Author John Knox with his 2011 Ford Fiesta SE hatchback, May 2011Enlarge Photo
One of the biggest mistakes car buyers make is to pay attention to only the selling price. It’s true that negotiating a lower selling price can literally save you thousands of dollars. However, there are two other price points to watch out for: the trade value and the interest rate on your loan. If you pay too much for either one of these, you run the risk of paying more than you should on the overall deal. It can also cost you more than what you may have saved by negotiating a great deal on the selling price.
First basic rule: pre-negotiate all aspects of the car deal before you walk into the dealership. The easiest to pre-negotiate is the selling price. Begin on the Internet to find out the Manufacturer’s Suggested Retail Price (MSRP), the dealer’s invoice cost, the dealer's actual cost, and what other consumers are paying for the same car in your area.
The easiest place to begin is at the top of this page. Click on “New Cars” and follow the links to the vehicle you want, then pricing. You’ll find all the information you need.
One of the current bright spots when buying a new car is the value you stand to receive for your trade. Used car prices are at record highs because there is a shortage of good pre-owned vehicles. This means that most dealers are willing to step-up and offer top dollar for trades.
However, you still need to do your homework. Check Kelley Blue Book or Edmunds to find out what your vehicle should fetch from a dealer. You may need to talk to more than one dealer to make sure you get the price you want.
Loan interest rate
Second basic rule: get pre-approved on your car loan before walking into the dealership. Not everyone realizes that when you apply for a car loan at the dealership, and depending upon individual state regulations, the dealer can add a few points to the interest rate you qualify for. Although this may not seem like a big deal, over the term of a loan—usually 36, 48, 60, or 72 months—the additional cost can add up to a thousand dollars or more.
Knowing your credit score is not enough. Being pre-approved at a bank, credit union, or online lender allows you to know the exact interest rate you qualify for. With that knowledge in hand it’s possible to safely apply for a loan at the dealership. If the dealer won’t match or beat the rate you’ve already received, stay with the pre-negotiated rate.
Savvy car buyers can easily save $1,000 to $2,000 on the selling price of the new vehicle they’re purchasing. However, you can lose that much or more if you don’t successfully negotiate your trade’s value or the interest rate on the car loan.
Also, remember that the best deals are made when you pre-negotiate all three—selling price, trade value, and loan interest rate—prior to walking into the dealership.