|by Mr Credit Card|
Five years ago, I got our family a used Honda Oddesey and a 10 year old Toyota Corolla. I paid cash for both these purchases. Then about three years ago, Mrs Credit Card had an accident with the Toyota Corolla and I had to replace it. At the end of the day, I replaced it with a Lexus 350 (the 2009 version) and this time, I took a car loan for the sake of it (it was probably the wrong decision and the car will be paid off soon in a lump sum). But I wanted to share this story because I learned many things from my car purchases, from research, getting a car loan, even using a credit card for points! Plus, it’s a Sunday and I do not want to talk about credit cards today (though I inevitably will!). So here is my advice FWIW.
The goal when in the market for a new vehicle is to get the most car possible at the best price possible. Keeping this in mind, I followed a few simple steps to make this happen. I made sure I found out information like MSRP, what dealers paid. When I was in the “purchase mode”, I spent stupid hours just going to various dealers and checking prices and test driving. I talked to my friends and neighbors about the kind of car I was interested in, and I saved time by avoiding models that causes owners problems. I test drove a few different cars so I knew how they handle from firsthand experience. I test drove a Hyundai, a BMW, Volvo, Nissan, Subaru, Ford and numerous models. If there is something that I did not like about the car during the test drive, I knew that I can use this to your advantage when negotiating the final sale price.
Before even walking through the door of the dealership I made sure I knew my facts. This helped me when I started talking money with the sales people. I let them know that I was aware of what their cost was as well as what the manufacturer’s suggested retail price is (MSRP). Knowing this information will help you strike a deal that is somewhere between these two numbers. When I was replacing my Corolla, I wanted to get a crossover, though I did toy with getting a Subaru Impreza (though I later decided that a crossover was the right model for me). Another model I was looking at was the Nissan Rogue. What I did was to look at one of the big authority websites that deal in the automotive industry or the manufacturer’s website, such as Automotive.com. For example, you can find details of the Nissan Rogue and the Subaru Impreza at automotive.com.
One advice I would suggest is to negotiate the purchase price of your new car in terms of total price, not monthly payments, and never mention a trade in before you agree on a price. For the first Honda and Corolla, I intended to pay cash so that was not an issue. But for the Lexus 350, I thought about taking a loan and I had to trade in for my heavily damaged Corolla. For you to get the best deal possible it is important that you stick to your guns on this one. If you start talking in terms of monthly payments then the dealership can do some things with financing that will ensure that they get the best of you in the deal. Also, it may be a good idea to get financing from an outside source, not the dealership. This I did not do though oftentimes you can find car loans with a lower interest rate if you use a third party. But I did let the salespeople know this so they are forced to deal with you in terms of total purchase price. Of course if you get financing through the dealer they may be able to help you out more on the car’s price since they’re making money off the loan too. What was interesting was that I found out my credit score as they were getting me approved! (score was 793).
After I agreed on the total price of the new Lexus, I felt it was now okay to present them with my trade in. By dealing with the trade in after I have negotiated the price of the car, I was ensuring myself that I was getting the bottom line price for the car as well as a good deal on my trade without running into any funny business. If you negotiate the trade in price at the same time as the new car price you give the salesperson the opportunity to play with the numbers of each. Know what the Kelly Blue Book value of your trade in is also super important before you start the negotiating process (though in my case, my damaged Corolla probably did not affect the trade in price too much)
Now for the interesting part. Given that I’m Mr Credit Card, I always try to use my credit card for all my purchases. But because of the interchange fee and the fact that cars are a large purchase, dealers loath their customers using credit cards. For the first two purchases, the Oddesey and the Corolla, I used my credit card to pay for part of the purchases. Both dealers allowed me to pay up to $5000 with a credit card. Technically speaking, this was against the rules of Visa, MasterCard or Amex. But I had sympathy with the dealers since I bargained hard and interchange fees will be substantial for such a high purchase price.