Negotiating a car purchase

[bjl584]

Research the market value of what you are in the market to buy Kelly blue/black book and Edmunds can be good resources. Also check multiple dealerships to see the selling price. They can vary significantly.

If financing, get preapproval from your bank or credit union so you know what interest rate to expect. The dealership may be able to beat it.

Know your trade in value. Again, Kelly or Edmunds can give you a ballpark value of your car. Do know that often the offer that the dealership gives you for trade will in many cases be lower than the actual trade in value listed. You can most likely sell your car outright for more if you don't mind the extra work and time involved.

Set a clear budget. Know exactly what you can afford before you walk into the dealership. This will lessen the chance that you overspend.

Focus on the total out the door price. Many make the mistake of focusing only on the monthly payment. Extra costs and longer terms can be hidden in monthly payments.

Negotiate the sale price first. Find out the total price before talking trade in or financing options

Negotiate trade in separately and don't mix with negotiations on the car being purchased

Be prepared to counter offer. It is okay to counter at a slightly lower price but avoid lowballing. There is normally some wiggle room in the price

Stay clam and patient. Don't allow the salesperson to rush you. Stay professional and polite but stay firm and be ready to walk if the numbers aren't favorable.

Get everything in writing. Don't rely on handshake deals.

Don't buy in day one. It is a good idea to sleep on it and to check around with other dealerships. Taking a written offer to a competing dealership can often serve as a powerful negotiating tool

[disneysteve]

We bought all 3 of our current cars from Carmax and Carvana and avoided all of this nonsense. I won't ever buy a car another way again if I can help it.

Well, I guess we still dealt with the trade in issue but these places generally pay more than dealerships anyway. I had no complaints on any of the 3 cars we sold to them.

Dealing with all of the stuff you mentioned is a big reason why I've always kept our cars so long. I wanted to avoid that whole process as long as possible.

[QuarterMillionMan]

I go prepared and take this screenshot with me and tell them I want the $32,355 Compass on the left. That is the exact price you'd pay (plus the taxes, licenses, and fees). It is so easy that I enjoy buying new cars because I know that I'm not getting ripped off.

[QuarterMillionMan]

Also everyone who walks into a dealership is seen as dumb and rightfully so due to most just sign after knowing the monthly payments. I look at every line item and question or even threaten to walk if they don’t remove an item that I didn’t ask for (ie, $500 catalytic etchings, $300 pinstripes, etc)

[ua_guy]

Purchase price and trade price (if you're trading) are the two numbers to keep in focus. You'll already be able to calculate the payment and you should know what interest rates you qualify for if you're financing. Use your outside financing rate as leverage - the dealership can usually beat it. How? Unless there is promotional financing through the manufacturer (0%, 0.9%,) they will eat some of the commission working with one of their banks to offer you the same rate as your credit union, community bank, or best it.

I've found my best luck in negotiating a deal right now. "If I agree to buy the car today..." they will typically go deep to make a sale. It will depend on the car, their inventory. The best ones to work a deal are the aged inventory units that are unpopular configurations. If you're willing to live without certain options or colors, you may find a perfectly suitable configuration at a much better price. The way you know inventory is aged is to either track the car over time on their dealer website. If the photos of the car picture it in winter, no leaves on trees, and it's now August - you're working a deal on a car they're desperate to get rid of. Another way is to check the build date of the car which is typically located on a sticker inside the door jamb. If the build date is 6+ months ago, you're working a deal on a car they probably want off their books.

Cash buyers don't get the best deals. Dealers make money on financing. You can take the financing rebates if it works out to be a better deal, and then pay the vehicle off with your cash even if it costs a few bucks in interest. Do the comparison.

Car buying is fun if you just keep a cool head and focus on the deal, ignore the amateur tactics. Keep laser focus on your numbers, and track them. Take a picture of the deal sheet and make sure those hand-written numbers match what ends up on the sales contract. It's funny how a number like 27,207 can magically typo into 27,702. Or a financing rate can jump from 3.7 to 3.9. Car dealers earn their reputation in life, it's on you to ensure the accuracy of your deal and make sure every penny is accounted for.

[srblanco7]

For a normal car purchase (i.e,, non-luxury car), the Money Guy’s rule of thumb is 20/3/8. 20% down payment, finance for no more than 3 years and payment is no more than 8% of your income.

Not always easily accomplished - but I think it gives a fair estimate of where to set your sights in terms of.price.

In general, I think we Americans spend far too much of our income on vehicles. Probably the top wealth building killer for a “normal” person.

[disneysteve]

Cash buyers don't get the best deals. Dealers make money on financing. You can take the financing rebates if it works out to be a better deal, and then pay the vehicle off with your cash even if it costs a few bucks in interest. Do the comparison.

I've done that more than once.

Car buying is fun

You and I have a very different definition of that word.

[ua_guy]

You and I have a very different definition of that word.

Ok, I'll give you that. The haggling process is loathsome but the strategy piece is...engaging?

[disneysteve]

For a normal car purchase (i.e,, non-luxury car), the Money Guy’s rule of thumb is 20/3/8. 20% down payment, finance for no more than 3 years and payment is no more than 8% of your income.

Not always easily accomplished - but I think it gives a fair estimate of where to set your sights in terms of.price.

In general, I think we Americans spend far too much of our income on vehicles. Probably the top wealth building killer for a “normal” person.

3 years and 10% of income is the rule of thumb I've always heard. 8% is even more conservative, which isn't a bad thing, but 10% is fine, too.

Americans absolutely spend far too much on vehicles. When people ask me my "secrets" of financial success, that's always one of them. We buy used cars that are well within our means and we keep them long term, 10-15 years. That and buying one modest home 31 years ago are the two biggest reasons we are where we are.

[Jluke]

Or some bogleheads will say use your worst stock market single day loss to determine how much car you can afford.

so if you lose 40k on a really bad day, that’s your car budget.

[disneysteve]

Or some bogleheads will say use your worst stock market single day loss to determine how much car you can afford.

so if you lose 40k on a really bad day, that’s your car budget.

What an odd measure. Wow, we would be spending way more on cars if we followed that. The most we've ever paid for a car was 29K for my wife's current one. We've definitely lost a lot more than that in a bad market day.

[LivingAlmostLarge]

Or some bogleheads will say use your worst stock market single day loss to determine how much car you can afford.

so if you lose 40k on a really bad day, that’s your car budget.

Oh I had a friend just say that to me last week. I lost my porshe in the stock market. I said should have bought the porshe.

I am still struggling to wrap my head around paying so much for cars. That and luxury purses.

[Fishindude77]

Amazes me that around 85% of cars are purchased using credit, a loan, or lease of some type.
We bought a few that way when we were young, broke and financially dumb, but wised up and have paid cash for them for a long time now.

If you save up and pay cash for a vehicle you tend to be a lot more thoughtful about the purchase and don't buy luxuries and frills you don't need.

I think the days of a no frills vehicle are behind us, but seems like there would be a market for something at a lower price point with bare minimum accessories. Like the older pickups; single cab, no chrome, heat, crank windows, vinyl floors, a basic radio, simple 6 cyl engine, 2wd, etc.
Maybe nobody would buy them?

[srblanco7]

Amazes me that around 85% of cars are purchased using credit, a loan, or lease of some type.
We bought a few that way when we were young, broke and financially dumb, but wised up and have paid cash for them for a long time now.

If you save up and pay cash for a vehicle you tend to be a lot more thoughtful about the purchase and don't buy luxuries and frills you don't need.

I think the days of a no frills vehicle are behind us, but seems like there would be a market for something at a lower price point with bare minimum accessories. Like the older pickups; single cab, no chrome, heat, crank windows, vinyl floors, a basic radio, simple 6 cyl engine, 2wd, etc.
Maybe nobody would buy them?

Same for us. Our "new to us" car purchases over the two decades have been cash deals. Trying to get our kids in the same mindset - their first vehicles were both cash purchases - with the split 50/50 between them and us.

Certainly seems like their is a market for a low tech, relatively inexpensive vehicle. I believe that the average new car price in 2025 is pushing $50k - which is insane (or maybe I'm just dating myself).

[srblanco7]

3 years and 10% of income is the rule of thumb I've always heard. 8% is even more conservative, which isn't a bad thing, but 10% is fine, too.

Americans absolutely spend far too much on vehicles. When people ask me my "secrets" of financial success, that's always one of them. We buy used cars that are well within our means and we keep them long term, 10-15 years. That and buying one modest home 31 years ago are the two biggest reasons we are where we are.

8% vs 10% could be the difference between gross income and net income. A 20% effective income tax rate seems about right.