Whether you're looking to lease or buy, your primary goal is to negotiate the lowest possible price. And to get the best deal, you must drive a hard bargain and be willing to shop till the price drops. Here are some tips on how to get the most bang for your buck:
Set a Target Price
As every car shopper since Fred Flintstone knows, the sticker price on a car is just a suggestion, a place to start. With a few exceptions, the actual transaction price is set by bargaining, and the better you bargain, the better the price you'll get. It helps to have a target price in mind right from the start: a price that gives you a good deal and lets the salesperson make a living.
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A number of Web sites, including ours, list both the sticker price and the invoice price. Your target price will probably be somewhere between the sticker price and the invoice price, but keep in mind that you may pay more or less depending on the demand for the car or truck you want. You can also see average transaction prices at sites such as KBB.com, Edmunds.com and TrueCar.com. Large dealerships are often in a better position to bargain because they get volume discounts from the auto manufacturer.
Shop Alternative Nameplates
You can sometimes find a way to save by comparing similar cars built by different divisions of the same manufacturer. So-called "twinned" cars aren't easy to spot, and it would be misleading to suggest that the less expensive car has all the goodies of the more expensive one.
When you compare twins, ask yourself: Does the extra money buy more performance and durability, or simply a nameplate?
Shop for Discounts
If you're offered a choice between a cash rebate or the low-rate financing, use an online calculator to see which is worth more. Cut-rate financing becomes increasingly more attractive at higher loan levels.
Use a Free Buying Service
Warehouse clubs, such as Costco or Sam's Club, and by affinity groups, such as credit unions and the American Automobile Association (AAA) offer new car-buying programs that give you a discount off the sticker price without haggling at participating dealers.
Club buying programs are typically free to shoppers, but the participating dealers pay the service either a flat advertising fee or a commission on every sale the service steers their way.
Edmunds and TrueCar offer buying programs as well (TrueCar actually power the services for AAA, American Express and other affinity groups) and show offers online, which Costco does not. Beware though, the deals are presented in comparison to sticker price, not invoice. Because these programs are based on dealers submitting offers, there's no competition. So while the price you get may be a good one, it may not be the best price that's available in your area.
Hire Some Help
If you're not confident about your bargaining skills -- or if you simply don't like to haggle -- you may want to turn to a car-buying service. For a $250 fee, CarBargains will do the legwork for you, getting competitive bids for the car you want from at least five dealers in your area. CarBargains receives no money from dealers and thus is working only for you. The key to its success is introducing competition among the dealers it works with. And each bid, including options, is reported relative to invoice price.
Sealing the Deal
Be careful not to lose the money you've saved negotiating a good price when you get to the finance and insurance (F&I) office, where dealers will offer you a car loan and tack on charges as document fees, dealer prep and floor-plan fees. Dealers look to these extras as their chance to win back some of the concessions they made on the price. Here's what to know when presented with such extras.
Financing packages. Call local banks and credit unions for their lowest rates. Be prepared to supply your own financing if you don't like the dealer's deal. Customers with marginal credit ratings should be especially wary. You should expect to pay higher rates, but not as high as some dealerships charge.
Fees. Legitimate fees are listed on the factory invoice, which the dealer should share with you. These are fees that the dealer has to pay to the manufacturer and is passing along to you, including the destination fee (the cost to transport the vehicle to the dealer) and the car maker’s regional advertising fee. You may also be stuck with administrative fees and fuel charges if they’re listed.
A few fees inhabit a gray area -- you’ll likely have to pay them, but you might be able to negotiate. The document fee is one example. Some states regulate it; others don’t. New York does and sets the fee at $75. But dealers in Florida may charge several hundred dollars. Find out what other dealers charge -- the dealer may reduce its fee to match the local competition.
Some fees you should never pay because they are a part of the cost of doing business . They include floor-plan fees (the cost to hold inventory at the dealership) and vehicle preparation fees (for cleaning, removing plastic and checking fluids). Any fee listed only as an acronym should raise a red flag. If it doesn’t show up on the factory invoice, don’t pay it.
Be sure to say no to any of the following -- they're not worth the additional money: credit life insurance, undercoating, fabric protection and rustproofing. An extended warranty isn't always a bad deal, but check the Better Business Bureau for complaints about the warranty company before you sign up.