- 1 Car dealerships have lots of tricks up their sleeves.
- 2 1. Marked Up Loan Rates
- 3 Get Your Financing Preapproved
- 4 2. Inflated Sticker Prices or MSRPs
- 5 Instead, Negotiate From the Invoice Price
- 6 3. Options That Are Sold To You as ‘Must-Haves’ That Aren’t Actually Necessary
- 7 Just Say No
Car dealerships have lots of tricks up their sleeves.
Getting a new car is awesome. But buying a new car is stressful, expensive and filled with traps set by skilled salespeople who — even the most honest among them — are trying to get as much of your money as you’re willing to part with. The average person only buys a car a few times in their life, while salespeople do their jobs every day. You need to watch out for these common and costly traps so you don’t get burned the next time you’re shopping for a car.
1. Marked Up Loan Rates
Dealers partner with many lenders, often as many as 20, with some specializing in certain types of loans, such as prime or subprime. In exchange for getting a customer — a car buyer in need of financing — the lender often lets the dealership mark up the interest rate to turn an extra profit. For example, if a lender approves a buyer at 6% interest, the dealer can present an offer of 8% interest without the buyer knowing any better. On a $15,000 loan that extends over 60 months, that’s more than $1,000 out of your pocket and into the dealer’s bank account.
Get Your Financing Preapproved
Dealers make much of their money through their financing departments, often presenting only the offers that earn them the most commission or highest markup rate, not the offer that’s best for you as a buyer. The remedy is to get preapproved for financing before you walk into the dealership.
Local credit unions often offer better rates than traditional lenders, such as banks. For example, PenFed’s TrueCar Car Buying Service offers rates as low as 1.39% for new vehicles. By getting a competitive rate locked in, you won’t have to rely on whatever the dealer might offer you, which might lead to you saving hundreds or thousands in interest.
2. Inflated Sticker Prices or MSRPs
The sticker price sometimes, but not always, is the same as the manufacturer suggested retail price and represents what the dealer hopes to get from the buyer. It includes the price the dealership paid for the vehicle, add-on costs and the profit the dealer hopes to earn on the sale. The sticker price often represents the starting point of negotiations — but it shouldn’t.
Instead, Negotiate From the Invoice Price
Negotiations should start with what the dealer paid for the vehicle, which is sometimes the same as the invoice price, but not usually. Just as the buyer tries to negotiate down the sticker price, the dealer often negotiates down the invoice price and pays less than what the manufacturer hopes to get. Although dealers have been known to show customers something that resembles an invoice to show how little they’re making off the sale, you can find the true invoice price by searching sites such as Edmunds, CarsDirect and Consumer Reports.
3. Options That Are Sold To You as ‘Must-Haves’ That Aren’t Actually Necessary
Modern vehicles are packed with options that are useful by adding value and safety to your vehicle. Your budget, of course, will decide which trim package you choose, but your dealer will likely bombard you with “must-have” options. Most of these additions are unnecessary and can add thousands to your purchase price.
Just Say No
Avoid costly and unneeded options such as rear-seat entertainment screens, which were great in the 1990s and early 2000s but now come standard in almost every passenger’s pocket. Paddle shifters are amazing for Ferraris, Shelbys and other performance vehicles, but they add nothing to a Honda Civic or Toyota Camry. Social media integration is also unnecessary. It’s already integrated into your phone, not to mention, tweeting while driving is a hazard. Also avoid things such as gesture control, touchscreen climate vents, digital shifters and heads-up displays.