lead you to buying something you don’t necessarily need.

So, start by narrowing down your choices. If you have a particular brand in mind, go to their website and explore the models. Compare features with what you need and keep a list of the most probable choices. If you don’t have any allegiance to a specific brand you’ll want to explore the style of car you’re interested in across various manufactures.

While narrowing down your choices to a handful of vehicles is a good start, that doesn’t mean anything until you dig into the reviews. Search for reviews online, check Consumer Reports, Edmunds, or any number of sites to get the real dirt on your options. Every vehicle looks great on a manufacturer’s website, but after they have been put through objective tests you may realize that some have very poor safety ratings, poor reliability, complaints about features or performance, and so on. After reviewing your choices you’ll likely come away with just a couple of suitable options, which is good.

When you’ve decided on your short list you’ll be better equipped to go to the dealer and ask specifically to see a certain model or two and you aren’t left with the salesman to waste your time trying to show you anything and everything on the lot.

Don’t Compromise

If you’re buying new, do not compromise. If you know exactly what you want in your vehicle, don’t let the dealership convince you to settle on something else just because they have it on the lot and can get you out the door today. Believe it or not, dealers don’t stock everything on the lot. They might only have a handful of the model you’re interested in, and the features and trim levels will vary greatly. The dealer wants to reduce inventory, so they will do anything they can to convince you the one on the lot is just about as good as the one you really had in mind. Maybe the one on the lot has a sunroof even though you didn’t want it, or it came with leather interior instead of cloth, they will make it sound like you’re going to get a deal by taking that one off their hands. Chances are the deal is not as great as it sounds, and second of all, you’re settling for something you went into the purchase knowing you didn’t really want. So ultimately you’re getting something you didn’t really want, or spending more than you wanted to on features you didn’t really need. If you’re buying a new vehicle, any dealership who wants your money will find an exact match, even if it’s hundreds of miles away and has to be delivered. When I bought my car the closest one they could find with the features I requested was two states away, but they got it just fine.

Here’s a quick personal story. I just bought a new vehicle a couple of months ago. Our family needed to get something a little bigger now with the two kids, and with the ability to get an employee discount it made sense to buy new. So, I did exactly what I’ve described above. Over the course of many weeks I researched our options, read the reviews, and finally settled on a specific make and model. Then I went to their website and used the “build your own” feature that most sites have and built it exactly how we wanted it. Then I printed it off and took it to the dealership.

You’d think this would mean I’d be in and out in a matter of an hour or so, but boy, you’d be wrong. Even though I walked in with a printout stating exactly what I wanted, the salespeople were relentless. First, they insisted that I should opt for a low miles used model from last year. They pulled out all the stops about why it was a better idea, but it took 20 minutes just to convince them I didn’t care and wanted what I wanted. Then, they of course take me out on the lot to show me the few new models they had, but guess what? None of them were what I said I wanted. Wrong color, wrong trim level, completely missing features I specifically asked for, and the list goes on.

Already fed up, I told the salesperson I wanted to speak to somebody else since he wasn’t listening to anything I had to say and just wanted to sell whatever they had available. It was already getting late and they said the guy I wanted to work with would be in tomorrow. So, after wasting all the time I just had to come back the next day. I go back in and this salesperson does actually listen, but it’s still an incredibly painful process. I sit at his desk for over an hour while he searches for vehicles in their online database to find a match. Even through this grueling process, he continues to try to sell me something I don’t want. Telling me I don’t need feature X or for only $1,000 more I can just get it all by upgrading to the premium trim level, and all sorts of garbage. He finally found one, but I was ready to jump across the desk and beat the guy by the time it was all said and done.

In hindsight, it probably would have been a good idea to just leave and try another dealership, but having already invested so much time with this one and not knowing if the next one would be the same way, I stuck it out. The bottom line is you shouldn’t compromise just because it’s easier for them or it will speed up the process. You’re making an important decision and spending a lot of money, so get exactly what you ask for.

Read more: Your Car is Making You Poor

Know the Purchase Price

Newsflash! The price the salesman gives you isn’t the best price. They aren’t going to come out and right off the bat and offer you the lowest possible price they can go with. That’s not how anyone does business, so it shouldn’t be a surprise car dealers don’t operate this way either. It’s true there isn’t a lot of margin to work with in new vehicle sales, but that still doesn’t mean you can’t negotiate.

The worst thing that can happen is you try to negotiate lower and they simply won’t budge. There’s no harm in that. If you want, you can try your best poker face and say you’re not interested at that price and proceed to leave. If they beg you to sit back down, you’ll know there’s room to work on price. If they don’t seem to care and let you go, they are either a poor salesperson, or they literally were at rock bottom.

Again, it never hurts to ask, and if you don’t even bother to throw another number out there you could be leaving easy money on the table. To get a rough idea of what a fair purchase price is, go ahead and head on over to Kelley Blue Book and plug in the specifics for the vehicle you’re interested in. It will tell you how much you can expect to pay, what the average price is, and so on so that it gives you a frame of reference. You may only be talking about a few hundred dollars on something you’re spending $30,000 on, but hey, money is money, so go in prepared.

Know Your Trade-In Value

If you’re trading in a vehicle for a new one, you absolutely, positively, must do your homework on the trade-in value first. It’s common knowledge that you get screwed when you trade in. That’s just the way it works because the dealer has to buy it cheap enough so that after they clean, prep, and make any minor repairs, they can then put it on their lot, where it might sit for months, and make some money. And that’s fine, there’s nothing wrong with that because selling a car yourself may get you a better sale price, but you have to do all of the work yourself and who knows how long it will take to sell it. So the tradeoff is that you give up the premium on sale price for the convenience of unloading it immediately.

Even so, with most vehicles you’ll have hundreds, if not thousands of dollars in bargaining when it comes to the trade-in price. When they give you a trade-in value, they aren’t going to come out with their best offer right out of the gate, so unless you know what a fair value for your car is, you could accept what they have to say and leave a lot of money on the table.

So again, start by going to Kelley Blue Book. There you can enter the details about your vehicle and get a fair trade-in value. This doesn’t mean that will be the price you get, but it at least gives you a ballpark of what you should be expecting. For example, say you pull up your vehicle and KBB says a fair trade-in value would be around $5,000. Now, say you’re at the car dealer and after they take your vehicle around back and look it over, come back and say they will give you $3,000. That should be a red flag right there and tell you there’s room to negotiate. Had you not done your homework you may have accepted that offer even though you may have been able to negotiate them up to $4,300.

Back to my recent purchasing experience, this is exactly what happened. I looked up my trade-in vehicle and found a fair value for trade would be about $4,200. When we discussed the trade, they told me they would only give me $3,000. Armed with my knowledge I told them we’d have to get closer to $4,000 since that’s a fair price. After throwing a few numbers around and a manager’s approval, they settled on $3,900. That’s $900 that could have easily gone out the window had I not spent five minutes online educating myself before just taking what they had to say for granted.

Secure Financing Before Shopping

Dealers love to handle the financing for you. While the salesperson may not get a direct cut if you finance with them, the dealerships do have relationships with local lenders and they receive incentives if they can push financing through their lenders. This doesn’t mean that all financing deals provided by the dealers will be a terrible deal, but there’s a very good chance you can do even better on your own if you don’t mind doing a little legwork.

Start by getting quotes from banks and lenders where you already have a relationship. It’s usually as simple as a quick phone call, stopping into a branch, or even going online to get the information you need and possibly even get pre-approved. The key to starting with lenders you already do business with is they usually give existing customers better rates.

If the rates aren’t all that stellar, then start shopping around to other financial institutions. Credit unions are a great place to look because they often have some of the lowest loan rates out there. If you can become a member, it may be worth is just for the auto loan rate alone. But at the very least after shopping around a bit you’ll know what the going rates are so you’ll know whether or not what the dealer is offering is a decent rate or not.

Better yet, once you find a good rate, go ahead and do the pre-approval. This will lock in a specific rate, give you a credit limit, and provide you with enough so that you can walk into the dealer basically saying you’ve already got the money and can cut a check today. No more haggling or trying to be pressured into something else. Even if you decide to go with another lender or decide to not buy the car entirely, you aren’t out anything.

Don’t Miss: 5 Mistakes You Can’t Afford to Make When Buying a Car

Back to my car-buying experience again… Before even step one way back at the beginning of this piece, I had already shopped around for rates and found Chase to offer the best rate. Even better than my credit union. How? Because of all of my banking relationships through them. Knowing I was locked in at 2.4% if I wanted it, when I was at the dealership I told them to go ahead and run the numbers to see what they could get me. Obviously, if they could do better, I’d probably go that route. But I had the ace in the hole knowing I could just call my bank and get a check for the car that day if need be. Sure enough, they couldn’t beat it. In fact, the best they could offer me was 3.5%, which oddly enough was through Chase. Of course the dealer is probably getting a few basis points as a kickback and that drives up the rate a bit, but bottom line is you’re not out anything by letting the dealer shop for rates for you, but you’re probably better off doing that on your own even before it gets to the time of trying to finance your purchase.

Putting It All Together

We’ve covered a lot here and it’s obvious the car purchasing process has many opportunities for snags. But if you stick to a plan and do your research ahead of time, you’ll be in the best possible position to come away with a great deal.

  1. Figure out what vehicle you want before you go to a dealership. There’s enough information online to keep you busy for weeks, so spend a little time from the comfort of your home gathering what you need and narrowing down your choices. You’ll still want to test drive before you buy, but if you eliminate all the duds before you go in, you’ll skip all the time wasted with salespeople trying to steer you in a certain direction and possibly get sold something you don’t really want or need.
  2. Don’t Compromise. When you’re buying new, you’re literally in the driver’s seat. You can get a vehicle exactly how you want it, no matter how much the dealer wants to push you toward a similar model on the lot. If you’re investing this much money into a long-term purchase, you are in no condition to let someone else tell you what you can or can’t have.
  3. Know your purchase price. Go into the process knowing what the vehicle you want should cost. This will at least alert you to any issues if the price they want to sell it for is way off the mark. Then, go ahead and negotiate. The worst that can happen is they don’t budge, but if you don’t try, you’ll never know if you can get a better price.
  4. Know your trade-in value. The worst thing you can do when trading in a vehicle is to have no idea what a fair price for your trade is worth and then accepting whatever they offer. Used car sales are where dealerships make their money, so they are in the business of buying low and selling high. That means you won’t get the best offer right out of the gate, so knowing what a fair price is will help you negotiate something better.
  5. Secure financing first if possible. Don’t let the dealer dictate the financing. At the very least shop around so you know what the going rates are. And if you can find an attractive rate, likely at a place you already do business, get pre-approved and ready to go so you can speed up the financing process once you’ve found a vehicle. It never hurts to let the dealer try to find financing, but they can’t come up with a good deal and you’ve already got financing lined up with another lender, you won’t be pressured into something costly at the last minute.

There you have it. While every vehicle purchase is different, if you follow this general outline you’ll be putting yourself in a position where you’re far more likely to get the best deal and avoid getting run over by a salesperson because you didn’t do your homework ahead of time. Buying a car is certainly a big decision and often a stressful situation, but if you take the right steps from the beginning it will be quick and painless.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

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