Buying a new car? The good news is that you're among the 83% of savvy car shoppers who do online research first, according to market research firm Lab42. However, you're probably facing at least one of the top frustrations reported by consumers: dealing with salespeople, spending time on the buying process, figuring out financing, and finding the right car.
The car-buying process can be daunting, but if you walk in as an informed, empowered consumer, you can avoid common — and expensive — mistakes. Before signing those papers, heady from a test drive and that new car smell, learn how to save money when buying a new car.
Know When to Shop
December is one of the best times to buy a car, when dealerships promise year-end discounts to rid lots of last year's inventory. Dealerships are also clearing out old models to make way for new ones July through October, according to CarBuyingTips.com.
But for the biggest savings, buy a car in August, when the highest discounts are offered on the current year's models and the dealers increase incentives, according to TrueCar, an automotive data company that provides a negotiation-free car-buying platform.
TrueCar reports that the best day of the week to buy a car is Sunday, when there is lower consumer demand and higher incentive for dealerships to close out the week with strong sales. The average transaction price is $29,300, a 4.6% decrease and a $1,402 savings compared to the average price for the rest of the week.
Determine a Fair Price and Compare Quotes
One of the most expensive mistakes that car buyers make is "not knowing the market price on a vehicle before ever visiting a dealership," says Karl Brauer, senior analyst for Kelley Blue Book. The KBB site provides both a car's fair market value price and price range. "If a dealer won't accept a price in this range, a buyer should always be willing to walk away and buy from another dealership," Brauer says. So after researching which car will provide the best value for your money, also look into what price that model typically sells for.
The next step is to compare quotes from multiple dealerships. TrueCar's site shows what others paid for the same vehicle locally and nationwide, as well as factory invoice price and the MSRP (Manufacturer's Suggested Retail Price). Consumers can also see price trends and available incentives and rebates.
When getting a quote, make sure it includes dealership fees and doesn't take the value of your current car into account. "Trade-ins only complicate the matter with extra line items and places to hide how much they are really paying for the new car," says Jeff Ostroff, consumer advocate and founder of CarBuyingTips.com.
At no point in the process should you let the dealer quote or negotiate the price based on monthly fees. "Dealers try to sell you cars based on monthly payments instead of the actual selling price of the car, making it difficult for most people to see how much they are really paying for the car," Ostroff says.
Have a Finance Plan
There are three common financing mistakes that consumers make while car shopping, says Ostroff. The first is not knowing their credit scores to get the best rates on a car loan and to thwart any dealers who might lie about a credit score to increase financing rates. The second mistake is not getting approved for a car loan before heading to the dealership. "Having your own financing also can keep dealers in line," Ostroff says. "Knowing you are pre-approved will keep their rates competitive."
Consumers may not realize they've made the third — and worst — mistake until years later, when they end up owing more on the vehicle than it's worth, becoming "upside-down" on the car loan. Ostroff's rules to avoid this situation: put at least 20% down on the car and finance for no more than 48 months.
Find the Value of Your Current Car
Learn the trade-in value and private resale price of your current car through Kelley Blue Book, says Ostroff, who also recommends searching eBay's completed auctions to get an idea of the car's value.
You can probably get more money selling the car yourself, but trading in can be more convenient. When weighing the pros and cons, also consider how much you could save on sales tax by trading in, Ostroff says.
Know How to Negotiate (or How to Avoid It)
While some shoppers love to haggle, 73% of those surveyed by Lab42 wish there was a fixed price on a car. Today, consumers can eliminate the negotiation process entirely. After comparing car costs at TrueCar Certified Dealers online, shoppers can take a "Guaranteed Savings Certificate" to the dealership, locking in a price. Consumers can also farm out negotiating; CarBuyingTips.com will negotiate with online dealership managers for $99.
Even after a dealer has offered the "lowest we can go" quote, competition from another dealer may motivate the first to lower the price even more, says Ostroff. "It's a powerful negotiation point for the buyer to hint to the dealer they are leaning toward the other dealer's quote," he says.
Smart shoppers should not only be aware of rebates and incentives, says Ostroff, but they should remember that rebates come from the manufacturer, not the dealer. The dealership is still making the full MSRP on rebates, so make sure the dealers are willing to negotiate discounts on their end as well.
Avoid Add-Ons That Add Up
Don't let add-ons in the dealership's F&I (Finance and Insurance) office eat into the money you've saved during negotiations. "Basically, you should be paying for a car, plus tax, plus registrations fees, maybe a couple of dollars in tire and battery environmental fees, but nothing else," Ostroff says. Skip the rustproofing, VIN etching, fabric protection, and extended warranties. These cost hundreds of dollars at the dealership, but you can add them yourself later at a lower cost, he says.
Many dealerships have an online sales department that doesn't work on commission. "Prices are still very much negotiable," says Ostroff. "In the last several weeks we have had a number of visitors using our tips who scored another $500 to $1000 off their original 'low internet special price' quoted by the internet manager of the dealer by mentioning they are going to take [another dealer's] lower quote."
Readers, what are your tips for getting the best price on your car? Do you feel comfortable with negotiating your own price? Take the survey and sound off in the comments below!