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In the past, car dealers were able to maximize their profits by keeping most of the figures in a sale a secret, and charging consumers whatever they could convince them to pay. Since financing a car is somewhat like obtaining a home mortgage, the purchase of a vehicle includes many variables (trade-in value, interest rate, financing conditions, and multiple fees). So by the time the sale was done, customers didn't even know how much they were really going to be paying over the life of the loan for the car they bought.

Establishing Pricing

Things have changed. In recent years, Web sites such as Edmunds began publishing the invoice prices of cars and reaching a large segment of the car-buying public at the same time. Now, smart shoppers can research the invoice prices of the vehicles that interest them, add a 2% or 3% profit, and make a dealer a firm offer without confusion about which money is for the car and which is for the loan.

Internet Sales

This new type of educated consumer has led some dealerships to create "Internet departments" where buyers can bypass the showroom sales pitch, contact Internet salespeople (either by phone or e-mail), and request a bottom-line quote for a model they have already researched. If a potential buyer is dissatisfied with the quote, it is easy to move on to another dealership―and nobody's time was wasted.

Even today, the traditional car salesperson uses many psychological tactics to entice customers into the showroom, hurry them toward a commitment to buy, and then sell the vehicle to them at the highest possible price. By way of contrast, for an Internet department, it is more important to sell several cars than it is to realize a huge profit from the sale of an individual car. As a result, the initial price quote you will receive from an Internet sales manager could be very close to the rock-bottom selling price for that model.

The Internet advantage works for buyers of used cars, too. Like Edmunds, venerable sites Kelley Blue Book and the National Automobile Dealers Association let you plug in the year, make, model, mileage, features, options, location, and condition of a used car you're looking into. Then they instantly tell you what the resale value is in your area. You can use this information to haggle with the seller if you think they're asking too much.

Take Care of the Financing Yourself

The dealer financing costs can eat into any discount you may have gotten by working through an Internet department. To avoid this, consider arranging the financing for your vehicle ahead of time through your own lending company.

Even if you shop on the Internet, you can have your own financing in place before you make a purchase. Your credit union or local bank is a good place to start, or you can borrow against a line of credit if you have equity in your home.

How Much Can You Afford?

Start by considering what car payment would fit your monthly budget and what you can afford as a down payment up front. For used cars, plan on spreading the purchase price across a 36- or 48-month loan.

Once you add the down payment with the total amount of the loan you've decided you can afford, you will know what you can pay for a car before interest, along with taxes and fees. Then, compare interest rates at the lending institutions mentioned above for identical-term loans and decide where to apply.

Next, using an Internet payment calculator, plug in the estimated price of the car you can afford and the best interest rate you have researched, and adjust the numbers until you reach the monthly payment you already established.

Prearranged financing will give you a definite advantage because you will be able to:

• Simplify negotiations when you go to the dealership.

• Study competitive interest rates ahead of time, instead of relying on financing from the dealer.

• Stick to your budgeted amount more easily.

Pricing a Used Car

Generally, there is a sharp decline in a car's value during the first year of its life―as much as 20% or 30%. A car that was worth $30,000 when it was new can be bought 12 months later for as little as $21,000.

By buying used, a wise shopper can get more car for less money. In addition, buying a used car that is still under factory warranty can offset much of the uncertainty you might otherwise feel.

Another way to make sure the used car you're buying is in good shape is to order a vehicle history report through The Unofficial DMV Guide. When you enter a car's vehicle identification number (VIN), you will get a report of the vehicle's history, find out how many owners it has had, and discover whether it has ever been in an accident, declared salvage, stolen, used as a fleet vehicle, and much more.

 

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