Buying a New or Used car can honestly be one of the most dreaded experiences anyone has behind going to the dentist. Whether you're buying a New or Used car or buying from a Dealership or a Private seller, this ebook will go through the processes on how you can buy a car and win big throughout the entire process.
Buying Private vs. Buying from a Dealership
There are a few key differences when purchasing a car from a private seller or from a dealership. Here are the biggest differences.
Financing on Hand
When purchasing a vehicle from a dealership you will have access to different banks and lenders who will pre-approve you on the spot. This is not only convenient but also brings in competition to compete to give you the best rate. If you do not have a relationship with a bank the pre-approval process can take forever and traditionally you will not get the same rate as the dealership. Lastly, convenience is HIGH when buying from a dealership because they handle everything included in the sale from the purchase of the vehicle, financing of the vehicle, transferring of your Title, and Issuing your License plates.
Warranty Coverage
Depending if you purchase new or used, buying from a dealership gives you a sense of security because most vehicles will come with some type of manufacturer warranty which will cover you in case you drive off the lot and have any technical issues such as Engine or Transmission failure. Also when purchasing from a dealership its always good to ask “If I drive off the lot today and the car breaks down, how am I covered?†Although Insurance can help cover you whether you purchase from a dealership or private seller, any claim against your insurance can potentially raise your insurance rates so its best to always know what coverage you have. For private sellers there usually will be zero coverage if you get 2 miles down the road and the vehicle breaks down, so always keep that in mind.
Negotiating the Best Deal
This really applies to used vehicle purchases. Technically if your purchasing from a private seller you may be able to negotiate the best deal because the seller may be desperate to sell the vehicle and they usually do not have a “Bottom line†number they can sell it for like a dealership. Its best to do your market research which is explained later in detail, in order to know what other vehicles are trading in for at dealerships or the auction and using those values as negotiating tactics.
Purchasing from a Dealership
This will outline the steps to take to get the best deal overall. When purchasing a vehicle, essentially there are 2 separate transactions happening: the “Front End†Transaction and the “Back End†Transaction, its important that you understand both. Ultimately a dealership will determine the overall gross profit of the sale to be based off the combined profits of both transactions. Its not uncommon for a dealership to sell their vehicle at a loss if they know they will make up the profits on the backend. Let me explain this further.
Front End Purchase
This is the actual purchase of the vehicle and any additional accessories you may purchase on top of the vehicle purchase. The front end purchase essentially is the determining factor if a dealership will let you continue with the back end purchase.
Back end Purchase
This is the F & I (Finance and Insurance) part of the sale. This is where you will be approved for financing (Unless you pay cash) as well as purchase any backend products like Vehicle Warranties, Gap, and Life and Disability insurance coverages.
How the Front End Purchase works
When you start your Buying a vehicle Journey, it will start with choosing to purchase a New or Used Vehicle. Its important that you understand the difference of each and the benefits.
Buying New
When buying New vs Used there are different Pros and Cons
Pros:
Full Warranty
You get a new car with full warranty, which means for the next roughly 3 years / 36,000 miles all non wear and tear items will be covered if they break so you can essentially drive a vehicle worry free a lot longer than buying used.
Newest TechnologyThe Newer the car the more fuel efficient it is vs previous year models (in most cases) as well as safety, technology, and ride smoothness. If you like to always be in the latest and greatest version of a typical model then buying new is recommended. Keep in mind you can usually find a vehicle in the same year model used and usually save money as well.
Maintenance costs
The cost to maintain your vehicle is a lot less than buying used because most manufactures will cover some of your oil changes and tire rotations in your first visits so you usually won’t be on the hook for much financially. All other costs will be covered under warranty.
Cons:
Value
The value of the vehicle drops 10-20% right when you drive the vehicle off the lot. So unless you plan on keeping the vehicle for the next 7+ years, you need to make sure you account for depreciation if you are financing the vehicle.
Overall Cost
The overall cost of buying New Vs. Used is a lot more generally speaking. If you can find the same model car within a year or two difference used, you could save on average $4,000-$7,000
Finding the Perfect New Vehicle
Before negotiating a price on a vehicle you need to find out what exactly you are looking for in a vehicle. Most people do not know what exactly they are looking for so realistically price is irrelevant until you find the type of car and model you are wanting to purchase. Go for a couple test drives at dealerships to find the look and feel you are looking for.
A strategy that works for a lot of people is to do a Pros and Cons “T Chart†to list all the things that are important to you. Here is an example of what one looks like:
Things to consider when looking for a new vehicle is the importance of Safety, Convenience, Styling, Cost, and Efficiency.
Once you have found the vehicle you want to purchase, it’s important that you get a copy of the “Specs†or specifications of what exactly is on the vehicle. Usually the copy they will provide you will have the Vehicles Identification Number on it or “VIN†so you can reference the exact vehicle later on.
Doing the “Legworkâ€
This process can be a little time consuming but where a large percentage of your overall savings will come from. You will need to identity the vehicle you have chosen so its important to list out the Year, Make, Model, and Trim Packages of the vehicle all in one line, so for example:2022 Chevrolet Tahoe 3LT w/ the Convenience, Performance, and Safely Packages.
Put this off to the side as this will be used in just a few minutes.
The next thing you want to do is to do a quick Google Maps Search of all the “Brand name†dealerships within your travel area. The travel area is defined as the distance you are willing to travel to to purchase the vehicle. I like to see the Map and List view so you can see all the dealerships locations listed on the map as well as the ability to click on each location as seen here:
Now the goal will be to go to each of their websites and submit a quick lead form to them telling them you are interested in purchasing a vehicle from them. This form is usually located on the home page of the website, there is no need to do a search for the vehicle through their inventory as their Internet Department will send you a list of the vehicles they have that match your criteria. It's important that you ALSO submit a lead form to the dealership you did the actual test drive with BUT do not include the spec sheet or the VIN number because you don’t want anyone to know you have gone to a specific dealership, especially the one you have already visited.
You will submit the following message and insert in any of the items into the message:“I am looking for the best price on a<2022 Chevrolet Tahoe>. I am flexible on colors please send me what you with the following packages:
<2022 Chevrolet Tahoe 3LT w/ the Convenience, Performance, and Safely Packages. >
Please send me your best offer by<5pm tomorrow May 15th 2022>as I will be making my purchase then. Please Make sure to include the Before Taxes price and the Drive Out Price. If there is a discount for financing, please include that in the price. I will not be trading in a vehicle, and If there are any added on aftermarket products such as Window tint please list the price of each item in your quote.
I am on calls all day so I ask that you please do not call or text me. Please email me your quote as soon as you can. “
Here is an example of what the form looks like and your message:
Even if you are not open to other colors and only want one specific color, do not put the color you are looking for in the form, you can always select the dealership with the lowest price in your specific color. IF you mention the color in the form, you will have dealerships quoting you on vehicles that they do not have on their lot which can cause a lot of issues when trying to buy the vehicle and potential upcharges for having to go get the vehicle from another dealership which is also called a “Dealer Tradeâ€.
Financing and Addendums
It’s very common for dealerships to quote you on a vehicle and not include the cost of the additional items that they added to a vehicle, this is considered an Addendum. Addendum items are typically “Negotiable†so it’s important to know what items they have already added to the vehicle so you can take that in account when choosing the best quote and later on negotiate with them on these items. Also another common theme when it comes to a dealership's price quotes is they will include incentives in the price that you may not qualify for and the goal of this is for them to get you in the door so they can then tell you this bad news. One “Incentive†that's common is a financing incentive, this “Forces†you to finance with them even if you do not want to OR the price will go up. I added these to the lead request form you will submit so that we can have full disclosure from the dealership when they email you the quote. IF for any reason you get the quote back from the dealership and they do not add this information into the quote, its important to respond to their quote and ask about any additional Addendums added to the vehicle or any incentives in the price you may not qualify for.
The 6% Rule
If you want to understand how a dealership comes up with a price, its important that you understand the different “Levels†of Profitability that a dealership will have. This method is sometimes called the 6% Rule. Let me break it out to you:
Manufacturer Suggested Retail Price or (MSRP)This is the List price of the vehicle found on the window sticker of the vehicle.
Invoice Price:
This is the “Dealer Cost†of the vehicle commonly advertised by the manufacturer as the price the dealership paid for the vehicle which is not totally true. The difference between MSRP and Invoice can vary but averages at about 3%
Holdback
This is the 3% “PROFIT†that the dealership gets when selling the vehicle. The difference between the Vehicle invoice price and the Price minus Holdback is 3%
So on an average vehicle if you take 6% off the MSRP thats usually going to get you a number that can be somewhat close to the dealerships cost. This is not the case for all manufactures but this can be used as a guide to get a rough estimate on the discounts you should look for.Full Disclosure, its not right to think that all dealerships should sell a vehicle for Cost because we have to always remember that a dealership is a business too and they have to make money in order to provide you the product you are trying to purchase.
Incentives
Incentives or commonly known as “Rebates†are discounts the manufacture provides the dealership to give to you the client. All the incentives are the same in the same region that you are in so when your comparing vehicle quotes you want to make sure that if one dealership is including a rebate of $3,000 that you see the other quotes include this. You can also look up what rebates are available for each manufacture and vehicle here:https://www.edmunds.com/car-incentives/
Some manufactures will offer a “Trade In†incentive if you trade in a vehicle as well as “Qualifying†incentives where you have to qualify for the incentive in order to be able to be able to use it. If you do not know if you qualify for certain incentives, make sure you ask before you go into the dealership.
Cost Breakdown Example
Listed below is a full break out of pricing, incentives, and how the drive out price is figured. If you want a “Guide†on Vehicle price breakdowns, a good source to use ishttps://www.carquotes.com/new-prices
Here is an example of how the pricing will be broken down:
MSRP: $40,000
(3%) $1,200
Invoice: $38,800(3%) $1,200 <Hold Back>
Net Price of Vehicle: $37,600So the Net Price or lowest price the dealership may be willing to sell a vehicle is $37,600. Lets say thats the price they quote you. Well now you will take the Rebates off the Price as shown in an example here:Sales Price: $37,600-$3,000 Manufacture Rebate-$1,000 Trade In Rebate (Only Applies if you trade in a car)—-----------------------------------------------------------------------------
$33,600 Is the Sales Price AFTER ALL Incentives
The last thing we need to add to this price is Tax, Title, and License fees which will give us the “Drive Out†cost of the vehicle.
$33,600 Sales price
Taxes 6.25% (Varys per state) $2,100
Title Fee (Varys per state) $149.50
License Fees (Varys per state) $125.00
—----------------------------------------------------------------
Drive out: $35,074.50
The Drive out Cost includes everything and is the amount you will be writing a check for if your paying cash or the amount you will finance if your taking a loan out with the bank.
Sit and Wait
Most Dealerships will respond with a price quote within the first couple hours with the specific quote. Its important that you have an Excel sheet or some way to track the different prices and colors, I have added a “Demo†Google sheet you can copy and use to track each quote you get so you can make your final decisions after you receive all the quotes. You can view the document here:
https://docs.google.com/spreadsheets/d/1x9o2oLMUE1pPaxdNRQjVJAlMDTDcdMQ7iFHTQAmB8rs/edit?usp=sharingSometimes there will be some dealerships who do not respond with a quote, in this case you can either take that as they do not want your business or simply you can just send them an email to follow up on your request to see if they are able to send you a quote.
Compare Drive Outs
The Drive Out cost as listed in the example above is the price of the vehicle they are selling you PLUS added in Taxes, Title, and Licensing Fees. This is important to get from each dealership because sometimes a dealer may have the lowest price but a higher drive out cost because they will include hidden fees and charges just to get you in the door.
Making the final decision can be tough especially since a lot of your price quotes will be pretty close and similar. The best advice I have is to factor in convenience when making the final decision. To determine this, I would email the dealership back and ask what they provide OUTSIDE of what an average dealership provides after the sale. Sometimes you will find that some dealerships may offer free oil changes for life of the vehicle, or they offer free loaner vehicles when you bring your car into service. Its important to know what additional things a dealership offers so you understand the overall savings of buying a vehicle from a specific dealership. Lastly, how close a dealership is to your house can be important so that you establish a relationship with a specific service guy in case you ever have to bring a vehicle for service or any issues you may have that are covered under warranty.
Buying Used
Since a lot of the same factors apply to used vehicles as to new vehicles, this section will seem less detailed but will cover all the same sections as covered when buying new.
Finding the Perfect Vehicle
When buying used, a lot of the process is similar to buying a new vehicle. The difference with buying used is NO two vehicles are the same. What I mean by this is there are different factors that go into Used Vehicles that will not apply in the same way as a new vehicle.
Mileage
Mileage is one of the most important factors when looking at used vehicles. Knowing if the miles on the vehicle are considered low, average, or high for the model can affect the value of the vehicle as well as the potential service issues or risks that may come with the purchase.
Low Mileage
Low Mileage for the year of the vehicle can come with a lot of advantages but also the dealership may ask for a premium. Low mileage is less than 8,000 miles per vehicle year so if it's 2021 and you're buying a 2020 vehicle and it has 7,000 miles then it's considered Low. A dealership knows the demand that comes with low mileage vehicles because everyone is looking for them and so they may try to get retail value for the vehicle which means they want to sell it close to what a new one will sell for so they maximize profits. Low mileage vehicles usually are in top end condition due to not being driven as much as a normal vehicle with average miles has. The value also is in the warranty thats left with the vehicle. Remember Manufacturer Warranties provided to the original owner of a vehicle carry on to the next owner when its sold as a used vehicle so whatever is left in the warranty is transferred over to you.
Average Mileage
Average Mileage for the year of the vehicle is the standard vehicle and it usually means that the average person drove this vehicle, doesn’t mean that this has any correlation to the condition of the overall vehicle. Average mileage is less than 12,000 miles per vehicle year so if its 2021 and your buying a 2019 vehicle and it has 20,000 miles then it's considered Average. This type of vehicle is the most common vehicle you will find in most used car lots. Its important to take note of how much of the manufacturer warranty is left on the vehicle before you buy and compare it to the average miles you plan on putting on the car per year. Doing these calculations are important so you can understand how much longer you have until you need to start to take in account additional costs you may incur for any vehicle service issues.
High Mileage
Any vehicle that has High Mileage is usually a red flag. High mileage vehicles are any vehicles who averages over 18,000 miles per year. so if its 2021 and your buying a 2019 vehicle and it has 37,000 miles then it's considered to have High mileage. The plus when buying a high mileage is usually there can be a sizable extra discount you can get because most of these vehicles have little to no manufacture warranties left. So why would a newer vehicle have high mileage? Well it could of been previously a rental car or maybe someone who traveled alot for work and this can cause concern for how well maintained the vehicle was. If you are considering a high mileage vehicle its ALWAYS best to ask a mechanic to check out the vehicle before you purchase so you can really find out the true condition on the vehicle. When it comes to financing a High Mileage vehicle, keep in mind most banks will not finance a high mileage vehicle that is over 4-5 years old because of the risks involved of the vehicle not outlasting the loan term. Most lenders want to make sure that the vehicle outlasts the loan term and most lenders consider 10 years being the full life of a vehicle so if the vehicle is already 4 years old, they will be hesitant to put you on any loan longer than 5 years because they want to make sure you pay the vehicle off before the car “dies†or no longer runs.
Condition and Features
Let's say you are interested in purchasing a 2019 Chevrolet Silverado and you found (2) almost identical vehicles meaning both vehicles are the same color and their current mileage is within 200 miles. These vehicles are SIMILAR but never the same. One of them may have more features like running boards, Window Tint, or even a bed liner whereas the other one may be a lower trim model. Even if they are identically the same, there will always be a difference in Miles and condition period. Taking in account of this, its ALWAYS important to test drive BOTH vehicles before purchasing so you can see how they ride differently, smell differently, sound differently. You will be amazed to see that two identical vehicles will never be exactly the same. Lastly when we are talking about the condition of the vehicle, I am speaking about how it was maintained inside the vehicle, outside the vehicle, and the Mechanics. Someone who takes great care of a vehicle can be seen VERY easily usually. Even if the dealership detailed both vehicles there are tall tell signs of someone who didn’t maintain a vehicle well. Let me give you a couple key things to check out:
Carpets
You would be surprised if you check in between and under the seats what you will find. If someone was eating inside their vehicle and there's food under the seat, most vacuum cleaners will not get all the particles, you may also see sauce stains that will tell you that the vehicle was eaten in. Someone who treats their vehicle correctly will have little to no particles in these areas. Also the overall condition of carpets where people's feet were is also a sign, you can tell if someone went the extra mile to protect their carpets in the vehicle with floor mats and other covers to protect the condition of the carpets within the vehicle.
Seats / Upholstered Items
Someone who has bad socrates or wear and tear on their seats or even the arm rests can be signs of “abuse†or lack of care. Someone who maintains a vehicle correctly will have put seat covers or something over these areas to protect them like new.
Scratches / Dings
Someone who takes care of a vehicle will be almost OCD about any and all dings and scratches. Usually they will get them instantly repaired because it will bother them so much. If there are a lot of dings and scratches this will just tell you the previous owner didn't drive the vehicle with caution.
Under the Hood
Someone who regularly maintained the vehicle opened the hood constantly to wipe things down under the hood. Most dealerships will not wipe these areas down when they get the vehicle ready for sale because they know most clients will not open a hood. If you open a hood and see alot of dirt, dust, or grime, this can show signs of care provided to the vehicle.
Wheel / Tire conditions
Not only can wheels condition show you the TYPE of driver of the vehicle, but can also show you how the vehicle was taken care of in general. Yes this can show you if the driver was good or bad at driving, it can also tell you if they drive the car with ease or aggressively and even if they hit a couple curbs here and there.Moral of the story everyone has an “Intention†when driving a vehicle. In the beginning when someone buys a vehicle they take care of it. Its when the “Honeymoon†months pass by, how they take care of it will all be Intention, did they take care of the vehicle and treat it as a new vehicle or did they see it as used and treat it like a used vehicle with limited care?
The Purchase Process of Used
Now that you have done your research and you have picked out one or more vehicles, its time to send in quotes on the vehicles. Now remember, since no two vehicles are ever the same you have to do your due diligence on each vehicle to determine what an acceptable offer for the vehicle is PRIOR to getting the quote. So placing a value on the vehicle is always a good place to start so you have an idea of where you think the dealerships price should be. Now keep in mind a dealerships price should never be the ultimate determining factor of buying a vehicle, it should ALWAYS be market value. Factors such as the economy and supply and demand can play factors on what the vehicle price will be so you always want to keep this in account. For example, during COVID, supply was at an all time low and Demand was at an all time high due to the chip shortages on new vehicles, so since the demand of new cars went up and inventory was at an all time low, it shot used car prices through the roof which meant the meatrics im about to explain below went out the window. Anytime theres supply issues, that means prices will go up and you always have to decide if you can wait it out before purchasing or if your needing a vehicle ASAP and you have no choice.
Valuing a Used Car
Let me start off by saying if you are looking at multiple different used vehicles and they are different models or even different brands this is completely ok. You will use the same evaluation process for both so you can ensure you are getting the best deal. As I mentioned before, value of the vehicle is ALWAYS going to be how you evaluate a good deal, not based on what the dealership owns the vehicle for, because at the end of the day when you drive the vehicle off the lot you will know EXACTLY what your vehicle is worth in comparison to what you owe on the vehicle (If you financed the vehicle of course)
Steps to Value a car
1. Go to Nada.com
NADA stands for National Automobile Dealers Association and they are the industry leaders on what dealerships use to determine what a car is worth. Those of you who want to use Kelly Blue Book to evaluate a vehicle will get crushed at a dealership so I HIGHLY recommend NEVER using this as a tool and Always stick to NADA. NADA has been around for a long time and is most dealerships preferred method of valuing a vehicle.2. Click on “Get a Valueâ€
3. Click on ‘Choose a manufactureâ€
4. Click on the Manufacture of one of the vehicles you are looking at
5. Select the Body Style and then Select the correct type of the vehicle
6. Now Select the Trim Level of the Vehicle.
7. Enter your Zip Code
8. List all the FeaturesNow list all the Features the Vehicle you are interested in has, plus how many miles are on the vehicle. Knowing the options on the vehicle is VERY Important as it can change the actual value of the vehicle.
9. Save the Value Screenshot for future reference
Understanding Value of a Vehicle
As you can see from the screenshot above there are (4) different price values, all of which are important to understand. Each are broken down below so you can better understand what this means for the vehicle you are about to purchase.
Rough Trade-In
This is the value put on most vehicles that are traded into a dealership. This value allows a dealership room within the value in case there are any repairs or costs involved with getting the vehicle ready to resell. Most dealerships will even value cleaner vehicles at this price so they have room for profit. Why this value is so important to know is so you can get an idea and gauge as to what the dealership may have paid for this vehicle. If a vehicle is purchased from an auction for resale, this value minus $1,000-$2,000 is what a dealership may pay for the vehicle at an auction.
Average Trade-In
This is usually the HIGHEST value a dealership would put on a vehicle that's traded into them, If its a vehicle model they need due to low inventory or the condition is so good that it wouldn’t need much done to it to put it up for sell then it would qualify for Average Trade in.
Clean Trade-In
This is rarely used, some dealerships will provide this if they are trying to compete in the used car market and they want to be able to get more cars from auction or they just want to be able to almost guarantee they get the vehicle so they can resell it. Looking at this number to determine a vehicles value should not ever be used.
Clean Retail
Clean Retail is the Average of what this vehicle is going for on the market. This is roughly the price that a used car dealership will list the car for online. This is why online shopping will be key when trying to get the best price on a used car. When walking into a dealership for the first time and the dealership gives you a price its usually higher because they want to make the most amount of money on the vehicle that they can.
Auction Values
Although it's hard to get these values online without paying for them, auction values are important to understand just so you can request these values be provided to you when buying a car that may not be in the absolute best condition. Dealerships tent to make the most money off cars they purchase from a client trading in the car ESPECIALLY if its their own brand. This is because they can choose the price they want to offer and usually the car is being traded in for a new car so if the customer wants more money than the original trade in offer then that goes against the New Car sale and doesn’t affect the value of the vehicle in the end. Some dealerships cost of the used car can be what the average auction value of a vehicle is based on the condition. This is another “Guide†used by used car dealers to evaluate the price they pay for the car that they are selling you.
Recondition “Recon Costsâ€
On top of what the dealership pays for a car, there are certain reconditioning costs that are charged to a vehicle in order to Legally be able to resell it. A safety inspection is #1 as well as any replacement costs like tires, batteries or anything needed to “Pass†the safety inspection. This average cost is about $1,100.
Sending In a Quote
Now that we have gone through the evaluation process of valuing a used car, and you have picked out the vehicle / or vehicles you like, it's time to send in a request for a quote. The best way to do this is to find the vehicle online if possible (If not you can submit a lead form on their website) and write the following in the message:
“Hi! I am interested in purchasing this vehicle today and wanted to see if it's available and get your best price on it. I have found two other vehicles to be similar in options and mileage and I want to finalize my decision today. I look forward to your response. Due to meetings I prefer communication via email. “
The goal is to let them know that you want the best price and that you're comparing this vehicle price to the others. This tactic will usually force the dealership to send the absolute best price to you so that they don’t miss your business.
Have you evaluations Ready!
It will usually take roughly 2-24 hours to hear back from the dealership. While waiting, its best to have the evaluation in front of you to compare their Best price and the price they will come in at.
Something Important to remember when it comes to evaluating a vehicle. Yes you are looking to get the best price but more importantly you should be evaluating if the value at which you are buying it makes sense. With this said, we have to understand that dealerships are in business to make money. So if you can purchase a vehicle at $1000 over CleanTrade In then your buying the vehicle for a Deal.Remember the “Recon†costs of $1,000 is included in this price which is a non negotiable price. Anything over that would be considered “In the Hole†and you could be paying more that the vehicle is actually worth.
Car Fax
Once the dealership sends you a quote, and you feel we are within the ballpark number you want to be at, It’s important to respond to the email and let them know you are interested but want to see the Carfax of the vehicle which most dealerships will provide you or you can find it listed on most websites next to the vehicle pictures. The carfax will tell you about any issues within the vehicle such as previous accidents and service records. It's important to take note of any previous car accidents and make sure that there has been no Frame damage to the vehicle and that the Title is not salvaged. Some people get concerned about previous accidents which you should. Any accident to a vehicle does affect the overall value of the vehicle and the normal “Discount†you can expect is (+/-) $2,000. The dealership took into account this when they purchased the vehicle and so should you. Also if you do not plan on keeping the vehicle forever, then this will come up when you go to trade it in or sell it in the future.
Lets walk through an Ideal situation so you can get an Idea of what the process will look for.
Lets say you found this vehicle, you test drove it, you found it online:
You clicked on the “Get a Bottom Line Price Button On their website:
Submitted your Quote and they responded that the Internet Price online is the ABSOLUTE Best Price.
So you pull up NADA.com to do the comparisons and here is what you see…
So the List price on the Vehicle is $34,991 which is just over Clean Trade-In and so since this is within $1,000 of Clean Trade-In then we know its a good deal!
So we then will email them and tell them that we would like to see a copy of the Car Fax.
Lets say the car fax came back showing an accident:
So now with this information we know this will affect the value give or take $2,000. So we should be looking for that discount on the price. So since this vehicle price is basically at Clean Trade in, we need to deduct roughly $2,000 from that price. Your email back top them should say.“Thank you for the Quote! I really appreciate you taking the time to put this together for me. I am really interested in the vehicle but after doing further research this vehicle has been in an accident and I know that you shouldn’t be asking for Clean Trade in on this vehicle. Clean Trade in is $34,825 and Im asking to pay $32,825 plus TT&L (Tax, Title and License Fees.) If you can do this let me know. If not I understand.â€If the dealership responds they can’t discount the vehicle any further or the discount they do give you is not close to $2,000 then I recommend passing on the deal. Remember its all about buying the vehicle at the best value and not the best price. If something god forbid happened to you and you couldn’t make the remaining payments on your vehicle, and you had to turn around and resell this vehicle, you would want to be close to breaking even.
***Bad Credit***
A key thing I want to point out here, a lot of the negotiation tactics I am explaining here will not apply if you have bad credit. Let me explain further. Banks charge fees to you the consumer if you have bad credit and because of this, the only way a dealership can sell you the vehicle is if they can include the fees into the deal. If you are limited to putting any money down then the only option they have is to raise the price. So if you have bad credit, it's not that you give up all your rights to negotiate, it just means you will be limited to negotiating because of these fees. The dealership will not take on this cost, it will always be passed on to the consumer. The fees are charged because of the risk you put the bank in due to your bad credit. Its important that you get your credit fixed before trying to purchase a car or even a home.
Feel Free to give ASAP Credit Repair a call! They can help you at 281-545-5001 or submit your Information by clickingHERE
Further Negotiation
When you go into the dealership to complete your purchase whether it be a new or used vehicle, you can always try to negotiate more on the price or negotiate certain accessories or aftermarket products to feel like you “Won†on the transaction.
Trade In
Where can you get the best trade-in value for your vehicle at a dealership or private sale. It really depends on how much time you want to spend in this area. Sure you could list your vehicle on Facebook Marketplace or Craigslist, but you will also run into issues with having to have complete strangers come to your house and if they aren’t paying cash and want to finance your vehicle that's a whole other headache. The best advice I can give you in order to get the best trade in Value is to go to (3) Places to get the vehicle appraised and ask the Dealership to match the highest bid or tell them its a deal breaker. In Texas there is a place called Texas Direct Auto that typically is the most competitive place to get your vehicle appraised, but another popular place is CarMax. I always recommend allowing the dealership to Appriase your car before you present them the appraisal you already received, this will force the dealership to be honest and sometimes they may even give you more than the top appraisal. Now, one tactic that a dealership will try to use against you is the Tax Savings method to get you to take less on the vehicle because of the savings you will get is equal to the value they are willing to buy your car for. Let me explain using an example.
Lets say you go to CarMax and they Appraise your car for $16,000 and that's the highest amount you were able to receive after getting it appraised from 3 different places.
You go to the dealership that your purchasing your vehicle from and they take it to get appraised. Lets say they appraise it for $14,500.You will show them the Apprisal you got from Carmax and ask them to match it or you won’t be able to purchase a vehicle from them. The come back to you with the Tax Savings method and give you $15,000 and tell you that its the same amount as $16,000 because your saving on taxes.
Now technically they are correct on this, but this is also a way for them to try to hold money on your trade-in. Heres how Tax Savings works.
Lets saying your purchasing a Vehicle for $30,000 and trading in the above reference car for $16,000 so the equation would look like this:
Sales Price $30,000Trade In Value: $16,000
—----------------------------------
$14,000 + Payoff
So If you're trading in a vehicle you are only paying taxes on the difference amount in this case $14,000 which depending on your states sales tax rate, we will use the average of 6.25% the tax amount would be $875. This is because the car you're trading in you already paid taxes on so you will not need to pay taxes twice.
If you were to purchase the $30,000 outright without a trade in then at 6.25% your tax amount would be $1,875. So Since the difference in taxes by trading a vehicle in is $1,000 ($1875 - $875) then you would be saving $1,000 in taxes so the dealership may purpose giving you $15,000 vs. $16,000 and tell you that its the same amount because if you were to sell the vehicle out right to Carmax and take the cash and apply it to the sale, you're still paying $1,875 in taxes. A dealership should always be willing to match another appraisal bid from another company so do not fall for the tax savings tactic.
Backend Process
We spoke about the frontend process of purchasing a new vehicle, now let's dive into the Backend Process. The backend process is the “2nd†transaction thats made in a vehicle process and is where you actually pay for the vehicle as well as are offered backend products that are detailed below. This transaction is done by a Finance or Business Manager.
The Paperwork
When purchasing a vehicle you have the option to Finance the vehicle with a bank or Pay cash for the vehicle. Either way you will be signing a lot of documents that go over details on the transaction and it's important that you thoroughly understand each document and what its purpose is. The common Documents that you will be signing are:
Purchase Order
This will detail each cost and fee associated with the purchase of the vehicle. This document breaks out each cost in line item form so you can understand how the final Drive Out cost is Calculated. IT IS IMPORTANT that you ask questions as to what each fee/cost is and what its for. Some dealerships will try to slide in products into the cost of the vehicle without you knowing ESPECIALLY if they got you to focus on the monthly payment vs. the actual price of the vehicle.
Law Contract (Only if you are financing the vehicle)
This document goes over the terms of your financing IF you are financing the vehicle through the bank that the dealership chose. This document is pretty standard and the only thing I would check to make sure is correct is the price and figures that were on the Purchase order, they should also line up on this document.
Title Application
This is an application you will sign so that the dealership can transfer the title into your name. Now keep in mind in most states until the vehicle is paid off or paid in full, you will not receive the Title of the vehicle. So if you are financing, the bank will hold onto the title until the vehicle is paid off.
Power of Attorney
This document is usually only required when you are trading in a vehicle. This is so that they can speak on your behalf with the County clerk via phone if needed. The only right this gives the dealership is to speak on your behalf on the transferring of the title of the trade in so you do not have to worry about signing a Power Attorney that applies to anything more than this.
Privacy Agreement
This just states that they will keep all your personal information private
Credit Application
This just lets you know they ran your credit.
Credit Disclosure
This discloses your credit score as well as the lenders that your credit was submitted to
Trade In disclosure (If trading a vehicle)
This just lists the value you are receiving on the car you are trading in and authorizes the dealership to take ownership of the vehicle.
Now that you understand most of the documents you will be signing in the Fianance Department, there are different products that you will be offered within this process that you need to be aware of so you can better understand if the product would be of benefit to you or not.
Financing Rate
The benefit of going through the bank that a dealership recommends is because typically the rate that is offered to the Dealership is usually better than the rate you would get from your own bank or credit union. KEY WORDS here are “Rate that is offered to the dealership.†Dealerships can make money on the interest rate they charge you so Its important that if you can get pre-approved through your bank ahead of time, you can tell the dealership to then match or beat your rate. If you only allow the dealership to get you pre-approved and your not familiar with what the Current Auto Financing Rate, you could end up thinking your interest rate is great and not realize its being marked up.The Dealership can by law mark up a rate based on the term, here are the maximums:0-60month terms can be marked up 2.5 basis points and
61-84 month terms can be marked up 2.0 basis points.
So what does this mean? Well let's say the dealership submits your application to multiple banks and Capital one offers the most competitive rate of 1.99% up to 60 months. Well the dealership can legally mark up their rate to a maximum 4.49% (1.99% + 2.5 points) and tell you the best rate is 4.49% so the difference in what you would pay in interest between 1.99% and 4.49% is considered the dealership's profit. The more you finance, the more interest you will pay which also means the more profit a dealership will pay. This same scenario applies for any term 61-84 months long, but they can only mark the rate up 2 basis points. So to avoid the dealership being able to make money off the rate, its always best to shop around to see what other banks will offer you and then take that offer to the dealership and let them match or beat it.
Service Contract AKA Vehicle Warranty
Service Contracts is where dealerships make a lot of their backend profits from and if you ask me if its a good deal to get one, I would tell you Yes and No. It all depends on your situation and the vehicle you are buying.
First off The newer the vehicle, the Lower the cost of the vehicle warranty is so traditionally newer vehicles will always have a lot lower cost than a used vehicle and that's because the risk of repairs is much lower on a new vehicle. With this said, a service contract only makes sense if you are planning on keeping this vehicle outside of your normal Bumper to Bumper warranty. So an average new vehicle has a bumper to bumper warranty of 3 year / 36,000 miles which means after the warranty is expired any vehicle service issues will be paid 100% by you. A service contract will extend your service coverage and depending on the miles you drive they can extend it all the way to 5yr / 100,000 miles on most vehicles. Now any unused portion of a vehicle warranty is refundable so lets say you buy a service contract but end up training the vehicle in much sooner than you thought you would, you can call the dealership and ask them for a refund and you will be refunded the prorated portion that's left in your warranty. I am a big believer in warranties especially as newer vehicles are coming with more electronics which can mean more service issues and that cost can end up being pretty high if you do not have a warranty. My best advice is to do research on the cost of a new warranty from independent companies so you can negotiate the cost of the warranty the dealership is offering. Just like finance rates, a dealership will mark up the warranty over their cost to make profits. So if the warranty cost is $1500, they may sell it to you for $3,299 to increase profits on the deal.
For used vehicles, the same scenario applies above EXCEPT depending on the mileage on the vehicle you purchased, you may have limited options to extend the warranty and the cost can be much higher. Do you research before going into a dealership so you can know a ballpark figure of what you want to spend on a warranty.
Gap Insurance
Gap insurance is something offered to anyone financing a vehicle with the dealership. I am a TRUE believer of this product especially if the vehicle you are purchasing is going to be upside down when you drive off the lot. So the best way to know if you should get gap on a vehicle is if you are not rolling in at least $3,000 in equity from your traded in vehicle OR not putting at least $3,000 down when buying the vehicle you are most likely in risk and will need to purchase the Gap Insurance.
What is Gap Insurance?
Gap insurance covers you in case you get in an accident and your vehicle is a total loss and there is an unpaid portion owed that your insurance will not cover. So an example would be, you purchased a New 2022 Chevrolet Tahoe for $80,000. Lets say when you purchased the vehicle you traded in another tahoe that had $3,000 negative equity, so lets say after taxes you owed the bank $89,000 and you drive the vehicle off the lot and someone hits your car and they have no Insurance. The Insurance company does their investigation and tells you the vehicle is totaled and the market value of the vehicle is $79,000 so thats the amount they will be paying towards the loan amount. Well since you owe $89,000 that means the leftover amount of $10,000 is owed by you. Well if you have gap insurance, the gap insurance will pay the difference in the amount you owed so you walk away owing nothing.
Gap Insurance can be a lifesaver and is inexpensive. Most Gap Insurance policies are state regulated meaning they can’t be marked up like service contracts can. The average cost for gap is roughly $750 and its a small price to pay if you ever are in an accident and the vehicle is a total loss.
Disability Insurance
Disability Insurance is something that is offered in case you are temporarily diabled and aren’t able to work. There are insurance companies that also offer this and this doesn’t have to be purchased through the dealership so be sure to do your research before purchasing this from a dealership
Life and Disability
This is another insurance offered as a more long term option in case you are not able to ever go back to work due to disability, This is indefinitely and can even end up paying off your current vehicle if you are ever diabled long term. Just like temporary disability insurance referenced above, there are insurance companies that offer this so make sure you do your research before purchasing from a dealership.
Other Products
Dealerships usually have other products like Anti Theft devices and other vehicle products they will offer to you. If its a product you are not completely sure of, just tell the business manager you would like to do your research before purchasing.
Purchasing from a Private Seller
We discussed in the beginning the Pros and Cons of purchasing a used vehicle from a Private Seller. The main benefit of buying from a private seller is that you may find someone who is motivated to sell a vehicle way below market price and you can come out on top value wise.
Unless you are patient and willing to file all the paperwork involved in transferring the title and registering a vehicle, its recommended that you purchase from a dealership. I personally know plenty of people who will buy from a private seller to save money and most will just get pre-approved by their bank and let the bank do most of the paperwork which is also an option.
Outside Financing
Whether your purchasing a vehicle from a Private seller or a dealership you are always able to apply through your own bank and lender, most are able to offer the same options as a dealership when it comes to backend products and they can even save you money in the long term. Once you get approved by your bank, your bank will normally either provide you drafting instructions to give to the dealership which provides instructions on how the bank can wire money to the dealership OR if your buying from a private seller, after you sign paperwork with the dealership, they will cut a cashiers check to the private seller.
In closing
I hope this guide gives you clarity into the buying a vehicle process, and I hope that it saves you alot of headaches and money along the way!