Car ownership is one of the biggest expenses in adulthood. Navigating the car buying process can be challenging & intimidating.
Wisdom on the internet has so far been of little help to me. Content from large publishers is mostly designed to serve their own personal agenda. Usually this involves nudging the reader to click & learn more about a lending product, look into a certain used car site & so forth.
I write this article with the perspective of a rational maximizer. This involves an exhaustive search of the problem space to find the best solution. In this case the goal is to obtain the lowest net payment for my car.
#1 Time is your best friend
The sales pitch from car dealers revolves heavily around creating a sense of urgency. Urgency maybe communicated to you in the form of special offers that expire within a few days or limited inventory of the specific model or make you are interested in. Many times when I walk into a dealership, the sales person calls in a ‘manager’ who offers a special price if I can make a decision on the spot. 99% of the time, this is a terrible deal and I always walk away.
You may also have personal circumstances that oblige you to make a purchase decision soon. Perhaps your current lease is about to expire, or your current vehicle is in a poor condition & prone to failure.
Removing any sense of urgency from your decision making puts you in control. Let the car salesman know that you are serious about buying a car, but also let them know that you are in no hurry to do so. With time on your side, the best prices will seek you, rather than the other way. This is how I leased both my cars, the best offers simply walked into my inbox.
#2 Cast a wide net
How do you know if the price is right? By comparing it with other prices of course! We live in the golden age of car buying, so getting quotes is easy. Use sites like TrueCar to instantly get quotes from 5-10 dealers in your area. Furthermore, every dealership has an internet sales manager who can send over quotes within minutes to a few hours.
Remember, never walk in to a dealership to get a quote. Not only does this take up your valuable time, it also leaves you exposed to all kinds of sales gimmicks that dealers are evolving & perfecting every day.
#3 Know your way around the numbers
Getting quotes is easy, but comparing them is hard. This is because every quote must be understood with full context. Does this price require you to take in-house financing from the dealership? Are there any rebates factored into the price that you may not be eligible for? Does the price include all applicable taxes? With leasing it gets even messier. It also doesn’t help that every car model has a gazillion packages that can distort the MSRP.
If you are leasing, it is essential to look into the mechanics of lease pricing. If you are financing familiarize yourself with prevailing APRs & the costs involved. Many car makers offer low APRs, but availing these APRs might make you ineligible for other discounts. Its important to be able to quantify the savings from a promo APR into an equivalent discount in total payments.
Knowing the numbers is crucial for any type of negotiation. Otherwise the salesman will make you feel like you got a great deal, while sneaking in some healthy margins within the paperwork.
#4 Delink the Selling from Buying
Let me start by saying this – most dealers make more money from used car sales than new cars. Naturally it’s much more convenient to sell your old car & buy the new car from the same place. However, If you want to maximize your savings this is a bad idea. Any smart dealer will try to recoup some of their losses from the sale price as part of the trade-in offer for your old car.
In many cases you can ‘sell’ your old car even if you are leasing it! This is worth exploring if your car is in excellent condition & has very low miles.
In order to get the best value, you’ll need to really find out how much your car is worth. Use the KBB value to get a rough estimate of your cars worth. I’ve personally found that online dealers like Shift, Carvana & Vroom offer the best buying price for my car. These sites also provide an quick online offers, that are pretty close to the final payout price.
#5 Skip the fluffy options & up-sells
Whether you are buying a Honda Civic or a 3 Series BMW, every car model has some frivolous options that are poor value for money. Some people might pay $2000 for fake leather seats, and tiny sunroof. A minimalist approach means picking either the lowest or second lowest trim level with little to no options. In entry level sedans this might mean foregoing things like larger touch screens or advanced safety tech.
Jumping a trim level or switching to a competitor’s model is usually a better tactic than paying more for a rigid set of options. For instance choose a lower trim Accord rather than a higher trim Civic. You will be surprised with the pricing inconsistencies you find.
If you’re planning to purchase additional warranties, protection or maintenance negotiate these amounts in advance or at the very least, ask around before you arrive at the dealership.
#6 Find the right car & dealer
You may not be a cowboy, but finding the right car is very much like finding the right horse. When it comes to car buying, ‘fit’ is critical. Finding a motivated dealer is half the battle won. The dealership down the street is probably the least competitive option. Expand your search to a 50-100 mile radius within the area.
Due to the high level of customization, many cars are simply not worth their MSRP. A car with a starting price of $20K can easily cost $28K after all the options & packages. Many dealers only stock models with ‘fluffy options’ as a strategy to pad their margins. Luckily you can use aggregators like AutoTrader to view all inventory of a particular model in your area.
#7 Maintain Good Credit
This is probably the hardest step of them all. Good credit is unfortunately not something that you can immediately attain. If your credit score is below 700, you will find yourself ineligible for most attractive rebates & financing.
If you have bad credit, you might be able to tilt the odds in your favor by removing financing from the equation all together.
