Buying a new car is not the way most people end up paying more than they should have. It’s trading in their old car that often ends up costing them the most.
Here’s why:
*Multi-tasking –
It’s hard for most people who aren’t finance people to effectively keep track of two complex transactions simultaneously. On the other hand, the guy (or gal) sitting across the desk from you does this dance every day and is a pro at getting you to focus on one thing (the sale price of your new car) in order to distract you from the other thing (what you’re getting in trade for your old car).
Which is why it’s so important for you to focus on just one thing at a time.
Don’t discuss your trade-in before you’ve completely settled the price of the new car.
In writing.
Or, discuss your trade-in first, before you start talking about the new car.
The purchase price of the new car is one transaction; the trade-in value of your car is another transaction. There is no legitimate reason for the two things to overlap — or for one to be contingent upon the other.
If it is, something’s sketchy.
The typical shuck-and-jive being to make you a “great deal” on the new car… and then make it up on the not-so-great deal they give you on your trade-in. By which time, incidentally, you are on the hook for the new car — which makes it very hard to not accept the not-so-great-deal they offer you for your old car. You are probably exhausted by now and counting on the money from the trade-in to reduce the net cost of the new car you just bought.
But if you haven’t already agreed to buy anything, it’s easy to say “no, thanks!” to a lowball trade-in offer — and continue shopping elsewhere.
*Retail vs. wholesale (and grades in between) –
In order to not get taken on your trade-in, you need to know what the car is worth. As opposed to what the dealer is willing to give you for it.
You have probably heard about “wholesale” and “retail” values. The former is what you can expect to be offered — as lowball as the dealer can get away with. The latter is what you’d pay the dealership next week if you wanted to buy your old car back. The difference between the two ranges from 10-20 percent, but often varies wildly — because (like people) each used car is unique in terms of miles, condition, maintenance history and options. It’s not like shopping new cars — where the only difference between two otherwise identical cars is the price tag.
Your task is to get the dealer to offer you as much above wholesale (which should be the starting point for your negotiations) and as close to retail as possible. But don’t expect full retail; that would leave the dealer little room to make a buck off resale- and it’s unreasonable to expect him to not make a buck off the transaction. He’s got to cleanup your old car and probably put some money into it for minor fixes, etc.
Shoot for about 5 percent below retail. If you get close, you did well.
As far as finding out what the wholesale/retail value of your car is: Check resources such as the National Automobile Dealers Association used car value guides (here) and have a look at Auto Trader Online (here) to see what cars like yours (similar age/condition/miles, etc.) are being advertised for. A Saturday afternoon spent rooting around the Net should give you a very good idea of what a fair price would be for your trade-in.
Of course, the dealer may not want to give you a fair price. But — assuming you’ve followed the first tip above — you’re not under any obligation to buy anything, either. If the salesman realizes that he’s not going to sell you a new car without making you a decent deal on your trade, he’ll probably try to make you a decent deal on your trade.
Which brings me to the most important piece of car-buying (and trading-in) advice I have:
*Don’t have to buy (or trade-in) –
If buying a new car (or trading in your old one) is optional, it becomes unnecessary to accept a dealer’s hard-sell (or lowball offer). Put another way, the best time to shop — and trade — is when you don’t have to.
Many people make the mistake of waiting until their old car develops a major problem and they don’t want to put any more money into it. Well, neither will the dealer. Expecting him to give you top dollar for a car that needs a lot of work — or is ready for the crusher — isn’t reasonable. And shopping for a new car because you have to have a new car right now, today — is a guarantee you’ll pay top dollar.
If you don’t plan ahead — and end up shopping when you have to as opposed to when you don’t — there’s still a way to avoid being pressured into a bad deal on a new car or a worse one on your trade-in.
Rent a car.
This will take the time pressure off.
You can get to work, do the things you need a car to be able to do. At most, it’ll cost you a couple hundred bucks. Which is a deal compared with losing thousands on your trade or spending thousands more on your next new car.
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