Tips And Advice

Negotiating the Price

You probably already know what kind of car you want to buy and you can research and estimate, taking into consideration demand and availability, what you’ll most likely pay for that car. Once you have a figure in your head, come up with the following four amounts:

• Negotiation start price. Start low and end up somewhere between where you started and what the salesperson tells is the best he can do.
• A price that you can afford. All things considered, this is the price that you would be happy to pay. Assume the price you pay will be closer to sticker price than to invoice. Certain options that you haven’t considered might have been added to the cars on the lot or you may want to add other options later.
• The maximum that you will spend. The amount that you will absolutely not exceed and should be kept to yourself.
• The maximum that you tell the dealer you will spend. The dealer will ask you what you are willing to spend and will automatically assume the number you give them is at the low end of a range.

You should also have an idea of what kind of loan interest rates you are qualified for when you are at the dealer. We have some tips for getting better car loan rates from a dealer. Timing is important too. When you schedule a car loan application is an important consideration at the time your credit score is calculated.

Monthly Payments

Salespeople will try to steer you into discussing how much you want to spend in monthly payments and stretching the term of the loan to meet your monthly goal. This will distract you from the overall cost of the car and the loan.

If you do get into a discussion of monthly payments make sure that you are aware of how much more the total price of your vehicle will be. Here’s an example. You borrow $10,000 for 48 months at 8% interest. The monthly payment on that loan is $244 a month and the total cost of your car will be $11,718. If you decide to stretch that loan out for another year your payment decreases to $202, but the total cost goes up to $12,165. Go ahead and try different scenarios with our car payment calculator.

Another thing to keep in mind with a longer term loan is that you are “upside-down”, you owe more money on your car than it’s worth, for a longer amount of time. This isn’t much of an issue if you are sure that you are going to keep the car for the entire length of the loan, but if you decide to sell or trade it in before its paid off, then you will have to finance the new car and the difference between what you owe on the old car and what it is worth.

Incentive Offers

Auto incentives, such as zero percent financing and rebates, are usually offered nationwide and for a specific period of time. Low interest rates are usually only available to those who have the best credit, so you might not qualify for zero percent, but other low interest rates may be available. Do your research and find out about manufacturer rebates for specific models in which you may be interested.

Trade-in Value

If you want to trade-in your current car, it is imperative that you research how much it is worth using Kelley Blue Book and several other sources of used car values. The values may vary and you want to be as informed as possible for the negotiation process.

Selling your car yourself will generally get you more money for the car than trading it in, but many people don’t want to deal with the hassle of selling a car privately. Go to several used car dealers and see if you can get them to make you an offer in writing for your car. You can use that information to negotiate the trade-in value of your car when you go to buy a new car.

Know Your Credit Score

You cannot effectively negotiate the purchase price of a new car if you don’t know your credit score and what is on your credit report. Before going to the dealer, get your free credit report and make sure the information is correct.

Credit Score Calculation

Below are the five items that are used in calculating your credit score.

• Do you pay your bills? Thirty-five percent of your credit score is about whether or not you pay your bills on time or at all. Late payments, bankruptcy and collections are all part of your payment history and will affect your credit score.
• How much do you owe? Thirty percent of your credit score is your debt level. If the amount of debt you have is close to your credit limits this will negatively affect your credit score.
• How much credit history do you have? Fifteen percent of your credit score is made up of how much credit history you have. The more you have the better it is because it gives more information about your spending habits.
• Have you applied for credit recently? Each time you apply for credit an inquiry is added to your credit report. This accounts for 10% of your credit report. Too many inquiries could mean that you are in a lot of debt or financial trouble.
• What kind of credit accounts do you have? A mix of loans and credit cards could slightly improve your score, but too many accounts overall could hurt.

Understanding how your credit score is calculated is important, especially when you are applying for a car loan. Car buyers with bad credit often have misconceptions about how their scores are calculated. To learn more, read our article on three common misconceptions about bad credit.

Credit Report Errors

If you discover an error on your credit report, then send a letter to the consumer reporting agency telling them what you think is wrong with your report. Include in your letter copies of any documents supporting your claim. Send the letter by certified mail with return receipt.

The consumer reporting agencies have to investigate your claim within 30 days. They will forward the documents that you provided to the company that provided the information for the disputed portion of your credit report.

When the investigation is complete the reporting agency must notify you in writing of the results and a free copy of your report if the investigation resulted in a change of your report.