10 tips for negotiating with a dealer
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Different customers can pay widely different prices - for the same car, at the same dealer, on the same day - depending on how they negotiate. And, even if you're a negotiating whiz and are able to get a lower price than MSRP, this just puts you at greater risk of being overcharged on the "back end" or in the business office. This is why you are far from finished negotiating and protecting yourself when you've arrived at a sale price.
That's why it's important to brush up on your negotiation skills before you start shopping for a new car - otherwise you'll end up paying too much.
Here are 10 tips for negotiating with a dealer:
#1. Know your budget and target price
Before you hit the showroom floor, figure out what you can afford, shop loan rates, and establish your target price. Do not share this price with the salesman. Instead focus on the car and options you are interested in and let the dealer make the first offer.
#2. Don’t get emotional
Before you begin negotiating (hit the showroom floor), figure out what you can afford, explore loan options, and establish your target price. The target price is calculated using the dealer invoice as a base, calculating the MSRP price, and factoring in market conditions (e.g. is the vehicle popular and in high demand, is it available, etc.). This will help you arrive at a price that represents a good deal to you and a fair profit for the dealer. Web sites like www.CarCostCanada.com and www.ConsumerReports.org offer invoice pricing on Canadian vehicles.
#3. Don't divulge too much information.
You will most likely be asked questions about whether you plan to finance the vehicle or pay cash, if you intend to trade in your current car, how much do you have for a down payment, and so on. The salesperson will often discuss the price in terms of monthly payments because, psychologically, anything can be made to sound affordable if broken down this way. Many consumer advocates recommend that you refuse to discuss monthly payments and focus on the sale price. It's also suggested that you avoid questions about what you're going to do with your current car or how you will be paying for the new vehicle. Politely tell the salesperson you haven't decided yet and continue to focus on the only thing that matters: the price.
#4. Be aware of the Dealership trying to increase your budget.
Sometimes salespeople will try and "bump" you up to a higher price by getting a budget range from you. For example, if you say you're willing to pay $14,500 for a Toyota Corolla they may try and push you by saying "up to ?" Just respond with "Yes. Up to $14,500."
#5. Know when to stay silent.
Saying nothing can be a very powerful negotiating tactic. To inexperienced negotiators, silence is scary. It can be hard to throw out a figure and let it float there in the silence. Do it anyway.
#6. Guard your personal information.
Don't give out too much personal information, and especially not your social insurance number. There's no need for it unless you've gone through most of the process and are looking into the dealer's financing options. Your social insurance number is needed to run a credit check, which will determine the rates for which you qualify. If you give it ahead of time, they may run it immediately to qualify you. If you are shopping around and multiple dealers run your credit application it can have a negative effect on your credit rating. Plus, it's a good idea to run your own personal credit check with an agency like Equifax so you know your credit rating in advance.
#7. Keep your eye on all the costs.
Remember, each step of the deal represents different profit opportunities for the dealership. You may set a monthly payment that you're willing to accept and find out that the attractive loan rate the Dealership's Finance & Insurance manager found for you comes with a longer term, meaning you'll pay more for the vehicle in the long run. They may also increase your interest rate above what you would qualify for. Keep an eye on the charges through the whole process. If a number has inflated somewhere along the line, ask about it. It's very easy to get caught up in the emotion of buying a car and to lose sight of what each step is costing you.
#8. Don't sign anything until the deal is done.
Even if a random piece of paper with your signature may not be considered legally binding, why take the chance? Do not sign anything until all terms are agreed upon, written in writing, and you're ready to close the deal.
#9. Avoid putting a deposit down.
Unless you are looking at a car that is hard to come by, or you’re being put on a waiting list, or you are placing a custom order, it’s really not necessary to hand over a deposit. If you do hand over a deposit do it by credit card and not cash. This way you can dispute it with the credit card company if the deal falls through. Also, assume a deposit is non-refundable unless you get it in writing. In other words, don’t just take someone’s word for it.
#10. Watch out for hidden fees.
There are many hidden fees and charges in the sales process - some are required and non-negotiable (e.g. destination charge, tax, and registration fees) and some are just ways for the dealer to make additional money from you. Keep in mind that fees can add up to over $1000, throwing off your budget calculations. While some of them may be reasonable, be sure to ask for an explanation of any fee you don't understand. Also, don't be afraid to ask the dealer to reduce or waive fees. Here are some to watch out for:
- Doc or Admin fee: The documentation or administration fee is to cover the cost of paperwork. It ranges from $50 to $450+. It’s up to you to decide if you’re willing to pay this fee and if so, what amount you’re comfortable with. Some dealers will refuse to budge on it.
- Prep Fee: The dealer preparation fee covers the cost of preparing the car for delivery. However, in most cases, the factory covers the prep fee. Ask precisely what this charge entails. Figure out what it should really cost and negotiate it down or out completely.
- Delivery Charge: Pay close attention to this one. The factory's destination charge, which may be referred to as the delivery charge, is required and non-negotiable. Sometimes dealers tack on an additional delivery charge of their own. Don't pay both.
- Unwanted Equipment: If you don't want it, don't accept it. If the equipment is an upgrade that you don't mind, insist that it either be thrown in or removed, or demand another vehicle without it.
Bonus tip:
Don't cave to pressure. Dealers are in a hurry to close you for several reasons. They know that if they create a sense of urgency with phrases like “one of our most popular”, “selling fast” and “still available”, you will feel like you have to purchase on the spot or you will miss out. The same goes for sale events like the “tent sale.” Some buyers may actually pay more at these events because they believe the deals are going fast. Unless the sale is tied to an incentives period, the same prices are available before, during and after the sale. Don't let the salesperson intimidate or pressure you. If you can’t get the price and terms you want, be prepared to walk away and try another dealer. There are plenty of new cars out there.
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