A few months ago, my wife decided it was time for a new car. Her car at the time, a 2005 Toyota Camry was still in decent shape, but it was beginning to show signs of trouble. She wanted something bigger and with a family on the horizon, we wanted to make sure whatever she bought would be sufficient for a family.
Below is our story of how we went through the process of buying a car, including how to negotiate a car price. You can follow this complete guide for buying your next car and learn the secret to saving some money on a new car.
Since we tend to keep our cars for 10 years or more, we usually buy new. In many cases, we end up taking a loan out as well.
(I know other personal finance bloggers are probably shunning me right now, but taking out a car loan really isn’t the end of the world. If you can get an interest rate of less than 3%, it’s essentially free money when you take into account inflation. And if you pay off the loan early, the interest you do pay is inconsequential. Plus, financing through the dealer is a great bargaining tool. You read that right: you can save money by financing a car!)
My wife ended up deciding on a Volvo XC60 SUV. As is commonplace for the end of summer, the current year models were being pushed out the door with discounts as the new model year was coming onto dealer lots.
The only changes between model years were some cosmetics and as such, we decided on the current model year since the price would be more flexible. After some test drives and creating a must have list, we went to work.
Starting The Car Buying Process
Now that you know what we ended up going with and the reasons why, let’s back up a minute and really start from the beginning.
As you know, we bought an SUV since we had a family on the way and needed the room. This is us weighing needs versus wants when it comes to cars, and really is the very first step in the car buying process.
You have to know what you need, not what you want. Personally, I would have rather bought a nice little sports car. But that is what I wanted, not what we needed. We needed something that had room for our family and something that was going to last.
So, the very first thing you have to figure out when thinking about buying a car is to know if you really need a car or you just want one. What do I mean by this? If your car is running fine and fits your needs, you most likely only want a car, you don’t need one. Here are a few examples to make this clearer.
- If you have a small two-seat roadster and are expecting a child, you need a car.
- If you are lusting over a new model that just came out but your car is not breaking down on you, you want a car.
- If you just finished paying off your current car loan and are considering using this “new” money to buy another new car (and sell your current car), you want a car.
If you determine you only want a car, then you don’t really need a car and shouldn’t be shopping around in the first place. But with that said, you can still benefit from this guide as it will help you to save money and make sure you can afford a car when you truly do need one.
The next step in the car buying process is to save some money. You need money either to buy the car with cash and not take out a loan, or to put a decent down payment on the car so that you don’t have to take out a large loan.
Luckily, the process for saving for a car is fairly straightforward. Assume a typical monthly payment for new car is $400 per month. Go online and set up a savings account with CIT Bank. You can name it anything you want. We’ll call it Car Fund.
When you set up this account, you link your checking account that you currently have to the new car fund account and set up an automatic monthly transfer of $400 on whatever day of the month you chose. We will use the 1st of the month.
So, every 1st of the month, $400 is automatically transferred from your checking account into your Car Fund account at CIT Bank.
The reason you do this is to get used to the monthly payment you will have when you buy the car and have a loan. If you cannot easily afford to save $400 a month, then you might not be in the position to buy a new car for $30,000 or more. You might be better off looking at a less expensive used car.
If on the other hand you are looking to pay for the car in cash, you should still set up a dedicated savings account. The only difference is the amount you save each month. The more you are able to save, the sooner you can buy the car.
In addition to this, you want to review your budget. Is there or are there any areas where you can cut back so that you can put more money into your car fund each month? Remember you don’t have to go without something forever, just for a short time so you can save for your car.
Lastly, in addition to the tips above, you want to get a free credit report so that you can see if there are any errors that could cost you from getting a great finance rate. Be sure to also get your credit score as well. There are some dealers out there that will tell you your credit score is lower than it really is. Know your credit score before you walk in the door.
You should do these even if you plan on paying cash for a car. The reason for this is because you might get an incentive, like more money off the price of the car if you finance it through the dealer. It’s better to have as much information as possible so you can save the most money possible.
Now that we know we need a car and have saved for it, it is time to start the process of searching for cars and getting one at the right price.
Depending on who you are, researching cars can either be a great experience or a dreaded one. Hopefully the tips below will make the process easy for you.
#1. Do Your Research: Visit car websites to find cars you like. If you live near a large metropolitan area, see if there is an annual car show. This way you can see cars without the pressure of salespeople.
If needed, visit dealerships on Sunday to look at cars. The dealership will be closed, but you can still see the car in person. You won’t be able to sit in a car, but you can at least look it over from the outside to see if you still like it. I’ve found that many times I like a car online but dislike it in person. They must photo shop the images or take weird angles to make the car look good!
#2. Visit Car Forums: If you simply type the car you are interested in and the word “forum” into a search engine, you are going to find people who own the car talking about it. Here you will find common likes and dislikes of the car and any issues people might have. This is a great help because most people don’t notice the little things when first looking at a new car.
#3. Take a Test Drive: Once you think you know what you want, visit a dealer. Tell them you are at the beginning stages of looking for a car and just want to take one for a test drive. Ninety-nine percent of the time, they won’t pressure you. Other times, you’ll get the jerk of a salesperson trying to sell you the car. Do your best to tell him “no thanks” and be on your way after the test drive.
If he feeds you the line “what would it take for you to buy the car today”, reply as my friend did “an act of God” and enjoy the reaction on his face.
#4. Assess Needs and Wants: I know we did this already, but it is important to do it again. Once you fall in love with a car, you start needing all of the features, leather seats, moon roof, wifi connection, etc.
Take some time to list everything down and then check off the list what you really need in a car. But don’t forget about the other features. You might be able to use them in negotiations later.
After a week or two, look over the list again. In fact, you will look over the list going forward on a regular basis. This is because it will change. When you start shopping, you may realize there is a feature that would be great to have but isn’t on your list. Your list isn’t set in stone. Update as you review it.
#5. Assess All Costs: If you are really set on a model, be sure to weigh costs you aren’t thinking about now. Things like auto insurance coverage, the cost of gas and maintenance, etc. You might even want to consider resale value too but this shouldn’t be the reason you don’t buy the car.
The reason you want to look at these other costs is because they can add up. If the car you want takes premium gas and gets 15 miles per gallon, your fuel bill is going to be high if you drive a lot.
Likewise, if you are driving around a 10 year old car and buy a brand new car, you might get shocked at your new insurance premium.
Lastly, the cost to repair a car only goes up. It’s good to know just how much it costs to get maintenance done on the car you are considering. For example, I didn’t think of this when we bought the Volvo. When I took it in for an oil change, I almost had a heart attack. Since it takes so much oil, it was $100 for a routine oil change!
#6. Get Qualified For Financing: Assuming you plan to finance the purchase of the car, you should have some ideas what interest rates you qualify for. You can visit you local bank or credit union where you have accounts to see what rate they would charge you.
You’ll want to get financing information from at least two sources that aren’t the dealer. This will help you to better assess who is offering you the best rate and doesn’t put you in a corner with having to finance through the dealer.
At this point, you should have found a model that you want and what features it has that you need. We can then proceed to having you start the process of negotiating a car price.
But before we do this, I’ll walk you through our experience so you can know what to expect.
How To Negotiate A Car Price: Our Story Saving Thousands
Our first step was to email the dealer we test drove the vehicle at with the options we were looking for. Since we wanted the current model year with specific features, finding the car wasn’t the easiest job. Luckily, the dealer found one nearby and provided us with a quote. For reference, here is the sticker price of the car:
The dealer quoted us at $43,595. We wanted to buy from this dealer since I bought my car from their sister dealership next door and they have proven to be great. But with that said, we weren’t just going to take their first offer.
I jumped online to Edmunds and began to search for the Volvo. I found three in addition to the one the dealer already quoted us. One in-state, another in a neighboring state, Maryland, roughly one hour away and the third a few states away, Connecticut, a three hour drive.
I went ahead and emailed all three of them with the details and options we were looking for, and asked for their best price that included all fees and taxes (also known as the “out the door price”) and waited.
The quotes came back rather quickly. The dealer in Maryland felt shady with their quote of $43,750 because they asked all sorts of personal information about me that they didn’t need this early on. I wasn’t comfortable giving them information about me this early in the game, so I thanked them for the quote and moved along.
The other in-state dealer’s quote was lower, $43,005 and the dealer in Connecticut offered a fair price as well. To keep things clear, here are all of the original quotes:
Before I go any further you need to know what the invoice price of the Volvo is (and having the invoice price is critical step in how to negotiate a car price). Here it is:
I reached back out to the dealer in Connecticut and told them that their quote was comparable to local quotes but it wasn’t worth it for me to drive that far to buy the car. In order to buy from them, the price would have to be worth it. They emailed me back immediately, saying they understood and asked me to name a price.
Based on research I conducted online, I knew that this car was selling for roughly $500 below invoice (this is another key step in how to negotiate a car price). We were almost there with the one local dealer. I knew I could play all three of them against each other and get close to the invoice price. The Connecticut dealer was just a chance to try to get an unbelievable deal.
Since I had nothing to lose with the dealer in Connecticut, I low balled them. I asked for $38,000 not thinking they would agree. They came back with $39,950 but only if we financed the car through Volvo.
I knew this was their way of making up for the low sales price through interest and dealer kickbacks from the manufacturer and I became very excited but reminded myself that the negotiations weren’t over yet.
After doing some more research, I discovered that I would have to get temporary registration for the car in Connecticut, drive it to my home state and register it in my home state. I would then also have to pay the difference in sales tax as well.
The fees for buying out of state were a few hundred dollars, plus there was the cost of gas to and from the dealership. The opportunity cost would not be worth it to buy the car from the Connecticut dealer. But the other dealers didn’t know this.
I went back to the two local dealers with the new quote of $39,950 from the Connecticut dealer. The one in-state dealer backed out. The other local dealer that we had the test drive with took a few hours to get back to us.
Because the quote was so low, they wanted to see it. When we emailed them the quote from the Connecticut dealer they asked if we were really going to drive to Connecticut for the car. We said yes without hesitation.
They came back with a price of $40,150. We decided to take it. I looked online at what others in my local area were paying for the same car and saw it was $43,050. I was happy that I was able to get a great deal.
When we went to sign the paperwork, the finance manager tried to get us to buy additional warranties and protection for the car, but we passed. Through financing the car through Volvo, we got a super low interest rate (under 2%) and through doing so, Volvo would make our first three payments for us. This is an additional savings off the price of the car.
While we will lose some of this savings to the interest we pay on the loan, we plan to have the loan paid off early next year, which means we will pay very little in interest.
How to Negotiate A Car Price: Our Savings
In the end, we bought a brand new car for roughly $2,000 under invoice. We even got the dealer to throw in the blind-spot monitoring option (a $700 value) for free. When I did the math to account for the extra savings from financing the car, less the interest we will pay, all in we bought the car for $3,500 under invoice.
Based on the sticker price of the car, we saved over $5,000! Since most others in my area were buying the car for $500 under invoice, I feel like we did great and this proved that my strategy for how to negotiate a car worked.
How to Negotiate A Car Price: Your Guide to Buying a Car Below Invoice
Here is a step-by-step plan of how to negotiate a car price. I’ve done this twice now, once for my wife and again for myself, both times resulting in deals a few thousand below invoice. At this point, I will assume you followed the steps I’ve outlined above and have found a car you are interested in. If not, go through that process and then come back when you are ready to negotiate.
A quick side note, if you hate negotiating car prices, check out Edmunds Dealer Quotes. It is completely free to use and there is no negotiating car prices. Plus you get a great deal. I talk more about this near the end of this post.
Your first step in the negotiating process is to figure out what the invoice price of the car is that you want. Thanks to the internet, you can easily do this. Visit sites like Edmunds to get the invoice price of the car. You’ll need this number shortly.
After this, get an idea for what the car is selling for in your area. Prices vary by location, so knowing what others paid will help you. It won’t tell you what you should ultimately pay, but it will help you if you were planning on paying more.
Finally, do a search to find the car you want, with the features you want at some local dealers. I would say pick four dealers max. A few close by and then one that is a few hours away (this is another key for how to negotiate a car price).
Find the internet sales managers contact info and email them. Sometimes you will have to send a general email, which is OK. Tell them this (feel free to copy/paste and edit. Just replace the uppercase text with your information):
I am emailing you because I am interested in a INSERT CAR (BE SPECIFIC AND INCLUDE YEAR). Here are the features I want:
LIST FEATURE HERE
LIST FEATURE HERE
LIST FEATURE HERE
LIST FEATURE HERE
I am looking to purchase the car this month. Please email back with your best price out the door (including taxes and fees) by (SET SPECIFIC TIME).
Negotiate: Wait for the emails to come back. If some have not replied by your deadline, email them back letting them know you have a few other quotes and you need theirs as soon as possible.
It’s good to have a spreadsheet open to keep track of all the quotes. For the quotes that are higher than the dealers, go back to them and let them know what another dealer is quoting. See if they will beat it. Once you do this, you should be close to invoice price or slightly under. Be sure to select all of the options for the car you are looking at so you are comparing apples-to-apples.
Low Ball: Once you have your prices, email the dealer that is a few hours away. Again, feel free to copy/paste/edit this email:
Thank you for taking the time to provide me with a quote. I appreciate the time you took to offer it to me, however, the price you quoted isn’t low enough for me to make the drive to purchase the car. Again, I thank you for your time.
That’s all there is for how to negotiate a car price. Leave the ball in their court. Almost always, they will come back and ask you to name a price. When they do, low ball them, but don’t insult them.
Look at Edmunds again and see what the going price is. I like to take $2,000 off of this price. They might not match the price, but they should meet you somewhere in the middle. Then email this quote to the local dealers and have them beat it. Either they beat it, they match it, or they say no thanks.
Accept Offer: Whoever ended up with the best offer and you feel comfortable with, pick them and buy the car. Be sure to reply to the other dealers letting them know you are buying the car from another dealer and thank them for their time.
Once in a while, one of the dealers might come back with a lower offer to try to win your business. It is your call as to how you handle this. Personally, I like to be honest and fair. So I limit the negotiating to three rounds:
- Round #1: dealers name their price
- Round #2: I counter-offer with other dealers quotes
- Round #3: My final offer to the dealer I want to buy from with the lowest quote
You could drag this on longer, but many dealers will get tired of this and think you are not a serious buyer. With that said, there is nothing stopping you from doing this or even agreeing to buy from one dealer and then back out if another dealer comes in with an amazing deal.
At the end of the day, it’s your money and you have to make the best financial moves for you and your family.
Tips For Negotiating A Car Price
Here are some car buying negotiating tips to keep in mind before you start the car buying process to help ensure you get the best deal possible.
#1. Understand out of state buying. If you are seriously considering buying out of state, make sure you understand the fees associated with doing so. In my case, the fees would have totaled close to $500 plus the cost of the commute. It wasn’t worth it, even though they offered me the best price.
#2. Determine what you are doing with your old car. I use Edmunds to see what my car is worth. They will provide both private party prices (me selling the car on my own) and trade-in prices (what the dealer will offer if I trade it in). These numbers will determine what you should do.
If you decide to trade it in, don’t discuss this until after you come to a price on the new car (this again is important when negotiating a car price).
Once you agree on a price for the new car, then tell the dealer you want to trade in your old car. Be ready for them to low ball you here. They will point out everything that is wrong with the car. You know how much you should be getting for the car so stick to that price. Granted they will never offer you the private party price, but you should get around or more than the trade-in price.
#3. Be smart with the finance manager. Decline everything they offer. It isn’t worth the cost. Don’t be mean about it, just politely decline.
#4. Understand the financing. If there are deals that are available when you finance through the dealer, consider them. You don’t have to carry a car loan for the full term. If you have the money to buy the car outright but get $1,000 more off if you finance through the dealer, then finance it.
It costs you nothing if you then use your cash to pay the loan off in the first month. Sometimes a good deal is contingent on financing. Never show your card that you plan to pay the loan off immediately. The less information the dealer has on you, the better.
#5. Review and read paperwork before signing. It may sound like legalese, but it’s important to read what you are getting yourself into. At the very least, you need to review the sales agreement to verify the prices listed are what you initially agreed to and that there are no new fees included. I highly suggest you print out the email with the quoted out the door price or have access to it on your phone. Under no circumstance should you pay for dealer prep fees or documentation fees.
#6. Always remember you are in control. Car price negotiation can be very stressful and dealers are good at breaking you down, especially if you do it in person. If you do this, make sure you eat before going and bring some snacks.
Also remember that you hold the power. You don’t have to buy the car. You can walk away and you should if you don’t get the deal you want.
There are other dealers and this isn’t the only car available. If you are willing to walk away, you should be able to get your price in the car negotiation process.
Hate Negotiating New Car Price?
Finally, I want to talk to those readers who have gotten this far and are in the market for a new car buy hate negotiating a new car price. Many people are in the same boat and even though negotiating car prices is the best way to save the most money, people won’t do it for various reasons.
Luckily, you can still get an incredible deal on a new car. All you have to do is head over to Edmunds and use their Dealer Quotes feature. With this, you fill out what car you are looking for, your zip code along with your name, phone number and email address.
Once you click submit, you will receive a special price for the car at a local dealership. All that is left for you to do is go to the dealership and close the deal.
While you could potentially negotiate an even better price, the Dealer Quotes comes in at or below the Edmunds True Market Value the majority of the time. In other words, you can be confident you are getting a great deal.
If you follow the process of how to negotiate a car price I laid out for you above will get you a great deal on your next car. The only trick is that you have to be willing to walk away. If you can’t walk away from the deal, you are going to pay more than you should.
There are many other cars out there and many other deals. If this deal falls through, it’s not the end of the world. Be smart and be patient and you will get a great deal on your next car.
[Photo Credit: Unsplash]