Many people who need to buy a new or used car often dread the process and negotiations that they have to go through. It seems that from the moment a customer pulls into the car lot, they're dealing with a stressful, sometimes confusing situation. Sometimes car shoppers can even leave the dealership without a new car at all -- or in one that they may have paid too much for.
However, if you pay cash upfront for your purchase, you have more bargaining power from the get-go. Here's a look at how to maximize your dollars when you're paying cash.
Do Your Homework Before You Go
Before heading out to shop for a car, do some homework first. Decide whether you want a used vehicle or new, what options are essential, color choices, gas economy, whether you need a two- or four-wheel-drive, etc. Do online searches so you know what kind of details you should jot down. Knowing what type of vehicle you need to buy and what options you need prepares you to start searching dealership lots.
Get Your 'Negotiator Hat' On
How you present yourself at the car dealer makes a difference. First, call and schedule an actual appointment to meet with car salespeople. Too many times, a car buyer gets caught up in the sales hype or agrees to dealer add-ons like paint protectors or even exterior wraps. Making an appointment gives you time to arrive at the showroom with your information and negotiator hat firmly affixed, giving you more confidence.
Part of your homework needs to be researching price ranges and markups for the type of car you want to buy. Average used or new pricing is not as important as having a printout with you of the current market value from your online research. Run some prices on a vehicle with different options, mileage, and powertrain and print out the average retail price, average trade-in price, and high retail price. When it comes to the back and forth price game, you already know what amount you will settle for.
Load Your Trojan Horse and Save the Good Stuff for the Battle
Once you have stacks of paper with all your notes and numbers, place them in a folder, separated into categories. If you can, keep this folder off the desk. Do not open it until you are ready to let the most aggressive negotiation begin. If you give the salesman too much information at first, they will move quickly to hardcore sales tactics. Your goal is to be cool, calm, and collected.
If you plan to use your current car as a trade-in, do not reveal this to the salesman until the right timing. Let them roll out the asking price and potential discounts or incentives that apply to customers like you. Dealers will finagle the profit margin on the sales price to appear they are giving you a lot of money for your trade-in. When the price is right and time is right, and you decide you want the car, let them know you changed your mind and want to trade-in your vehicle.
A final tip: Do not let the sales associates know you will be paying cash until right before you accept their offer. Let them know that you would like to find a car and agree on a price first. Then maybe you will talk about financing with them later. Typically, the salesperson will think you did not get funding before coming into the dealership. The sales staff will assume they can sell you on in-house financing. Car buyers who need financing to buy a car should always explore a loan from a third-party bank or credit union before they step inside a dealership. Those institutions sometimes offer a lower interest rate compared to what you would get from a dealership.
Play Your Cards Right
If you get to the place where you decided on a car and find yourself face-to-face with a deal that needs haggling, play your cards right. Think of your negotiations as your cards; you have the car you want with the options and color, you know you will not need financing or an auto loan, so that card is a keeper. Still, you are not sure of the last few cards.
These days, some dealers advertise "no-haggle" prices. It is a way to reassure customers that they do not need to worry about dealing with the headaches of offers and counteroffers. But that may not be the case; most car deals are open to negotiation.
Car dealerships typically present cars by offering a monthly payment price—not the actual purchase price. If you ask for a lower payment, they will provide a lower price, but the car's real cost just went up. A lower monthly car payment does not mean a lower price. Make them reveal the actual list price of the vehicle.
Then, have them print an estimate sheet with the actual car price and have them include all sales tax, fees, registration costs, and any other amounts to give you the final price with everything included. With that card in hand, you are well prepared to negotiate a lower price.
Come Up from the Rear for the Win
Begin your offers with a price you already planned as the lowest. Somehow, use your phone, tablet, or pen and paper, take the MSRP, deduct the incentives, and that will give you a starting price. Always begin with the lowest.
With all your information and numbers in front of you, plan answers to the next decision: the financing options. It is the best time to come up from the rear and start going back and forth on price. The salesman thinks he has you convinced and you want the car. They already know they can make more money on the sale by offering you their in-house financing. They see the finish line in sight and feel confident the deal is as good as done. That is about the time they may start asking you about what kind of down payment you have, if you plan to pay that portion with a credit card, and so on.
Let them ask you about financing, and then drop the 'cash card' on them. Once you let the sales staff know you will be buying the car outright for cash, you can explain why the car price can be lower. Are there any rebates? Will they throw in an extended warranty? After all, you are paying cash, which is a fast deal for the salesman and less paperwork and preparation. Three ways salespeople profit from your car purchase include selling the car, setting up financing with their bank, and reselling your trade-in. So a cash transaction cuts down their profit.
Now you are in the prime position to take control of the negotiations. You can ask for extras like free maintenance, floor mats, or other small accessories that could have added hundreds of dollars to the purchase price. The salesperson will likely shy away from giving in to perks that may cost him more in the end. That puts you in a better position to negotiate your very bottom price.
Dig Your Heels in for Final Lap
Even racecar drivers know they have to conserve fuel to get to the finish line when the checkered flag waves them into victory. With the deal's final terms settled, it is still essential to remain calm and steady. Do not get emotional, stand firm, and never let on that you know you are winning. The price tags on the cars in the lot are seldom the actual price. Buying a brand new microwave in a department store is typically non-negotiable; spending thousands of dollars on a vehicle you want is another story. It is an expensive and long-term investment. So negotiate as long as you can. The dealership does not want to lose your sale, and the salesperson certainly knows that.
That person is not merely trying to get the best price for the dealership. They want to make the highest profit for the dealership, which in turn affects their commission.
So the price negotiations continue. The salesperson now points out the deal he is offering is so much lower than the sticker price that the dealer will lose money. That is usually not true. They just threw a curveball, hoping you would have no idea what the actual sticker price is, and you now feel bad that you keep trying to get the cost of the car even lower.
Know your terminology. MSRP stands for Manufacturer's Suggested Retail Price -- a figure automakers decide that has nothing to do with the car's current value on the market or your ultimate purchase price.
Bring It All In for a Landing
The negotiation process when buying a car can be daunting. First, there is the test-drive. You have talked about additional options, sticker price, financing, and you watched the salesperson run back and forth to the dealer's office to present your offers. It is the dealer who ultimately has the power to accept or reject your counteroffer.
There are a few little tips to keep the landing smooth. Mention you have bids from competing dealers -- even if you don't -- to pique the salesperson's curiosity. When they ask you to show those dealers' offers to them, you can say you did not bring them but have the numbers in mind. If you did obtain any quotes before going to this dealership, ask the salesperson to beat the price. But it's important to make sure that the previous dealer's offer was for a similar car with comparable options and mileage and that you have the actual offer in writing.
Be patient and polite. A good end to negotiations when buying a car, especially for cash, means buying the vehicle for the smallest amount above your bottom figure. Remember, the salesperson does this back and forth price game all day and likely has been for years. You expected it, but you were ready.
Keep your expectations realistic in the event that the price you want to pay may be too far out of the dealership's ability to meet. If you can successfully negotiate a fair price (plus or minus a small amount), take it. Being too uncompromising could ruin the deal, and you will have to find another car you like, at another dealership, with another salesman -- an exhausting process.
Buying a car for cash and being able to haggle with the invoice price and complete the deal is not for the faint of heart. Think of it as a challenge and practice before you go. It might consist of either play-acting in the mirror or with a friend. If you are anxious about the prospect of a battle of the wits, enlist the help of a friend or family member to accompany you. Be sure they are informed about all your research, and you can trust them to handle the haggling the way you would. Do not overlook private seller deals. Going with a private party sale can mean getting a better price.
Bottom line: money talks, and it always will. When you have all the cash you need to pay for your vehicle purchase, you can negotiate for better deals. Have a strategy worked out going into the sale, and you can get the best price possible on your next new or used car.