One of the biggest mistakes you can make is going to a dealership without preapproval for an auto loan, plus other tips for buying a car.
You've saved up money and you're hoping to buy a car. Whether it's your first or not, it's an exciting experience. It's something you can call your own. But before you sign, we're sharing 5 big tips on buying a car (whether it's a new car or used car) from a dealer.
Tip #1: Don't Go to the Dealership for Financing
One of the biggest mistakes people make is not getting preapproval for a loan before going to the dealership. Dealerships are notorious for charging higher interest rates in order to handle the financing and the paperwork. It could be marked up to 2.5% more! In most cases, if you have great credit, it's better for you to get financing through the bank as you're more than likely to get a better rate. If you're still working on your credit score, financing though the dealership MIGHT be better, but this isn't a guarantee. Do your research ahead of time and get preapproval from a bank before walking into a dealership. If the dealership can give you a better rate, you can always go with the dealership, but you don't want to feel like you're left with no choice.
Tip #2: There's Always Room for Negotiation
People think that the price they see at the dealership is the price they have to pay. Think of it as a starting off point. Dealerships also tack on additional fees and costs to the list price too, some of which are really an excuse to charge you more money. Have you ever looked at the line by line of charges when buying a car? There's a documentation fee they charge for printing and putting together the sales contract. Look up whether your state limits documentation fees. New Jersey, for example, does not. That means that dealerships can charge whatever they want - the average documentation fee a dealership charges is around $350, but can even be as high as $950. When negotiating, ask the dealership for the out-the-door cost or all-in cost. This will include any fees and taxes you need to pay on top of the list price. Once you have that figure, you're better prepared to negotiate the price you want and won't be surprised with any additional charges.
Tip #3: Be Prepared to Walk Away
Yes, this is scary. You need a car, absolutely need it. You can't walk away, can you? You can and you should. You never want to come off like you're desperate or you need the car now, as the salesperson will sense they have the upper hand. When asked why we are looking to get a car, we always respond with "We're just looking. We have a car and it's nice, but we might be willing to upgrade if we see something we like." It signals that there's no rush to us looking, even though our last car is totaled and we absolutely need a car. And when the salesperson just won't budge, we've told them the all-in price we're willing to pay, written it down on a business card with our contact information and walked out. Sometimes, they catch us before we walk out and will meet our price. Other times, we walk out and they call us a week later saying they're willing to meet our price. If you have time and patience, this tactic generally pays off.
Tip #4: Do Your Research...on Cars & Dealerships
As important as it is to know which car you will be buying, it's also critical to know what dealership you're going to to buy said car. For example, the dealership closest to you is convenient, but if they have heavy foot traffic (meaning they are popular), they may be less willing to negotiate. Their prices may also be higher. It's worth looking at other dealerships that may be 5-10 miles away, but they may be selling at slightly lower prices or might be willing to negotiate. This is extremely key now, especially with the inventory shortage. You have to increase your range to find dealerships that will carry the car you're looking for.
Tip #5: Take a Look at the Little Details
This applies more for used cars than new cars, but before purchasing, make sure you know the age and condition of high maintenance items, like spark plugs, batteries and tires. If you don't check beforehand, you could be stuck paying $2,000 in parts and labor to replace these items. What exactly should the age and condition be? Let's break it down into laymen's terms:
1. Battery: age should be within the last year; car batteries only last 5 years, 6 years TOP. If the battery is around 3-4 years, you should expect that it needs to be replaced within the next 1-2 years and factor that cost into the price of the car. Take a look under the hood. Everything should look clean and there shouldn't be faulty connections or signs of corrosion anywhere.
2. Spark plugs: ask whether they've been replaced recently and how long ago; ideally, spark plugs should be replaced every 50,000 miles or so (depending on manufacturer). If the dealership cannot show the paperwork where the spark plugs have been replaced or if they are the original, factor the cost of replacement into the price of the car.
3. Tires: check the tread and the brand. Research the brand on tirerack.com - you can learn a lot by reading the reviews. If the tires are a bad brand or are poorly rated, ask them to throw on new tires (give them a brand) and if they don't budge on that, make them reduce the price. It can cost about $120 per tire for a really good brand, so it should be something the dealership can throw in to sweeten the deal.