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Free Money and the Lost Art of Haggling: Buying a Car

Source RoySmiths Free Money and the Lost Art of Haggling: Buying a Car

It’s pretty well known that you should not pay sticker price when buying a car. Most of us head to dealer ready for some haggling (or negotiating). New or used, paying the sticker price is never a good idea. Okay there is one possible exception, you’re buying a used car from a close relative and are 100 percent certain that they are giving you the best price possible.

Misconceptions can be Expensive

You might believe that there is a difference between negotiating for a new and used car. You would be mistaken. You might believe that there is a difference between a private seller and a dealer. Again, you would be mistaken. The negotiating process is the same for new and used, private sale and dealer. While some of the objections raised by the seller will vary, the process is identical.

Starting Here or Starting There

A car purchase can start in one of two different places: either with how much car your can afford or which car you want. Starting with how much car you can afford usually involves settling on a maximum cost or monthly payment. This is fine so long as you don’t share that goal and limit with the seller, private or dealer.

Sharing your limits with the seller is guaranteed to do one thing: get you to spend your upper limit. There is nothing wrong with going to the max on cost but haggling is not about spending to the hilt. It’s getting the most value for your money. Think of value as produce, a seller would rather sell you four rather than five apples for a dollar. Five apples for a dollar is a better value than four.

Sellers, all sellers, will always try to convince you that their apples (or cars or trucks) are special and worth more than others which is why you should take four instead of five apples for a dollar. The reality is that unless you are negotiating for a super-rare limited edition vehicle or an antique, whatever the seller is offering is not so special that it is worth a premium.

Starting with which car or type of car you want such as a convertible or Ford Focus adheres to the same principals as maximum cost. Remember that there is nothing so special about any one particular vehicle that makes it worth a premium.

When Emotion Prevails Reason Fails

It’s a car not a person or even a pet. It is an inanimate collection of steel, rubber, glass and plastic. There are literally thousands and thousands of others that are identical in every detail. Falling in love with a potential car purchase is akin to setting a pile of your money on fire.

Not letting your emotions get the best of you means being ready and able to walk away from any deal that is not in your best interest. Not letting your emotions get in the way means not concerning yourself with whether or not the seller likes you or what the seller thinks of you. Negotiating a car price is business plain and simple.

Do Your Homework

New or used does not matter, you still have to do your homework. This means once you settle on a particular make and model and year (if used), shop around and compare prices. In haggling, knowledge is power. Knowing how much others are selling the same vehicle for is the first step in negotiating a price for a new or used car.

Shop other dealers and the internet. Compare apples to apples when looking at features. There is no need for you to pay hundreds of dollars extra because the dealer chose to install an option you don’t want or need.

Utilize websites like Kelley Blue Book and Edmunds to research used car prices. Don’t be shy about telling the dealer you did. Look at not only the suggested retail but also the trade-in value so that you can have an understanding of at MOST how much the dealer paid.

Looks Can Kill

Don’t be fooled by a pretty face applies to motor vehicles of all types. Anyone selling a car, dealer or private seller alike, is going to do their best to make it look good. Even private sellers recognize that if they invest $100 in professional detailing, they can increase the sale price by $200 or more. So no matter how many times the seller says it’s a cream puff, it’s immaculate, say thank you. Then don’t include the car’s cleanliness in the price.

The Details

NEVER, EVER negotiate monthly payments. Dealers love to negotiate monthly payments because they make a lot more money. First, it takes price off the table which means you will probably have to borrow more than if you paid cash. Second, they make money on their share of the financing in the form of commissions.

IF you negotiate monthly payment you’ll probably end up paying more in the long run. How much more depends on how low you need your monthly payment to be. For example a $30,000 car at 6% interest over 4 years will have you paying $3,818 in interest. If the $705 payment is too high the dealer will extend the 5 years and $580 a month. The monthly payment is lower but in the end, you will pay an extra $1,000.

The best way to go is to arrange outside financing and show up at the dealership ready and able to negotiate a cash price. If you must use the dealer for financing, do it after you’ve agreed upon the price of the car. Then start a separate negotiation to discuss the fees and charges that go along with the dealer financing.

If you have a car to sell and opt to trade-in rather than sell it yourself (even though that can mean up to thousands of dollars more in your pocket), don’t accept the dealer’s first trade-in offer. Negotiate to as close as possible to the “book” value from Kelley or Edmunds. The thing to remember is that everything they tell you about why their used car is worth more is what they plan to do to your trade.

Stay in the Driver’s Seat

Any deal they can offer you today, they can offer you tomorrow. Any price you get today is good next week. Don’t let a seller or dealer try to intimidate you into buying now because the deal won’t be here tomorrow. Stay in control of the process and you will come out ahead.

For more on haggling, check out my article on getting free money from the bank.

Photo Credit:  RoySmiths

About Frank Addessi

Born and raised in the center of the known universe, Brooklyn NY, and currently hiding out in the bucolic hills of northeast Pennsylvania writing about personal finance. It's not easy living the American Dream but someone has to do it!

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