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How to Buy a Car from a Dealership & Save Thousands

How to buy a Car from a Dealership

Getting a car is a big decision, especially if it’s your first time. There are so many models and insurance plans to choose from. But the worst part is that, on top of the money you’ll already have to pay, car dealerships will often try to cheat you out of hundreds or even thousands of dollars.  It’s therefore important for you to learn how to buy a car from a dealership.

They can manipulate you in so many ways, but you, too, can play their game. This article will lay out everything you need to know about the tricks they use to make people pay way more than they should so you can avoid their traps or even turn the tables on them.

Beware The Psychological Tricks

Before we get to the details, it’s important for you to be aware of the psychological tricks a car salesman can play on you. You might think these are too trivial compared to the deal and payment plan details, but you’d be wrong to think so. 

Car salesmen could, in many ways, manipulate you to ignore the offers they have on the market and work out a side deal with you that benefits them.

So, how do car salesmen manipulate people? As soon as you walk into the dealership, you will be encouraged to feel like you’ve already bought the car you’re looking for. For example, when you’re about to go for a test drive, you’ll most likely be told to take your time to adjust your seat first or play your favorite song. The experience is meant to develop your attachment to the car so that you’re more unwilling to walk away at the end of the day without buying it if you don’t like their offer. Of course, the nice smell of the new car doesn’t help either. 

Another example is the unofficial ‘contracts’ that car dealerships sometimes use to make people feel like they’ve already started the process of purchasing a car. These ‘contracts,’ if they can be called that, are small unofficial documents that include only a few important details like the car price and payment plan. 

At some point during the negotiation process, the salesman might ask you to sign these to show your commitment to paying the price listed on the document, so that he could take it to his manager and see if the manager agrees to sell you the car for the listed price. It’s important for you to always keep in mind that these documents are not legally binding at all. 

They only ask for your signature so that you unconsciously think: ‘I’ve already signed a document. It’s too late to back up now!’ Only the actual purchase contract is a legally binding document, so don’t be afraid to stand your ground at this point if the salesman comes back with an offer you don’t like. 

The best way to deal with these tricks is to be aware of them all the time. The idea behind them is simple: to make you feel like it’s too late to back out or that you already own the car. The general lesson is that you should be ready to walk away at any point if you think you’re not getting a good deal. Dealerships are plentiful, and you’ll probably be able to find a better one elsewhere. 

Negotiate the Price First

In fact, as you might already know, walking away is often a good negotiation tactic. The dealership could very well contact you with a better offer later on if they don’t do that on the spot to keep you from leaving. But this tactic only works if the deal you’re looking for is realistic and profitable both for you and the dealership. So, how do you know if what you’re looking for is realistic or not? This is actually the next step, so let’s turn to that. 

When you start working out a deal with the salesman, do not discuss anything before you settle on the car price. The reason is simple: it’s easy for salesmen to hide high car prices behind monthly payments. 

To illustrate, suppose you would like to pay $22,000 for your car. Instead of focusing on the total price, salesmen will often try to direct your attention to the monthly payments and ask you whether you’d like, for example, a $390 monthly payment plan with a certain interest rate, or a $460 one with a different interest rate. 

Notice that he’s already limiting you to his own offers, and both are bad. Assuming it’s a five-year plan, you’ll pay $23,400 on the first plan. On the second plan, you’ll pay $27,600, and this is without factoring in the interest! Note, too, that even though the difference between both plans is only $70, it adds up to more than $4,000 in the long run. So always make sure to think long-term and never underestimate any rise or reduction when it comes to monthly payments. 

It’s easy to be tricked by the low monthly payment number, which the dealership will use to distract you from the interest rates and the big car price number. The result is the illusion that you did yourself a favor by negotiating the monthly payment down when you paid more than you would’ve liked. 

Do Your Homework

To get around this, figure out your walk-away point before going to the dealership. Your walk-away point is the maximum price you’re willing to pay for the car. To determine this, you need to do a lot of market research to know the value of the car you’re looking for. 

One way to do research is to email the car dealerships in your area and ask them for their best offers. Some dealerships will not respond, and some will give you really good deals. Sometimes, you could be asked to come in person. If you decide to go, keep in mind that you’re visiting to get information, and don’t let them pressure you into buying the car on the same day. 

An alternative, and better, way is to stay on top of the market in general. First, find out the MSRP price for the car. Then, look up Facebook Marketplace and Craigslist for used cars. For websites that tend to lean more toward dealers and are overall on the pricier side, check out Cargurus or Autotrader. You could even create a spreadsheet that contains interesting listings and compare the prices to get an average estimate. The more research you do, the better you’ll be at handling negotiations with salesmen.

Finance Your Car Elsewhere

Once you’ve settled on the car price, don’t let your guard down: you’ll be moving on to the next step: financing. This step is crucial since car dealerships make most of their profit by financing people’s cars. They could, for example, finance your car with money borrowed from the bank for 3%, and charge you a 4% interest rate, turning the difference into profit. Salesmen often get bonuses for every 1% they manage to save, so they will be very pushy when it comes to financing negotiations. A lot of people manage to work out good deals, only to lose all the money they could’ve saved because of an exorbitant interest rate. 

The best way to handle this is actually to get your own financing elsewhere. Almost anywhere else will be better than the dealership. If, however, you decide to get your car financed through them for some reason, do your research beforehand so you know what the average interest rates are and can negotiate based on that.

Know What Insurance to Get

Finally, we come to the extras: gap insurance, extended warranty, and accessories.

As for gap insurance, you should avoid getting it from the dealership, given that it’s usually much cheaper to add it to your own insurance plan and get it from your credit union. It’s daily inexpensive overall, and some credit unions even offer it for free! So make sure to check your other options first, since, as with almost everything, dealerships often charge relatively high amounts for it to make a profit. But set that aside for a moment, is it a good idea to get gap insurance in the first place?

Well, gap insurance covers the gap between the current value of your car and the amount of money you owe because of your car loan. So, say, for example, that the value of your car depreciates after an accident and reaches $15,000, while you still have to pay off $18,000 in car debt. In this case, gap insurance will cover the $3,000 difference after accounting for the deductible; some plans even cover the deductible. 

So, it’s generally recommended to get gap insurance when the loan is five years or longer or has a high interest rate. This is because the value of your car will likely depreciate faster than the rate at which you will be able to pay off your debt, so a gap between the value of your car and the amount you owe will probably open up and keep widening for some time. 

Now, what about an extended warranty? Car salesmen will push hard for it, telling you horror stories about how some people have had to spend huge amounts of money repairing their cars because they didn’t have a warranty. Admittedly, there’s some point to this, but salesmen often blow it way out of proportion. 

Extended warranty works just like insurance: you pay a lot of money so that your back will be covered if you ever find yourself in a situation where you need to pay an even bigger amount of money. Statistically speaking, most people don’t benefit much from their extended warranty. And even for those who have had to pay a lot of money to get their cars fixed, the amount paid didn’t differ much from what they would’ve had to pay for an extended warranty. 

This isn’t to say it’s never useful, but as a general rule of thumb, try to estimate, based on the car model and its current state, how much you might have to pay for repairs on average before you make your decision. Especially in the case of used or old cars, repair costs may not justify paying for a warranty. 

And lastly, we come to accessories. Dealerships will try to sell you many accessories and car parts. These can usually be bought from the manufacturer at a lower price, so take that into account. Even if the parts catalog is from the manufacturer, you can find them offered at a better price on the manufacturer’s website. 

 Now you know what to do next time you walk into a car dealership. To recap: Be ready to walk away at any time, and don’t fall for the psychological traps. Do your research before going so you can be a better negotiator, and try to get your financing, gap insurance, and accessories somewhere else. With this in mind, you can save yourself thousands of dollars that car salesmen would otherwise cheat you out of.


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