Over the many years I've spent working in the car business, I've personally been involved, to one degree or another, with thousands of vehicle sales. I've compiled these steps simply by observing the customers buying these vehicles, and what they did that made the process easier for them and saved them the most money. So here we go...
#1 You must know you're credit score.
If you don't know your credit score and what's on your credit file, it will not only make selecting the appropriate lender for you more difficult, but it could lead to a costly surprise (high finance rates) when it's time to buy. A $20,000 loan for 72 months at a 6.9% APR has a monthly payment of $340, which fits into most peoples budgets. On the flip side, if you thought you'd qualify for the 6.9% rate, but it actually turned out you qualified for a 18.99% APR, you'd be looking at a $467 payment. Surprise!
#2 Get pre-approved for a loan.
Now that you know you're credit/FICO score, you definitely want to get pre-approved for an auto loan. Getting pre-approved gives you the ability to "Buy Like a Cash Buyer," which greatly increases the leverage you have when negotiating the best possible deal. I recently observed the last 40 deals at my dealership, and found that cash buyers saved over $2500 per car deal, compared to those that financed. If that's not a call to action, I don't know what is! You can get pre approved with your local bank or credit union, and with most banks and credit unions you can apply directly from their websites.
Another benefit of securing your own financing, is that you take away the dealerships ability to profit from an over inflated finance rate. This is big money to a dealership. For instance, if a dealer was able to get a 5.9% buy rate from a lender the lender will, on average, allow a two point markup. This means the dealership would sell the loan to you at 7.9%, and over the term of the loan this could equate to $1000 or more in profits that you paid unnecessarily to the dealer.
#3 Start your shopping online.
You must not walk into a dealership and have no clue what average prices are for the new or used vehicle your considering. Most people that walk into a dealership with no clue what the average prices are for the new vehicle they're considering will typically get caught up in the emotion of the moment and pay way more then they could have. Get a whiff of that new car smell and suddenly you're taken away to a distant, far away place...
I'd personally suggest that you find your next vehicle online. This will save you a lot of time not having to go dealership, to dealership, to dealership, it increases your leverage in a big way, and will typically save you money right out the gate, because of the competitive nature of the Internet. It also allows you an easier way to turn someone off, i.e. a sales person, if you don't like what they are offering, simply stop responding to them.
#4 You must know what your trade in is worth.
Check out sites like Kelley Blue Book, or NADA to get a feel for what your trade is worth. Keep in mind both of these sources are simply guides, and are not set in stone values. For instance some vehicles may be "soft" (not worth as much as it's book value), like a truck with a V10 engine. With gas prices where they are at a V10 truck that has a book value of $20,000 may only be worth $12,000 to $14,000. What? That's right. If a dealership were buying a V10 truck with the intention of reselling it, they'd have to be in a position to sell it quickly, or else they risk it collecting dust on their lot for the next year. People aren't exactly jumping through burning hoops to rush out and buy 6 MPG trucks with the current gas prices.
If you need additional help with determining your trade ins value to a dealer, please email me and I can help. By the way, you'll need to expect to get less trading your vehicle in to the dealer than selling it on your own. There are some benefits though. By trading your vehicle in to the dealer you will not have to do any selling, telling, or explaining to an assortment of interested buyers, have random people come to your home to view the vehicle, and you won't have two payments to make each month.
If you do expect to sell the vehicle on your own, I'd recommend posting it for sale online with one of the large car websites that are out there. This way you'll get maximum exposure, and you'll have a description with photos of the vehicle posted, which should save you a lot of the selling, telling and explaining to people that may just be kicking tires.
#5 Get insurance quotes.
I can't even begin to tell you how many customers I've seen go through the whole buying process (usually hours), get all excited about their new vehicle, maybe agreed to $50 a month more in monthly payment, because they had to have that one, and then they call to get insurance quotes. Two words, Big Mistake! Using the same scenario above, the customer is already paying $50 more a month than they had figured and now they call for insurance only to find that their insurance is going to go up another $60 a month. This can be disastrous to your financial future!
Remember there is more to car payment than the actual car payment itself. Get insurance quotes before you ever go to the dealership. It's FREE, and doesn't affect your credit, so let the insurance companies compete for your business.
#6 Be prepared.
Now that you've got all your ducks in a row, print all related information you've found and bring it to the dealership with you. If you really want to fluster the car dealer, bring a financial calculator with you and use it while you're negotiating, car salesmen love that (sarcasm).
I hope my affection for the Internet really came through to you. For car shopping/buying the Internet is truly the way of the future. It's a very easy way to gain knowledge, which translates into leverage for you. Remember, a vehicle is typically the second largest purchase you'll make, and if you don't do your homework a car dealer will make you pay. Trust me I've seen it every day for the last nine years.
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