Dr. Penny Pincher founded the popular personal finance blog Penny Pincher Journal in 2013 and has published two books about saving money.
When buying a new or used car, the seller has several advantages over the buyer. The seller knows how much he/she paid for the vehicle. The seller knows the condition of the vehicle, including any mechanical problems that may not be apparent to the buyer. If you are buying at a car dealership, you will be dealing with a trained sales person who has sold many vehicles and who is skilled at extracting as much money from you as possible.
The strategy to get the best deal when buying a car is the same for both new and used cars:
- Research the market price for the vehicle you want
- Find the vehicle for sale either from a car dealer (new or used car) or private party (used car)
- Negotiate the price and terms of the deal based on your price research
- If you have a trade-in, avoid getting burned on this part of the deal
- For a new car purchase, avoid adding options and extended warranties
Step 1. Research the Market Price
There are many sources of vehicle pricing information, some of which are free. Knowing the market price of the car is critical to getting the best deal. Both private party sellers and car dealers normally set the price on the high side to leave room for bargaining. If you pay asking price, you are likely paying too much.
An interesting new source of pricing data for new cars is Truecar.com. You can specify the car and options you are interested in and access data on the sale price for similar vehicles. This data is based on vehicle registration databases and information from financial institutions that make vehicle loans. The key is to find out the price that dealers are getting for the vehicle you want, so you don't overpay. You can get a certificate for a guaranteed price from a dealer. Truecar.com gets $300 from the dealer when the car is sold through this program.
Consumer Reports offers pricing reports on new cars with similar data for $14. This provides a way to get vehicle pricing information to use in the negotiation process.
Other sources of vehicle prices for new and used cars include:
- Kelly Blue Book (KBB): Pricing for new and used car. Includes prices for private party sales and trade-in value
- NADA Guides: New and used car book prices
Step 2. Find Cars For Sale
If you're shopping for a new car, a car dealership is the place to go. You'll want to compare prices at two or more dealerships for the same vehicle. If you are shopping for a used car, you can buy from a used car dealer or a private party. Cars for sale by dealers and private parties can be found in classified ads in the newspaper, or on-line at sites such as:
Unusual Places to Find Bargain Deals on Used Cars
If you are shopping for a used car, there are some unusual places to look that may lead to a good deal:
- Check banks and credit unions for repossessed (repo) vehicles. It is a distraction for a bank to deal with selling a car. The bank may be willing to sell it for less than book price—especially if you finance it through the bank that is selling it. Check bank parking lots and Craigslist for repossessed cars for sale by banks.
- Check the bulletin board at work. This may either be an old fashioned bulletin board with pieces of paper tacked up, or an electronic selling network at your workplace. People are less likely to sell a used car with hidden problems to a coworker.
- Body shops will sometimes sell repaired vehicles. These guys are usually careful about choosing mechanically sound cars to fix up. Watch for vehicles at the body shop parking lot with a for sale sign.
Salvage Title & Vehicle History
If you are looking at used cars, check to see if the vehicle has a salvage title. This means that the vehicle was in an accident or seriously damaged. Vehicles with a salvage title are significantly less resale value than vehicles with a clean title. Avoid buying a vehicle with a salvage if you have other options. If you are interested in a vehicle with a salvage title, have it checked out by a mechanic—it may have serious mechanical or safety issues.
Carfax lets you check a vehicle's repair and registration history. You can get information such as previous owners, miles driven by each owner, and records of major repairs.
Long-Distance Car Buying
Internet sites make long-distance vehicle buying a possibility. You can even arrange delivery of a vehicle from a far away location. However, it is much more convenient to buy a car locally. I would look out of town only if:
- You want something special or a specific make/model/trim/color, etc that you can't find locally
- You live in a less populated area with few available vehicles.
Otherwise shop locally to reduce hassles. Watch out for scams when shopping for cars on-line. It is a big red flag if someone wants to sell you a car that you can't see. No matter how good their story is, it's a scam.
Step 3. Negotiate the Price to Get the Best Deal
Armed with pricing data on the vehicle you want to purchase, you are in a good position to get a great deal. Just as a seller typically prices a car higher than the minimum price that would be acceptable, you as the buyer should make an opening offer that is not your absolute maximum. This gives you room to negotiate to close the deal.
If you are trying to buy a car below book value or below the average selling price, it helps to have a rationale to convince the seller to make the deal. Here are some strategies:
- Cash is a big motivator. If you have cash in the bank or financing prearranged, use that to your advantage. The seller will see a lower risk in closing the deal with you immediately rather than waiting for someone else to round up the money—and perhaps find a different car to buy during that time.
- Rationalize your price offer. Show the seller how you got to your offer price. Actually, show the seller how you got to a price below what you are offering based on book price, similar vehicle prices, etc. If you can back up your price offer with data, you might be able to convince the seller that you are making a fair offer.
- Time is of the essence. If the seller wants to sell the car quickly offer to make the deal right now. This tactic works with car dealers. If the seller needs a few days to find a replacement car, offer to be flexible in the delivery date. This may make the seller take a lower price to get the timing of the deal that they want.
Dealing With Dealers to Get the Best Deal
If you are buying from a car dealer, remember that a car dealership is designed for optimum money extraction from buyers. If they find out how much you have to spend, they will try to get the full amount by selling you a more expensive vehicle and by selling you dealer-installed options and extended warranties. These are almost always a bad deal. It's easy to get swept up in the excitement of making a big purchase and add extra items that you don't need. Dealers make a lot of money selling add-ons and will do their best to sell you more than just the car.
- Don't ruin a great deal with a bad trade-in price. If you are trading in a vehicle, find out its value. A dealer might give you a good deal on the car you are buying, but then give you a terrible deal on the trade-in. Look at the entire deal, including the trade-in. Dealers make a good profit selling the trade-ins they get—don't let them convince you that they are doing you a favor by taking your used car! You can always move on to a different dealer if you don't get a good trade-in price. You could also sell your vehicle yourself rather than trading it in to get more money.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2013 Dr Penny Pincher
kidscrafts from Ottawa, Canada on February 13, 2013:
Personally, I would not buy a car on line....I am too afraid of scam!