Part 2 of How To Buy A Car
5. Test drives work for both parties. People are pretty much split between people who want to take a test drive and those who don't. I think not taking a test drive is foolish. If you're buying a car based on looks alone there's a good chance you'll buy the wrong car and find out it's the wrong one too late. Dealers like test drives because they feel that once a person gets in a car they develop a "sense of ownership". I think this is a myth as I've had plenty of customers who would test drive multiple vehicles and not buy anything.
A good car dealer should take you out to the car and do a "walk around." They should point out all the options and features, and give you a great understanding of what you'll be getting for the money. If they won't do that it's because their car is crap or they don't know much about it. Then when you take your test drive check everything out and have the sales person point out all of the handling and driveability features.
If you try to buy a car buy walking around the lot, finding something that looks good, and then working numbers (as many people do) then it's your fault for getting screwed.
6. Know your credit! I saw a lot of people who thought their credit was bad when it really wasn't, and willfully paid a higher finance rate than they should have. A credit score of under 400 won't get you financed in most places, and a score of 700+ is a godsend to most dealerships. A 600 score isn't great, but isn't a basketcase either. If you've got a high 500s or 600s score, you should expect a better rate than someone in the 400s. You won't get a zero or one percent deal, but you shouldn't be getting a 20 percent deal either.
You also need to understand basic financing. As a rule of thumb, with average credit, you're going to be paying about $20 for every $1,000 financed with a 5-year note. So if you finance $10,000, you're going to be paying $200 a month. If you finance $30,000, you're going to be paying $600. So if you're looking at getting a $50,000 truck, financed with a $30,000 note after trade in and payoff, and only paying $300 a month, IT ISN'T GOING TO HAPPEN no matter how wonderful your negotiating skills are. Even at zero percent interest you would still be looking at $500 a month.
7. Don't play games! I guarantee you that the salesperson and sales manager know a heck of a lot more about playing the sales game than you do. I can't tell you how many would-be know it alls would come into the dealership with their bravados hanging out, folks who were going to stick it to the salesman, come in the door and leave after getting their "head ripped off" (the term used by sales people for butt-raping a customer financily). They would come in yelling about how they weren't going to pay more than $300 a month and leave with a $700 payment and feeling like they really put one over on those "suckers".
8. Know your car. This should actually be number 1, but I'm too lazy to change the numbering. People who pay too much are usually people who have not done any real thinking about what it is they're really looking for. An Eddie Bauer Expedition looks sweet and has all kinds of power doo-dads that'll make most men weap and that a salesman will gladly hype up, but are they want you need, and in turn worth paying more for? Determine what you need, not what you want, and make sure that the car you're looking at meets your needs. This is another reason why a dealer walk-around and test drive are so important. A car can have a killer profile and paint scheme, but if there's not enough room for your kids...
9. Be ready to leave if things don't go your way. People always spend more on their cars when they have second thoughts. If you know what you want, and how much you want to pay, and don't get it - leave. As long as your expectations aren't unrealistic, you'll find your deal elsewhere or the dealership will cave in and call you back.
10. Don't be afraid to ask what you've got coming to you. A dealership is under no obligation to tell you anything but the MSRP and option prices and finance rates. Most will tell you about rebates, but some won't unless you ask. Be sure to ask your dealer about the latest rebates, special dealer incentives that are available to the public, and about if there are any aged units they want to get rid of. Also, check with your employer and see if the company you work for has any discount programs with the car makers.
Also remember that YOU are under no obligation to provide discount information to the dealer! If you do have a discount coming, and the salesperson doesn't ask you about it up front, don't tell them. A dealer will usually value your trade-in higher if they see a straight retail deal in the works. If they give you a higher-than-book trade-in value, and then you say "Oh by the way, I'm an X-plan (Ford) customer though my employer", you just got one over on the dealership. The sales manager will be pissed at the salesman for not finding out that you were a discount cutomer sooner, but that's their problem. This also applies to discounts for being a Sam's Club, COSTCO, BJ's Wholesale, etc. buyer as well. If they come out up front and ask you if you're a discount customer you need to tell them, but if they don't, wait until after the trade is appraised to tell them.
11. Shop around for the extras. Dealers make a lot of money on stuff like stereo upgrades, rust proofing, extended service agreements, and other high-profit additions, but many of these are available for a lower cost at other companies. Dealer finance people will insinutate that you have to get this stuff at the time of sale or you lose your chance, but the truth is you can get things like extended service plans later on and at the same price.
Make sure that you do get Gap insurance, just check with your insurance agent and see if they offer Gap at a lower price than the dealer. Gap insurance pays the difference between what you car is worth and how much you owe on it if it's totaled due to being stolen, crashed, etc. So if you buy a new car for $24,000 and drive if off the lot, everybody knows you just lost about $8,000 in value due to depreciation, and if you get t-boned immediately after leaving the lot, your insurance company will only pay you for what the car is worth, or $16,000, even though you still owe $24,000. Gap insurance will pay the $8,000 difference so you don't have to pay anything out of pocket. I saw Gap insurance save a lot of people's bacon, and it's very well worth the minimal cost.
So, to summarize, the first thing you need to do is determine what vehicle will best meet your needs, the lowest cost of the vehicle optioned the way you want (the invoice cost), and any discounts and rebates that you have coming. Then do an honest appraisal of your trade, and compare that value to the amount you still owe. If you owe more than a thousand or so than the car is worth, you're better off not buying a new car for another year or so. If your car is paid off, you're in car buying heaven.
Next, calculate what the best price you're likely to pay for the car is (invoice minus rebates, discounts, etc.), then subtract your trade-in's value, and add in your payoff amount. That should give you a real good estimate of how much you'll be financing. Then multiply the number of thousands by $20 to get a monthly payment. Here's a sample:
2005 XLT F-150 Super Crew 2WD: MSRP with options $29,000, price after rebate and discounts is $22,000, or invoice after rebates is $20,000.
Trade in is a 2002 Nissan Frontier valued at $12,000, but $16,000 is still owed.
The amount financed will be $26,000 or $24,000 depending on which price you used. Multiply the thousands by $20 and you get a monthly payment of $520 or $480 a month for a five-year note and average credit.
If you were looking to get a $300 payment, you'll only get it by putting enough money down to finance only $15,000, in this case about $10,000. If you can't put that much down, or go above $300 a month, you ain't going to get that truck and you need to find a lower priced vehicle or keep what you've got and keep paying it off.