Dealers are sneaky and you can never really beat them. You are, after all, on their turf and they sell hundreds of cars a month while you buy one every 3 years or so. It’s just not going to be a fair game. That said, there are some tricks you should know about.
Take a look at some sneaky ways that dealers make extra money above and beyond the price of the vehicle. Any one of these tricks could cost you hundreds or thousands of dollars and drive up your monthly auto loan payment.
This has always been a big money maker for a dealer and a good reason that you should probably secure financing before you visit a dealer.
What the dealer does here is tack on a percentage to the interest rate that they offer. So, they might present you with an 8 percent rate from a bank but that is just the “sell rate”. The “buy rate” might have been just 6 percent. That extra couple of percent in interest goes right into the dealer pocket.
If you do not arrange financing before going to the dealer, assume the rate that they present you has anywhere from 1 to 3 percent added to it. This can be negotiated.
When you get back into finance, most dealers are relying on the fact that you just want to get out of there. Don’t be in such a hurry. Tell them that you can not accept a rate that high and that they are going to have to do better. They are not just going to blow up the deal, they will give you a speech about how “this is the best the bank can do”, but be firm. They will usually come back with a better offer.
GAP insurance is a great thing, especially if you are putting little to nothing down on a vehicle. Without it, if you had a total loss, you could be on the hook for thousands of dollars that your auto insurance does not pay. Remember, your insurer pays for what the vehicle is worth, not how much you owe.
Like everything else though, GAP is negotiable. They might come at you with a policy for 800 dollars when it really cost them just 500 dollars. If the offer seems high, do not be afraid to send it back.
Before you go to the dealer, you should also look into pricing for GAP insurance. You can get it without the dealer and your insurance company might even offer it.
This is a huge one. A dealer might make 1000 dollars just by selling you an extended warranty.
If you are buying a new vehicle, there is almost no reason at all to buy an extended warranty. You already have a factory warranty and you can buy an extended warranty later, just before the factory one expires. Why pay interest on a warranty for the life of the loan when you do not even need it for 3 years?
If you happen to get talked into a warranty, remember one thing. You can typically cancel that warranty for up to 30 days. The money that you paid for it would then be refunded to the loan.
An extended warranty can actually be a great negotiating tool if you want to be crafty. Use it to negotiate the interest rate, for example. Tell them that if they can get you a 2 percent less rate, you will buy a big extended warranty. Then, all that you need to do is cancel the warranty before 30 days is up.
Dealer Add Ons
You find a great price on a used car, go down to the dealership and start negotiating. Soon, you realize that the actual price is thousands of dollars more than advertised. Why? Dealer Add Ons or Dealer Adds.
Some common examples of dealer add ons are tint jobs, vehicle etching and even nitrogen in the tires. The dealer pays for them and then drastically increases the price. They might get a tint done for 100 dollars and charge you 500 bucks. A nice and easy 400 dollar profit.
Dealer add ons can be very frustrating, but they can often be negotiated. Realize that the dealer is out for some money for them, but nowhere near what they are charging. Never be afraid to refuse the add ons.
If all else fails, walk out. There are plenty of dealers who do not use these sneaky tactics. If they use the dealer add on trick, you would probably be in for a roller coaster ride the whole time.
Trade In Value
Never assume that the dealer is going to give you a fair price for your vehicle, because they will not. This one is on you though, you have got to be ready to haggle and you have to have information on hand.
Before you visit a dealer, run the used value on NADA.com, Carfax.com and KBB.com. Carfax is very popular these days, but the dealer will usually use whichever one comes out to the cheapest price. That is not to say that they will offer you that full amount though.
Expect your dealer to offer you at least 10 percent less than they are willing to pay. If your trade in is worth 20,000 dollars, they will take off 2000 dollars and offer you 18,000. This is at most, some dealers are even worse at this.
Negotiating the cost of your trade is part of the deal, so be prepared to go back and forth. Ideally, you should not accept the first or second offer, keep pushing.
As you can see, there are a lot of ways for a dealer to make money on an auto purchase. In many cases, they can even sell their vehicle at a loss and still come out ahead thousands of dollars.
You should never expect to truly “win” an auto purchase. The dealer has too many tricks and too much experience. They will always make money on a vehicle sale. Your goal is to cut their profit down as much as possible so that you end up paying as little as you can and get yourself a cheaper auto loan payment.