How to get the best deal on a new ride
You need the right information and a savvy negotiating strategy to get the lowest price and cheapest loan on a new car or truck.
The salesperson hopes you'll go shopping without knowing how much the dealership paid for the car you want, how much other consumers are paying for similar models, whether any discounts are available and how much you should pay for a loan.
Without that information, you'll wind up paying thousands more than you need to -- almost guaranteed.
That's why our 6-step plan for driving the best deal can make you a smarter, more confident buyer. Here's how it works:
Step 1. Pick out the car or truck you want to buy.
Talk to friends. Read reviews. Get a close-up look at the most promising possibilities. Take your favorites out for a test drive.
But don't even start negotiating.
You need three things to do your homework:
- A copy of the window sticker for the car you want to buy.
- The sales tax rate for your purchase.
- A list of all the taxable and nontaxable fees you'll have to pay to close the deal.
Step 2. Find out how much the car should cost.
Use the window sticker to enter all the information you're asked about engines, accessories and even the color, into their price calculators. When you're done, Edmunds or Kelley will provide you with three prices:
- MSRP. This should be very close to the suggested retail price on the sticker. If it is, then you know you've put in all of the right information.
- Invoice price. This is the price the dealer paid for the car.
- Average transaction price. Edmunds calls this "What Others Are Paying." Kelley refers to it as "The New Car Blue Book Value." It usually will be somewhere between the retail price and invoice price.
Now, use our links to see if there are any rebates or low-cost financing options available on your car.
Step 3. Line up a loan.
Our most recent survey of major lenders shows the average annual interest rate for 36-, 48- and 60-month auto loans is just over 6%.
That's the lowest rates we've seen since we began keeping track way back in 1984. So unless you have below-average credit, there's no reason to pay more than this. Indeed, you should qualify for a lower rate.
Our auto loan comparison charts show a wide range of rates on 60-month loans. Where you live plays a part in what you'll pay.
Pick a lender offering one of the best rates. You can usually apply online and receive a check in a few days.
That rate almost always will be better than the dealer's finance officer can arrange through the lenders he or she works with -- unless, of course, you choose a discounted loan from the automaker.
Lining up a lender before you buy also will protect you from one of auto-buying's most expensive mistakes -- finance charge markups.
That's where a dealer offers to finance your car but tacks on 3 percentage points or more to the interest rate one of its lenders is willing to charge you. The dealer doesn't have to tell you that you could get a lower rate elsewhere, and the practice is perfectly legal.
Step 4. Decide which discount to take.
If you have a choice between a rebate and low-cost financing, you need to pick the discount that will save the most money.
Let's say you're going to borrow $18,000 over 60 months and have a choice of two loans: 6.25% from a bank you found on our site or a discount rate of 2.9% from the automaker's finance company, like Ford credit or GMAC.
If you took the bank loan, your payments would be $350 a month and you'd pay $3,005 in interest over the life of the loan. If you took the discount financing, you'd pay $323 a month and $1,358 in interest over the life of the loan.
Now, look at the difference between the total costs of the two loans. In our example, it's $1,647. If the rebate is more, take the rebate. If not, take the cheap financing, which will have to be arranged through the dealership.
Our "Rebate vs. low-cost loan" calculator allows you to compare any amounts, any rates, quickly and easily.
Step 5. Settle on a price you're willing to pay -- and make sure you can afford it.
Your goal should be to pay somewhere between the invoice price and the average transaction price. Being a smart consumer should allow you to pay less than the average consumer.
For example, if the invoice price is $22,000 and the average transaction price is $22,600, then you should set a goal of paying between $22,200 and $22,400, not counting any rebates.
If a rebate is available -- and you decided to take it in Step 4 -- plan on having that amount deducted from the final negotiated price of the car. Don't allow the rebate to enter into your negotiations.
Now, you know how much you're going to pay, how much you have for a down payment and how much you're going to finance and what that loan will cost.
The final step is to use our auto loan calculator to get a good idea of what your monthly payments will be. Just enter the price you expect to pay, the loan rate and term, and the tax rate and fees the dealer provided.
If you can afford the payments, you're ready to go back to the showroom.
Step 6. Make an offer.
Former car salespeople and consumer advocates say you'll have the most leverage if you:
- Buy at the end of the month, when salespeople are trying to make quotas and the dealership is striving to meet its budget for revenue and profits.
- Show up an hour before closing on Friday, when everyone is anxious to start the weekend.
Tell the salesperson you're ready to buy today and ask how much he or she wants for the car.
The salesperson probably will consult with the dealership's sales manager. If he or she comes back with an offer below sticker price, that's a good sign.
Respond with a counteroffer that's only about $100 above the invoice price. Sometimes the salesperson will resist taking your bid back to the sales manager, saying it's just too low.
Always remember that your salesperson and the sales manager are professional negotiators, working as a team to get you to pay as much as possible for their product. They want to see if they can get you to raise your offer without having to make a counteroffer of their own.
Don't budge. Insist the salesperson take your offer to the sales manager.
After you've gone back and forth several times, you should have reached the price you decided to pay back in Step 5.
If the sales manager is willing to accept that, you've got a deal. If not, that's your cue to graciously end the negotiations and try another dealer.