I originally wrote this just over two years ago, but never got around to posting it. I’ve updated some for you, but apologize if other info is outdated (like links – I didn’t double check those…kind of busy). But the majority of it still applies:
DON’T GET SCREWED AT THE DEALERSHIP
How much did you pay for your car? It amazes me how many people do not know the answer to this simple question. When I bought my car, I discovered that there are quite a few people who will buy a car just based on the monthly payment they can get from the dealership – not realizing how many factors go into calculating that monthly payment.
If they bothered to do a little homework before purchasing, I’m sure many of my friends & family could have gotten a much better deal – and even a lower monthly payment (if they really wanted to finance for 6 years) on their cars!
I want to pass along some advice I learned from my recent car purchase, some of which was given by my brother-in-law, who worked in the car industry for 20+ years.
THE CAR: You gotta do your homework!! Are you lookin’ at buying new? You can do a lot of research on Edmunds.com – this site will give you invoice price on the cars, and even tell you what people have actually been paying in recent transactions. It will also tell you what incentives the dealers are getting (sometimes dealers get rebates that they don’t pass on to the customer, or even tell the customer about) – so if there’s a dealer incentive on a particular car, you’re more likely to get the dealership to accept an offer UNDER invoice. One very important thing to do is to find at least 3 dealerships to give you quotes. KNOW what you want and do NOT let them upsell you. Make sure they are all giving you quotes on the same thing so you know you are not comparing apples to oranges (and do not let them drag your trade-in into the calculations – this is where a lot of people really get screwed!). I told the car salesmen up front that I just wanted to pay the lowest TOTAL price – INCLUDING their dealer fee (which varies by dealer and they never tell you about it until you are signing the paperwork and ask “what’s that additional $400 there?â€). And don’t forget tax, tag, & title in your calcs! Once you’ve got the lowest price at one place, go ask the others if they can beat it. When I bought my car, I checked dealerships in Tallahassee, Thomasville, and Orlando. Each dealership knew I was checking others – I wanted them to know they were competing for this sale and that the dealership that offered the best price the FIRST time would be where I would purchase the car! The lowest price I got was from the Orlando dealership (which is a 4+ hour drive from where I live). And so what, I lied to them. I didn’t just buy from Orlando (even though I was thoroghly pleased with the price!). Nooooooo…..I took that to the Tally dealership and made a counter-offer to them based on what the Orlando dealership quoted me. I actually offered $300 less than what the Orlando dealership quoted me, fully expecting a round of negotiations. But what d’ya know, they accepted my first offer! I was just hoping Tally Honda would MATCH the Orlando price (or at least come within $500 – worth a little extra to buy locally, don’t ya think?), I didn’t expect them to BEAT Orlando by $300! Especially after my brother-in-law told me that they would not accept it (he advised me to start as low as I did and expect negotiations). It made me wonder how much lower they would have accepted – we were already below invoice (which, I know, BTW, is not REALLY what the dealer pays) on a car that was so popular that there were none on the lot (I bought directly off the boat!). Maybe they figured they would get their profit out of me in the financing…..which moves me to my next point.
THE FINANCING: Just like with the car itself, you gotta do your homework on the financing! And you really should do the homework on this BEFORE you begin price negotiations with the dealerships. Don’t let dealerships try to sell you on the idea of “zero percent financing.” A majority of the time, you’ll find you can get a better deal on the car when you tackle the sales price separately from the financing (most who get zero percent financing pay a higher price for the car, a price that more than offsets the zero percent financing “deal”). Shop around and find where the best rates are (the local credit unions tend to offer the best rates), and then run the numbers so you know ahead of time what your payment will be! You can do this with interest rate calculators online if you don’t have a financial calculator. The calculator on First Florida’s website is accurate (but you have to exclude the payment protection that pops up when you hit “calculateâ€)
http://www.firstflorida.org/consumer_loans.htm
Based on the homework I did, I figured I would be financing no more than $12,000 (we had cash for the rest) for 36 months for the car I wanted to buy (I am of the personal opinion that if you can’t afford to pay a car off in three years or less, you can’t afford that car!). So I calculated what the payments would be at 5%, 6% and 6.5%(pretty decent rates at the time I purchased). So after we agreed on the selling price of the car, the dealership told me that they could do a rate of 4.75%. Knowing that was a good rate, I said go for it! (many times the dealership rate is not competitive with the credit unions.) The dealership came back with payments of $378 for financing $11,740 at 4.75% for 36 months – which was about $18 more per month than what I calculated on $12,000 at 5% for 36 months (this is where my husband’s eyes would glaze over if I tried to explain it to him!). I told them to go back and recalculate it. The finance manager came out with the new monthly payment of $350.00 and apologized saying he accidentally entered in the $36 tag transfer fee as $360.00. But when I got home and entered the amounts into my financial calculator (I was hating myself for forgetting that thing at the dealership!!), I backed into the number he was using…$324 error my a$$!!! He added exactly $920 to the financed amount! If I had not done my homework on the rate, I would have never noticed the “error.” An “error” I later discovered was also made on my friend’s purchase at a different dealership (but she didn’t catch it and ended up paying it). Sneaky little ba$tards at those dealerships, aren’t they?
So there it is – just a few things to help you make a smarter purchase should you decide to go car shopping in the near future. There’s PLENTY more advice on Edmunds, including the 4 square scam car salesmen use to worm every possible penny out of their customers. Don’t be lazy on your car purchase. Don’t let your emotions take control over your brains (Stick to your guns and don’t worry about being nice. They don’t like car purchasers who do their homework, but SO WHAT?!?! Remember, it’s YOUR money they want!). And definitely do not walk into a dealership completely uneducated!!
~your favorite acccountant 
PS – a side note to Laura – like you, we were saving in hopes of paying cash for the car, but, thanks to a bad mechanic, ended up needing another car about a year sooner than expected…AND had to sell the old one for so much less than what we should have gotten (as much damage as the bad mechanic did, it’s a wonder we got anything for it!). So we financed part of the new car (but paid it off before the 3 years was up). And as for new vs used – I was also of the opinion that buying new was a dumb financial move, but have also realized that the decision is not so cut & dry for everyone. For us – we wanted a car (a larger sedan or SUV rather – to fit 3 kids in) with 30K miles or less, and would drive it until it dies (as we do with all our cars). At the time of purchase, the used cars fitting my criteria were MORE than the new cars!
I hope you can go as long as we wanted to before you need to purchase 