Five Ways Youâ™ll Pay Too Much for a New Car


new carIt’s easy to pay too much for a new car. Getting a real deal on a new car isn’t nearly as easy. The reason that so hard to get a deal is that car buyers often start and finish the process at the dealership.

But there are steps that need to be taken before you start talking to a dealer that can change the whole outcome. Many people don’t do them, and end up paying way too much for new car.

Not doing your homework

Probably the biggest single biggest mistake you can make when buying a new car is relying on the car dealer’s knowledge. It’s not that he doesn’t have the knowledge, but rather that he has more of it than you do.

In order to get the best price on a new car, the first thing that you have to do is to close that knowledge gap. The best way to do this is by doing your homework before you even begin the buying process.

The Internet has done a lot to level the playing field when it comes to knowledge about just about everything, including cars. You can find out a lot about the car you want to buy and about its true value by going to sites on the web that specialize in that information. Excellent sources include Automotive.com, Edmunds.com, and Kelly Blue Book.

Before you talk to a car dealer, do some research on the sites and get the information that you need to negotiate intelligently, particularly in regard to the price of the car. You need to know what the value of the car truly is, and not rely on representations made by the dealer. Some research will help you do this, and do it confidently.

Buying a new car before your old one is paid for

You can be bitten by the new car bug at just about any time, but if it happens before your old car is fully paid off, it can end up costing you a lot more.

If you need financing for a new car, but you still owe on your old car, the dealer will gladly accept your old car as a trade-in, and then roll your old loan into the loan on the new car. This can put you into a situation of being “upside down” on your new car. That means that you will owe more on your new car than the car is worth.

If for example, you need an $18,000 loan in order to buy a $20,000 car, but you still owe $5,000 on your old car, the dealer will roll the two loans together into a new loan. That means you will owe $23,000 on a car that has a sticker price $20,000. The minute you drive the car off the lot, it will be worth even less.

You can avoid this situation by paying off your old car before buying a new one.

Trading in your old car

It’s much easier to trade your old car to a dealer than to sell it yourself. But it will also cost you more to do it that way.

There are two problems with trade-ins, and neither of them work in your favor. The first is that the dealer is typically giving you less than what the car is worth. This is because he has to sell it at a profit, and in order to do that he has to buy it on the cheap from you.

The second problem is that a trade-in is actually an allowance, not a hard number. During the course of price negotiations for the new car the value of the trade-in allowance can fluctuate depending on how well the negotiations are going from the dealer’s standpoint.

You can start out with a $5,000 trade-in allowance on your old car but by the time you’re done negotiating on the new car the amount of that allowance can seem to disappear. It’s a sleight-of-hand technique the dealers can use on a trade-in.

When you sell your old car yourself, you’re guaranteed that you will get the amount you sold it for. No games will be played after the fact. And you’ll almost certainly get higher price than what you would on a trade-in.

Letting the dealer get your financing for you

When you rely on the dealer for financing you’re accepting that he will give you the best terms available. Maybe that’s true, and maybe it’s not.

If nothing else, when you obtain your own financing you gain leverage with the dealer. By obtaining a written auto loan approval from an outside lender, you can use it to get a better deal from the car dealership. Show them what you have, and challenge them to make a better offer.

Dealer financing is only an advantage if it’s better than what you can get from an outside lender on your own. By getting that approval yourself, and forcing the dealer to top it, you’ll be certain that that is what has happened.

Loading the car with options

A car can have a low base price, but the cost can skyrocket when you begin adding options. There are certain options, such as automatic transmission, air conditioning, and certain safety equipment, that will truly add value to the vehicle. But there other options that are completely unnecessary.

Dealerships make proportionately more money on options than they do on the basic car price. They have a vested interest in loading a car with as many options as they can. Some of those options add significantly to the cost of the vehicle without providing any real benefit. Some examples are credit life insurance, undercoating and heated car seats.

The dealer’s job is to get you to add as many options as possible. When purchasing your new car, your job will be a make sure that doesn’t happen.

Are there other techniques you have used to avoid paying too much for a new car?

photo by NRMA New Cars

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Written by Kevin

With backgrounds in both accounting and the mortgage industry, Kevin Mercadante is professional personal finance blogger, and the owner of OutOfYourRut.com, a website about careers, business ideas, money and more. A committed Christian, he lives in Atlanta with his wife and two teenage kids.

Kevin

With backgrounds in both accounting and the mortgage industry, Kevin Mercadante is professional personal finance blogger, and the owner of OutOfYourRut.com, a website about careers, business ideas, money and more. A committed Christian, he lives in Atlanta with his wife and two teenage kids.

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