All too often, people buying a new car walk out of the dealership with a car they can't afford, a car they don't really want, or a car for which they paid far too much. This isn't surprising, given that dealers are masters at applying high-pressure sales tactics. The key to buying the car you want at a good price, and getting a good deal for your trade-in, is to do your homework before you enter the dealership and to negotiate effectively with the dealer. (If you're thinking about buying a new or used car, be sure to check out our Buying or Leasing a Car topic area.)
Before you step into a dealership, decide which car you want to buy. Or, at the very least, narrow your choices down to just a few. Here are a few ways to comparison shop outside of a dealership.
Often, the hardest part of buying a new car is negotiating the price with the dealer. Here are some tips:
Know what you want before you walk into the dealership. Know what car you want (or a few you're interested in), what special options you want, what equipment you must have (like certain safety features), and what you can afford.
Use the invoice price as the starting point for negotiating. It's far better to work up from the dealer's cost than to negotiate down from the asking price. You can find the dealer's invoice price and the dealer's true cost after rebates on the Internet from websites like CarPrices.com.
Don't buy in a hurry. Take time to compare prices at several dealers. And remember this general rule of car buying: If you take a long time to decide and you're willing to walk away from the dealership, the lower the price will go. Of course, you have to spend considerable time with a salesperson before you walk out—he or she won't care until after investing significant time in you.
Resist the urge to buy more car than you can afford. Don't buy a more expensive car by financing it for a longer period of time. You'll pay a bundle in interest that way.
Check dealers' prices using the Internet. If you know the exact model and options you want, email several dealers asking them to quote you their price. Include any dealer within driving distance. Once you've received the quotes, you might be able to negotiate with the dealers to get the best price.
Negotiate the price of the car, not the monthly payment. If you tell the dealer that you can afford $400 a month, the dealer might pack the purchase with additional items to bring the monthly payment up to that amount. If the dealer asks what monthly payment you can afford, don't answer; switch the conversation back to the price of the car.
Know your credit score before you apply for financing. Consumers often think their credit score is worse than it is. Dealers have been known to take advantage of this by signing consumers up for loans with high-interest rates when their credit would qualify them for better terms. Before you sign the contract, ask the dealer, "Are you sure that this is the best interest rate that I can qualify for?"
As a general rule, don't buy extra products from the dealer. Before you sign the contract, the dealer's finance person probably will try to sell you undercoat protection, fabric protector, an extended warranty, a dealer-installed alarm, road-side assistance, and who knows what else. Generally, these add-ons make dealers a lot of money and give you little in return. Unless you have a genuine and specific need for one of these extra products, don't buy any of them.
If a rebate is offered, negotiate the price as if it didn't exist. Rebates come from the manufacturer and shouldn't be a reason to pay the dealer more for the car.
Before trading in your old car, find out its value by looking at the Kelly Blue Book or Edmunds website. Most dealers will offer you the low Kelley Blue Book or Edmunds amount, at best. If you are uninformed about the value of your trade-in, you're more likely to leave money on the table.
Often, you can get a better deal by selling the car yourself. And whatever you do, don't discuss a possible trade-in before you've agreed on a price for your new car.
If you let the dealer examine your trade-in, be sure to keep a set of keys and the original registration. Unscrupulous dealers have been known to hold customers "hostage" by refusing to return their trade-in, keys, registration, or driver's license until they are so worn down that they agree to make a purchase.
To learn more about buying a new car, see Nolo's Encyclopedia of Everyday Law, by the editors of Nolo, a handy guide that contains information about cars and driving, as well as other legal topics affecting the average American.