Buying a car from a dealership can be an exciting but daunting experience. With all the options available, it can be overwhelming to make a choice that you won’t regret. That’s why it’s important to prepare yourself before visiting a dealership. Whether you’re buying a new or used vehicle, being informed can help you get the best deal. Here are some tips to help you ensure a successful deal when buying a car at a dealership.
Key Points
- Before visiting a car dealership, research the car’s current value, reviews, and reliability to make sure you’re getting a good deal.
- Car prices are often marked up, so don’t be afraid to negotiate.
- Look out for any unnecessary fees or services that you can take care of at a fraction of the price on your own.
- Compare financing options to see where you can get the lowest rates and best loan terms.
- Whether buying new or used, always test drive the car and get a mechanic’s inspection, if possible, to avoid unpleasant expensive surprises.
Tip #1: Set A Budget
Always crunch the numbers before starting the car shopping process to find out exactly what you’re able to afford. There’s no sense in looking at cars that fall outside your price range. The best way to find out what your price range is would be to set a budget.
Budgeting Monthly Vs Total Price
When buying a car, you should consider both monthly payments and the total price of the car. Each one will give you a slightly different perspective on how much you can afford to spend.
- Monthly Budgeting: Your monthly budget tells you how much you can afford each month in car loan payments, as well as other monthly car expenses, like gas, maintenance, and insurance. This ensures that the vehicle cost fits into your overall monthly budget. But only focusing on monthly payments won’t necessarily give you the full picture of how much your car will cost you over the loan term.
- Total Car Cost: Calculating the total price of the vehicle considers the overall cost, including the purchase price, interest costs, and any additional fees. Taking this approach, in addition to understanding your monthly budget, can give you a clearer picture of the true and overall cost of the vehicle so you can avoid paying too much for a car purchase.
Taking both perspectives into consideration can help you make a more informed purchasing decision.
How Much Car Can You Afford?
There are a handful of ways to calculate how much you can afford in a vehicle purchase. One of the more common strategies is the use of the 20/4/10 rule. This tactic involves making a 20% down payment, opting for a 4-year loan term, and ensuring that your car loan payments take up no more than 10% of your net income.
20% — The Down Payment
While you can make much smaller down payments, putting down at least 20% of the car’s purchase price is ideal for a couple of reasons:
- Smaller Loan Amount: A bigger down payment means a lower loan amount, which means less debt and lower monthly payments.
- More Equity: Making a down payment of at least 20% can help minimize the risk of falling victim to vehicle depreciation. In this way, you reduce the risk of owing more on your car loan than what your car is worth.
4 Years — The Loan Term
You have options when it comes to how long or short you want your loan term, but choosing a shorter term can protect you from negative equity and reduce the amount you spend on total interest. Plus, lenders often offer lower rates on shorter terms. So, a 4-year car loan term should be the longest term length to keep your loan payments within affordable limits.
10% — The Percentage Of Your Income
Ideally, your car loan payments should not take up any more than 10% of your net income. This can ensure that you don’t deplete your finances.
| Don’t forget to budget for additional costs: – Fees. Lenders may charge additional fees, including originating and administrative fees. – Sales Tax. You’ll need to pay tax on your vehicle purchase. The amount you have to pay depends on what province you live in and whether you’re buying from a dealership or a private seller. – Gas. The amount you spend on gas depends on your vehicle type, the type of gas you put in (ie. regular versus premium fuel), and how much mileage you put on your car. – Maintenance. Regular car maintenance is important to keep your car in good condition and make it last long, but can cost a few hundred dollars or more every year. – Potential Repairs. Keep a fund set aside to cover the cost of repairs, which typically occur when you least expect it. |
Tip #2: Watch Out For Dealers Who Ask Your Monthly Budget
- Dealers will often go over your budget by asking how much you’re willing to spend each month instead of how much you’re willing to spend on the car. This can be dangerous as, these dealers can make expensive cars “affordable” with monthly budgets by offering longer terms.
- They offer a loan with smaller and supposedly more affordable payments. Soon after, you’re locked into a longer-term than you were expecting.
- To make you feel better, you’re given a lower interest rate to compensate for the lengthy-term. Longer terms lead to more interest and fees overall.
- Suddenly, you’re paying more for the car than its market value and you’re “upside-down” on your loan (with negative equity).
It’s best to avoid disclosing how much you can afford each month as it’s easy to manipulate an expensive car and higher interest rates to fit your monthly payment. Instead, just let the dealership know the car price range you’re working with, that way they have no choice but to show you cars within your budget.
Tip #3: Do Your Research
You should understand how much the make and model that you’re considering costs. Having this figure in mind will help protect you against any potentially shady salesperson who may try to squeeze a few extra dollars out of you, assuming that you’re an unsuspecting car buyer. But armed with information you’ve already researched, you’ll know a good price versus an inflated price when you see one.
Before you buy a dealership car, be sure to:
- Research multiple vehicles/sellers
- Check the average transaction price
- Consider the accessories you need
- Understand your car budget & compare it to your household budget
Tip #4: Know Your Credit Score
Your credit score plays a key role in the interest rate you’re offered on a car loan. Before financing a car, check your credit score to see where you stand. If your score is a little on the low end, consider giving yourself some time to give it a boost before shopping for a car and taking out a car loan. This can save you a great deal of money in interest payments over the long run.
You can quickly check your crest score for free using Loans Canada’s CompareHub.
Tip #5: Understand Dealership Fees And Add-Ons
Car dealerships often include additional fees in their final price, such as administration fees, advertising fees, and dealer preparation charges. While some fees may be required, others may be negotiated and even left out altogether. Get to know the types of fees that dealerships may add to your price, including those that are required and those that aren’t.
Be wary of unnecessary add-ons, such as extended warranties, paint protection, and fabric protection. Always read the fine print before committing to paying for extra fees.
Tip #6: Find Out The Trade-In Value Of Your Car (If Applicable)
If you already own a vehicle and are looking to trade it in and use the proceeds to put toward the purchase of another vehicle, you’ll want to know exactly how much you can realistically get for your car before visiting a dealership. You can use websites like Kelley Blue Book or Auto Trader to see what vehicles of the same make and model and similar year, mileage, and condition are going for.
Armed with this information, you’ll have more negotiating power to get a fair price for your car with a dealership. You could also consider selling your car privately to get an even higher return.
Learn more: Should I Trade In My Used Vehicle Or Not?
Tip #7: Consider The Best Time To Buy A Car
Timing can have an influence on the price you pay for a vehicle. Dealerships often offer discounts at certain times of the year, whether to rid their supply of old stock to make room for new models, or to boost sales quotas. For instance, shopping at the end of the year or at the end of the quarter may open up opportunities for some deals. Holidays may also be a great time to look for a good price on a car, such as Black Friday.
Tip #8: Look For Manufacturer Incentives And Rebates
Many car manufacturers offer incentives, rebates, and special deals on financing on certain models to attract buyers. Check out the manufacturer’s website for such special offerings, or call the dealership about any promotions that may be currently to boost savings.
Tip #9: Take The Car For A Test Drive
Don’t miss your opportunity to test drive the car before buying it. Pay attention to how smooth the ride is, its acceleration and braking, and how comfortable the interior is. Inspect the vehicle inside and out, especially if you’re considering buying a used vehicle. Ask for a vehicle history report to see if the vehicle has been in any prior incidents.
Tip #10: Compare Financing Options
Car dealerships often offer in-house financing, but you may want to also explore other loan options available, such as those from banks, credit unions, and online lenders. The key is to secure a loan that comes with the lowest rate and best financing terms. To find the best deal, you’ll want to do some comparison shopping with other available lenders.
An online comparison site like Loans Canada can help you quickly and easily compare lender offerings based on your credit score and financial profile. Then, if you so choose, you can bring these figures to the dealer to see if they can match what you’ve been pre-approved for elsewhere.
Learn more: How To Get A Car Loan Pre-Approval
Tip 11. Ask Questions
Take the time to ask the dealership a variety of questions before taking the plunge:
- How was the car’s ticket price determined?
- Can the price be negotiated?
- Has the vehicle been in any prior accidents?
- Is there are detailed vehicle history report available?
- Are there any issues with the vehicle that I should know about?
- Can I have the car inspected by my own mechanic before buying it?
- How has the car been maintained and serviced?
- What’s mileage on the car?
- Is there still a warranty, and if so, what’s covered?
The answers you get to these questions can help you make a more informed buying decision
Tip 12. Check The Car History Report And If It Has A Lien
A car history report reveals essential details about a vehicle’s past. This can include things like previous accidents, repairs, and ownership changes. Armed with this valuable information, you can avoid potential issues in the future and make a well-informed purchasing decision.
History reports may also unveil any title issues. For instance, it may show if there are currently any liens on the title that have yet to be removed. If a lien is discovered on the title, it should be cleared before you carry through with the purchase of the car.
Tip 13. Check The Extended Warranty On Used Cars
Checking the extended warranty on a used vehicle before buying it is important for a couple of reasons. For starters, you’ll want to know how much time is left on the warranty. Depending on when the extended warranty was purposed, there may not be a lot of time left on it, which means at some point soon, you’ll be left with no warranty.
Another reason to check the extended warranty is to verify what is and isn’t covered. Some warranty packages are comprehensive and cover a slew of components. However, other warranty packages may not provide as much coverage. You’ll want to know what components and repairs are covered, which can save you from unexpected expenses.
Tip 14: Lookout For Pressure Tactics
Ever heard the expression, “the deal is only good for today”? You might have because it’s a common way for dealerships to get your attention. Here’s how to avoid such traps:
- Don’t be afraid to say no
- Take time to think about it
- Check other dealerships
- Speak with a financial expert
- Test drive the car & get it inspected by your mechanic
You’re not obligated to buy a car until you’ve signed a contract. There are plenty of affordable vehicles out there, so do your research before agreeing to anything.
Should You Buy Your Next Car Online Or At A Dealership?
Buying a car online or at a dealership both comes with benefits, but your choice depends on your preferences.
Buying A Car Online
Here are some reasons to consider buying a car online:
- Convenience: You can browse the internet and shop from home any time.
- Selection: You’ll have a wider selection of vehicles at your fingertips to check out without having to hop from one dealership to another.
- Price Comparisons: Easily and quickly compare prices of available vehicles across multiple websites, which can help you find the best deal.
- No Pressure: You won’t have to deal with salespeople in person, which can alleviate any sales pressure from potentially pushy employees.
- Delivery: Some platforms offer home delivery, making the car buying process even easier.
Buying A Car At A Dealership
There are a few reasons why you may consider buying your next car at a dealership:
- Test Drive: Since you’re buying in person, you should be able to take the car out for a test drive before committing to a purchase.
- Negotiation: If you’re bold enough to negotiate, dealing with a salesperson face-to-face might work out better for you.
- Instant Availability: You won’t have to wait to have the vehicle delivered when buying from a dealership. Instead, you can just drive it off the lot as soon as you complete the transaction.
Should You Buy A Car From A Private Car Seller?
Buying a car from a private seller may be a good idea, but there are some risks to consider as well.
Reasons To Buy A Car From A Private Seller
Here are a couple of benefits of purchasing your next vehicle from a private seller:
- Lower Prices: You may be able to get a better deal from a private seller compared to dealerships because they don’t have to worry about dealing with overhead costs.
- Negotiation: You might have more wiggle room to negotiate a lower price directly with the owner.
Final Thoughts
If you’re well-prepared and informed, buying a car from a dealership can be a smooth experience. Research carefully, come up with a budget, and compare loan options to make sure you get the best deal.
