Shopping for a new or used car is exciting for any buyer. There’s almost nothing better than a new car’s smell or having a new-to-you set of keys handed over. However, the car buying process can be a tough time, especially when negotiating the best price when buying from car dealerships. Here is a guide on negotiating a car price to help you the next time you’re on the car lot looking for your next new or used car.
How to Negotiate the Best Deal on a New or Used Car
- Research Before You Step on the Lot
- Get a Vehicle History Report and a Pre-Purchase Inspection
- Set a Budget and Stick to It
- Determine Your Financing
- Focus on the Out-the-Door Price, Not the Payment
- Paying Cash Isn’t King
- Nearly Everything is Negotiable
- Be Patient
- Be Prepared to Walk Away
Research Before You Step on the Lot
The first step in the negotiation process comes before you arrive at the car dealership: decide which car you want. Knowing this beforehand allows you to gain as much knowledge as possible about the car’s fair market value. Tools like CarGurus’ IMV can point you in the right direction.
The CarGurus IMV, or Instant Market Value, is an estimated fair market price based on the current market for the make and model you’re interested in. Knowing this price can tell you whether the specific car you’re looking at is priced fairly compared with other similar makes and models in the market. This app is a handy tool for car negotiation when shopping for both new and used cars, as well as similar vehicles, helping you to get a fair price.
For new cars, we recommend using an industry guide such as Kelley Blue Book to do retail price shopping between two or three local car dealerships to find the best price in your area. After finding the lowest price possible, you may be able to use that number as leverage for negotiation at another car dealership that has the exact model year, trim level, and color you’re looking for. It can be tricky to compare MSRPs for models that aren’t identical.
Get a Vehicle History Report and a Pre-Purchase Inspection
A used car’s value is tied closely to its condition. As such, it’s important to obtain a vehicle history report and a pre-purchase inspection (PPI) when shopping for a used car at a dealership. Most, if not all, car dealers should supply you with a vehicle history report based on the vehicle identification number (VIN), usually from CarFax or AutoCheck, which will indicate if the car has a clean title, has been in any accidents, and how many owners it has had.
Although most car dealerships will have a reconditioning process for every used car they sell, some maintenance or repairs could be overlooked or negated for the sake of cost. In that case, a pre-purchase inspection from a third-party mechanic can identify any issues, potential problems, or required repairs, giving you some leverage when negotiating the price of a used car.
Additionally, a vehicle history report and a pre-purchase inspection can protect you against buying a lemon. This will also apply when shopping for a used vehicle from a private party, and anything you find can help you negotiate a lower asking price with a private seller or car salesman.
Set a Budget and Stick to It
Before negotiating a new or used car’s price at the dealership, it’s a good idea to set a budget you don’t want to exceed. For example, if you only want to spend $25,000 on a new Honda Civic, keep that in mind when the salesperson presents you with the numbers. Your price cap will help you decide whether to negotiate or walk away based on how much the quoted price exceeds your budget. Furthermore, when determining your budget, note that your total cost should include the car’s purchase price, tax, registration, documentation fees and any additional fees.
Determine Your Financing
If you plan on financing your next car purchase, we recommend shopping lenders for the best possible terms. You can apply for a new or used car loan pre-approval from the bank or credit union you usually bank with to see what interest rates you qualify for. Credit unions generally have the lowest rates in the market.
However, whether you choose to finance with your bank or not, you can also use the pre-approvals to negotiate better financing terms at the car dealership. It also helps if your credit score and history are in good standing.
Focus on the Out-the-Door Price, Not the Payment
Whether you’re buying a new or used car, it’s important to focus on the total price and not the monthly payment. Dealers are good at finding ways to lower your monthly payment without lowering the sticker price of the car. They do this by getting a better interest rate from the bank or extending the length of the loan.
If you can negotiate a lower price, you can reach the monthly payment you want while ensuring you’re also saving money on the total cost of the car.
Paying Cash Isn’t King
If you plan to pay cash for your next car instead of financing, don’t tell the dealer. Cash may have been king in the past, but nowadays, dealers make money on financing and are more willing to negotiate the price of the car if you finance your auto loan with them. When paying cash, your focus should be on the out-the-door price of the car.
You can tell the car salesperson, “Let’s focus on the total price, and then I can talk to the finance department to see what that comes out to on a monthly basis,” if you want to sidestep the financing conversation.
If you are buying from a private seller, however, cash may still be king.
Nearly Everything is Negotiable
The price of the car isn’t the only thing you can haggle over. For example, If you’re trading in your old car, you can ask for a higher trade-in value to save money on the car you’re buying. You can also request free add-ons, like an extended warranty or free oil changes, to sweeten the deal. Be prepared to go through a few offers and counteroffers.
Be Patient
Patience is a virtue when buying a car, especially at a automotive dealership. You can expect long wait times to meet with the finance manager to sign the contracts and for the car to be cleaned up. If anything, be prepared to spend a few hours at the dealership.
One other negotiating tip is to be really patient and wait until the end of the year, when incentives and rebates are typically the highest.
Be Prepared to Walk Away
Lastly, if the car deal isn’t right for any of the reasons we listed, don’t be afraid to walk away. Dealerships want to sell a car as much as you want to buy one, but if you weren’t happy with the car after the test drive, or if the deal doesn’t work with your terms or if you haven’t found the best car for you, then you may not be happy in the end no matter what the sales price is.
Additionally, if you walk away from the deal, the car salesperson and sales manager may do their best to earn your business by getting you a better price, so walking away could be a negotiating tool in itself. The car buying process is exciting and sometimes difficult when it comes to negotiating. However, these tips can help you to get the best deal on your next car.
