Fresh Car Buying Advice
The loan
If you’re borrowing about $25,000 for a fresh car, a difference of only two percentage points in the interest rate can add up to more than $1,000 over the lifetime of the loan. And that can lightly happen if you’re not paying attention to the financing terms.
Even before you know which vehicle you’re going to buy, you can get a leap on the process by comparing interest rates and getting pre-approved for a loan. Go to websites such as BankRate.com, ELoan.com, or LendingTree.com, to see what typical interest rates are in your area. Then check with your bank or credit union (if applicable), as well as other local banks and lending institutions to compare rates.
Concentrate on the annual percentage rate (APR). And attempt and keep the loan length as brief as possible, while still having an affordable monthly payment. A four-year loan costs you far less overall than a five- or six-year loan at the same rate.
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Also, call the dealerships that sell the models in which you’re interested to see how their rates compare. Go online to the manufacturer websites and check for any special financing rates. You may find that a model on your brief list has a special low-interest rate available. But if so, call the dealership to make sure you qualify for it; such incentives are often only available to buyers with high credit scores.
Getting pre-approved by a bank or credit union keeps the negotiations at the dealership simpler and eliminates some of the stress. And you can still determine to take a dealer loan if it’s a better rate.
Don’t get “bumped”
When arranging a loan, dealers often make extra money by bumping your interest rate up several percentage points over the rate for which you actually qualify. That’s why it’s critical to compare interest rates before you go to the dealership to buy the car.
The trade-in
Find your trade-in value
A common dealer tactic is to give you a token discount on a fresh car, and then make up for it by providing you less for your trade-in. You can avoid this by knowing the value of your current car before you go shopping. This depends on its age, mileage, condition, trim level, options, and your area.
To get an idea of your car’s worth, check its “book value” in printed pricing guides or at used-car-pricing websites, such as Kelley Blue Book and the National Automobile Dealers Association. Concentrate on the wholesale or trade-in value; the retail value is what you would pay for the car at a dealership.
To help, Consumer Reports offers Used Car Price Reports for $12, which give you the initial value of a model and walk you through the process of adjusting the value according to options, mileage, and condition.
To get a better fix on your car’s worth, check car-buying websites and local classified and dealer ads for models similar to yours. But keep in mind these are asking prices, not what people are paying.
Get an appraisal. If you want a rock-solid figure to use for comparison in your negotiations, take your car to the used-car department of several dealers or used-car lots and ask what they would give you in a straight-up sale.
Of course, you can always sell the car yourself; you’ll usually get more money than by trading-in, but most likely less than the highest asking prices you found. But if you need the money for a down payment, you’ll have to sell your old car before buying a fresh one. Trading in can also lower the sales tax you’ll pay on the fresh car.
The price
Set a target price
Before negotiating with a dealership, you should have an idea of what a good price is for a particular model. This can range from a figure that’s close to the total manufacturer’s suggested retail price for a hot fresh model to thousands below MSRP for a slow-selling model.
It helps to know the dealer’s cost. You can estimate this by finding the invoice price and subtracting any dealer rebates or holdbacks from it. The invoice price can be found in printed pricing guides or on car-pricing websites. Some sites also list dealer rebates and holdbacks, but it may take a little searching. Consumer Reports’ Fresh Car Price Reports do the math for you with CR’s Bottom Line Price, which is a good place to begin your negotiations. Attempt to pay as little above that figure as possible.
CR’s Price Reports also now demonstrate you the average price that buyers are paying for a model.
Crimson flag
Are the quotes apples to apples? Sometimes the dealer won’t have the exact vehicle you’re looking for and will give you a price on a different version without telling you. If there’s a question, ask for copies of the window sticker.
Get quotes
Get rivaling price quotes
One of the most effective ways to get a low price is to have dealers contest for your business. This can be done by e-mailing or calling several in your area or in neighboring towns. Tell them the exact model, trim level, and options you want and ask for their lowest out-the-door price. The more quotes you get, the better. Make sure you’ve done a thorough test drive before initiating negotiations.
You could also go to car-buying websites and submit a request for a dealer quote. But be ready to be on the contact list for several dealers for a while. Consumer Reports, in conjunction with TrueCar, Inc., offers the Build & Buy Car Buying Service as an extra benefit to ConsumerReports.org, Consumer Reports, and ShopSmart subscribers and to purchasers of Consumer Reports Fresh Car Price Reports. Intended to complement Consumer Reports suite of auto ratings, reviews, and buying advice, the program is designed to help consumers buy vehicles at competitive prices from dealers who have agreed to abide by certain guidelines. Benefits with this are that you remain anonymous until you choose a dealer to work with and dealers in the network must maintain a high level of customer satisfaction. Of course, you aren’t obligated to buy a car.
Concentrate on the price. Don’t discuss trade-in or financing terms at this point. Tell them you are just looking for a competitive price on a fresh car and will work with the dealer that treats you the best. You can tell them you’d be willing to put down a credit-card deposit over the phone if they can meet your target price; never e-mail your number. Some salespeople will attempt and get you to come to their showroom to discuss pricing. But many are now savvy enough to work with you electronically, which saves time for both you and them.
Play “match the price.” If you want to whittle the price down further, recontact some dealers and ask whether they can hit a competitor’s price. This can be particularly useful if you choose one dealership, because of location or individual rapport, but another dealer has given you a lower price. If you lodge on a price, have the dealer send you a detailed pricing breakdown; you’ll need this when you go to the dealership to close the deal.