We have all been there—sweaty palms and racing hearts as we enter an automotive dealership to start shopping for a vehicle. But it doesn’t have to be that way. With a little preparation, you can find the auto you are seeking and negotiate a price that makes sense for your budget.
Set a Budget
Although your tastes might run toward a shiny sports car or high-end SUV, you need to be realistic about what you can afford. “You do not want to live to pay your auto payment, you need funds available for the unexpected as well as life’s enjoyments,” advises Mark Salazar, State ECU’s Assistant Vice President/Indirect Loan Manager. According to personal finance website Bankrate, all your car payments should stay within 25% of your monthly household income—and that includes gas and insurance (call your agent and get the figures for full coverage). Here is a nifty home budget calculator for reference.
New or Used Vehicle?
Another budget consideration is new versus used vehicle—there are pros and cons with each. For instance, you can get more car for the money with a used vehicle, but it will also come with higher interest loan rates and more potential repair issues (and a shorter warranty if any at all). New cars certainly cost more but come problem-free, with more enhanced security features, and often a warranty on major repair issues for a period of time. A certified pre-owned (CPO) car is an option since these vehicles cost less than new autos but usually have some sort of warranty and must meet condition criteria. Salazar points out that a CPO auto can only be sold by the dealership of that particular vehicle product.
Secure Your Financing
Secure your financing before you negotiate with dealers. This ensures that you can stay focused on the purchase price—and not get distracted by dealers circling back to a monthly cost. At State ECU you can be sure you receive a low auto loan rate and we can work with you to get you pre-approved. “Our pre-approval process will make the buying experience much more positive,” states Salazar. Through August 31, 2018 take advantage of State ECU’s 60th Diamond Loan and receive $160 cash back and have 90 days with no payment. It is our way of thanking our members for 60 years of serving their financial needs.
Do the Research – Vehicle Cost
When you have narrowed down the vehicle you wish to purchase, then you need to research the associated costs so that you can negotiate and receive a fair purchase price. Some good online resources for determining auto cost are Edmunds, NADA, and Kelly Blue Book. Keep in mind the car options you may or may not need, and certain model specifications. “We all have access to this information through the internet and you have got to be prepared,” says Salazar. He says if you don’t do your homework, you may pay more than you should.
Understand Pricing Terminology
Related to be above, you need to understand the different prices that are used in the vehicle industry. Invoice price, wholesale price, manufacturer’s suggested retail price (MSRP), and dealer’s asking price. Whew. The MSRP is what you will see at the bottom line on the sticker. The invoice price is less, and is close to the cost for the dealer. “You should ask the dealer for the invoice price or find it on the internet,” advises Salazar. You also can find the base model price and see how costs are added for things like a technology package, bigger tires, sunroof, etc. “On a new vehicle, the dealer is limited on the profit because prices are pretty transparent—there is usually not a significant gap between MSRP and invoice,” explains Salazar.
However the situation is trickier on a used vehicle—since things aren’t as objective. But in general, you need to understand how a wholesale price is determined based on age, mileage, condition, etc. “When you pull a book value,” says Salazar, “you should expect to pay between the wholesale and retail price.” And then negotiate the dealer’s asking price. “Dealers are able to make most of their profits today on used vehicles. Their goal is maximum profitability, so your job is to understand the correct price range for the used vehicle,” states Salazar.
Don’t Negotiate a Monthly Payment
This is super important. Only focus on the full purchase price of the vehicle in your negotiation process. There is too much wiggle room when you start talking about monthly cost and salespeople will use that to pad the dealer’s take. Avoid this by getting your loan pre-approved with State ECU.
Understand Available Discounts
Incentives should be deducted after you negotiate a price. And see if you are eligible for special discounts such as those for active military, college grads, or return customers. Note: It is possible to stack discounts on top of cash-back rebates. Make sure to check vehicle websites for incentives.
Used Cars Require Due Diligence
Make sure you always have a used car inspected by a trusted mechanic—it is worth the money to ensure good working condition. You also should search the vehicle identification number (VIN) to see if any revealing information comes up. At safecar.gov you also can check the VIN number to find out about recalls, and sites such as AutoCheck and Carfax can reveal vehicle purchase history. And major dealers should provide a Carfax online for you to check out.
True Trade-in Value
Understand your true trade-in value so that you are comfortable with the price negotiation. That value depends on age, mileage, options, conditions, and your location. Use Kelley Blue Book and NADA guidelines—and use wholesale or trade-in values. Remember that dealers will always try to get your trade-in at the least cost possible. “Do your research and be honest about the condition of your trade in,” advises Salazar.
Take it For a Spin
Take some time to try the vehicle out (if you can rent one for a day or so even better). Make sure it is comfortable, has the room you need for your family or lifestyle. Try to drive it during the day and also at night. Salazar says that most reputable dealers will let you take it for a full day or even overnight—so ask.
It is recommended that you shop around several dealers for the vehicle you are seeking—and let them know you are doing so. Tell them the model, color, and options you want—and let them compete for your business.
You may have a great handle on the price but not be as prepared for the additional products that will come at you such as corrosion protection, paint sealant, extended warranty, fabric protection, and window etching of the vehicle ID number (VIN). “These are personal preferences,” says Salazar. “You need to weigh the benefits versus the costs as you make your decisions—be educated.” Also it is a good idea to bring a calculator and do the math alongside the seller. Double check everything!
The final tip is to realize that you don’t have to make a decision if you are not ready. Don’t fall into the trap that the price is only available that hour or that day. This is a big purchase and you don’t need to be pressured that way. Be ready to walk if you are feeling uncomfortable.