Car shopping has a bit of a stigma attached to it, not the least of which includes being a slimy game of negotiation many people really don’t enjoy. But when you can decipher the facts from the myths in car buying, you increase the chances that you’ll find the best deal on a new car–whether it’s a new car altogether–or simply, new to you. Whether you love or hate haggling, the reality is, the best deal on a car is more in your control than you realize. Here’s why. (For more tips on how to save thousands of dollars on your biggest transactions, check out my latest article at Minyanville)
Get your credit in order. Though auto loan interest rates remain low from a historical standpoint, your best shot at finding a competitive financing offer is to get your credit score as high as possible–at least six months before you seriously begin car shopping.
Pull your free credit report (you are entitled to one from each of the three major bureaus once a year) at annualcreditreport.com. Ensure the information it contains is accurate, and if it’s not, dispute the inaccuracy with the appropriate creditor and/or bureau. (Wait to pursue any type of auto loan quote until the information is reflected correctly). Take note of your balances on credit cards, compared to your available credit,too. Strive to reduce your total debt to no more than 30% of your available credit, at least a few months before you begin to formally apply for financing. If you carry balances on cards but pay them off by the due date, start paying them by the statement close date instead (usually occurs about 3 weeks before the due date). This will ensure that you have a $0 balance reflected on your credit history, for at least a few months leading up to your loan application.
If you have a Discover card, you can now see your monthly credit score on your statement (anything above 720 is considered “good).” If your score is well below that, you’re likely not going to find a competitive rate on an auto loan–and you may be better off saving your money until you can offset at least a chunk of the loan with cash.
Weigh the cost opportunity of cash vs. a loan. I’m all for avoiding debt and paying cash when you can–unless you could be making more on that money elsewhere than it costs you to borrow. Though interest rates on savings accounts still hover around 1% (at best), there are still some 0% auto financing dealer rates out there for the taking. If you plan to buy a home in the near future, keep the car loan off the books regardless of the rate to ensure you aren’t diminishing your own borrowing power. But, if you don’t intend to purchase anything major in the next few years, it may not be a bad idea to leverage your cash for a little extra value, and take the free financing.
Shop around. It’s amazing how people visit multiple dealerships and auto websites for the best price on a car–but put the importance of finding the best actual loan terms or financing deal on the backburner. Before you begin car shopping, contact the bank you have other accounts in good standing with currently, and inquire about auto financing options. (Many lenders will reserve their best offers for existing customers who already have assets with the institution). Additionally, contact a local credit union, and at least two other banks, so you have a few points of comparison especially as it compares to dealer financing. “If the dealership can finance your car at a lower rate (and they often can), everyone wins,” say TrueCar experts.
Time it right. Experts at TrueCar also say that August is when the current year’s models have the highest discounts and dealers increase their incentives. Additionally, they remind that there is more to a great car deal than price: The cost of the new car, the trade-in, and the financing terms.
Don’t be unrealistic. Negotiations are only successful when both parties “win.” Though TrueCar data indicates that consumers believe that dealers make 18-20% profit on the sale of a $30,000 new car, they make just 3.8% on average per sale. Tools like those offered on TrueCar provide information surrounding what others have recently paid for a similar model, to give you a point of comparison. When you can ask for a number that allows the dealer to win a little too, the more likely it is you can negotiate.
