How to Save Money on Used Cars
So, it’s time to buy a new car, and you’re searching for ways to save money. Buying a new (or new to you) car can be a hassle, especially if you don’t know what to look for, or what to ask. In many ways, getting a good deal on a car is like playing a good hand of poker. Yes, there is some luck involved, but what you say and do can have a big impact on your chances of success.
I’ll start by saying that this isn’t a negative article about used car salesmen. Most of the tips here were learned from my father, a former used car salesman. Bottom line: this is a tough game and a lot of money is at stake for both parties involved. There’s no reasonable reason not to believe that a dealership wants to get the maximum profit possible on its inventory.
Here are some tips on how to save money on used cars.
Never Accept the First Offer
At one point after taking the car out on a test drive, the salesman will take you back into his office where he might come up with a sheet of paper that resembles a Tic-Tac-Toe game. He’ll write out the total for the car in one square and give you some discount he’s come up with on another. At that point, he’ll ask you to initial the paper. Unless you’re absolutely happy with what is written there, don’t put your initials on it. This is where the dealer begins running your credit based on questions he asks you, and the driver’s license you provided for the test drive. Yes, some dealerships can be very sneaky about that. Your initials act as a kind of informal contract, giving them to go-ahead to start calling as many creditors as they can to see who will offer you the best payment plan.
Double-Check Their Math
Never, under any circumstances, take their word for it when it comes to math. The salesman will probably call in his manager or his accountant to discuss payment options with you. He’ll ask what monthly payments you’re shooting for, and try to find something that fits that range. This is where dealers can trick you. Sometimes, they’ll find a monthly fee that looks great to you, but if you really work out the math, you’re paying full price (or more) for the car you just negotiated them down on. Take interest into account, but do your own calculations. Are you paying US$13,000 plus interest over the next five years for a car you negotiated down to US$9,000 just minutes before?
Bring a Friend Who Knows the Trade
When shopping for a new or used car, never go it alone. Yes, you may have all the confidence in the world that you know what you’re talking about, but there are quite a few tricks to the trade that outsiders can’t easily recognize when they’re presented with them. Do you know anyone who has sold cars? Do you have a relative who has experience in the industry at all? Bring them along, and work out a game plan ahead of time. If you’re with someone that you trust to get the best deal for you, let them do the talking. Keep your questions to the bottom line price and the vehicle in question. Trust me, this can help.
If All Else Fails, Walk Away
This is a trick I learned from my father, a former used car salesman himself. I brought him along during my last car purchase, knowing he has the know-how to get past some of the red tape. Once a price was quoted, an expectation for a monthly payment was set. The salesman (possibly trained to do this) immediately balked and indicated that it would be next to impossible to sell a car with such a low monthly payment. I was asking for US$200 per month, which is the most I’ve ever paid monthly for a vehicle. At that point, my father looked to me and said, “All right, let’s go.” We turned to walk away, but that wasn’t the end of the negotiations. True to form, the salesman reached out and said that he’d do everything he could to make sure that happened for us. Needless to say, I drove off the lot with that car an hour later only having to make US$200 payments throughout the term of the loan.
The guys making the phone calls to get the loans know exactly what they’re doing. They have a short list of people they call several times per day, each with their own predictable rates and approval patterns. Believe it or not, these may be the same people who are responsible for saving you the most money. It’s in a car dealership’s best interest to get customers the best deal possible, or else they could lose a sale and their commission. Trust me, they want to make the sale.
Things to Keep in Mind
Used car dealerships get their inventory from a number of different sources. Some of it comes from trade-ins from other customers, some from repossession auctions, some from new car lots that received trade-ins they don’t have buyers for, and some cars come from police auctions. Whether your car comes from a trade-in or the impound lot of your friendly police station, you can be assured the dealership is adding a heavy markup to the vehicles on the lot. Typically, this markup ranges between 30-50% of the total quoted price. While a salesman will tell you that he’s not making a profit on a vehicle when he comes down in price, trust me, he still is. At a certain point though, it’s the salesman’s commission that takes the largest hit.
Not all used car salesman are dishonest. Sure, many of them will tell you a car runs great or is “like new,” but you should be wary of anything you notice on the lot. Their mechanic has tightened every belt and done everything in their power to make sure the car sounds quiet and runs great during the test drive. If you notice something then, it could be a lot worse after a week off the lot.
Keep your eye out for “as is” warranties. This essentially means that the car could fall apart a block away from the lot, and you’re stuck with it. The salesman will probably try to upsell you one of the dealership’s extended warranties. This isn’t always as good a deal as the salesman has made it appear. If the vehicle still has a manufacturer’s warranty, it’s probably going to cover anything the dealership’s overpriced extended warranty will. Read the fine print on everything given to you to sign.
Stay away from dealerships that “specialize” in bad credit. They might sell you a car, but they may also be giving you the same terrible loan offer they’d give someone with bad or no credit. My own rule of thumb is never to accept a loan directly from a dealership. Always go through a bank or a manufacturer. A car dealership can’t wait to repo and get its vehicle back so it can sell it to another customer. A bank will try its hardest to keep a loan going so it can continue to collect interest.