How to Buy a New Car from a Dealership (and Get the Best Deal)

If you’ve ever walked into a car dealership, you know what it feels like. You’re surrounded by gleaming new cars and – unless you have a lot of experience with both cars and negotiating tactics – you might feel that you’re at the mercy of the salesperson who assists you.

We understand that feeling. At Addition Financial, we work with members who want to know how to buy a new car every day. We strive to make our advice as practical as possible, so our members can go into the process armed with the guidance they need.

We reached out to some experts and did some research to provide you with the information that will help you learn how to buy a car from a dealer – and get the best possible deal for your money. Here’s what you need to know.

Research Your Options

You know the saying “Knowledge is power.” It applies to buying a car as much as it does to any other area of life.

When you’re buying a new car, you should think carefully about what you need and which make and model will provide it. Websites such as TrueCar and Cars can help you learn about prices and features and narrow your choices.

You should also read reviews of the cars you’re considering to make sure you understand safety and maintenance considerations. Consumer Reports is a good place to start. You may also want to ask your friends and coworkers for advice, particularly if they have a car you like.

Consider a Less Popular Model to Save Money

When you’re considering which car to buy, one thing that might surprise you is that you can save money by choosing a model that’s not as popular as others. As of 2020, the most popular vehicles in the United States are SUVs and crossovers.

While people are still buying cars, they have experienced a decrease in popularity. That means if you’re willing to buy a sedan or a compact car, you may be able to get a more advantageous price as a result.

Does that mean you can’t get a good deal on an SUV or truck? Of course not, but it does mean that you might need to negotiate a bit harder to get the price you want.

Get Pre-Approved for a Loan

Most people know they can get pre-approved for a mortgage and that they have more bargaining power if the buyer knows they can get the loan they need. The same is true with car loans – to a point.

Lauren Fix, aka The Car Coach, says this about pre-approval:

“Regardless of your credit rating, you should definitely shop around for the best interest rate from a bank or credit union before [you] go to any dealership. If you absolutely must finance through the dealership and you have less than stellar credit, don’t admit you think your credit is poor. This could make them think you’ll agree to a higher interest rate. When it comes to financing with the dealership, make sure the number of years and final purchase price on the contract are what you were expecting.”

Chris Chevalier from Clever Consumer adds:

“You need to have pre-approved financing in your back pocket when you negotiate with a dealer. See what they offer before you tip your hand. Then use your financing options as leverage to try to get better terms. If they can't beat what you have, that's fine, you already have a viable option.”

The takeaway here is that you shouldn’t walk into a dealership and wave your pre-approval around. Pre-approval puts you in a strong position, but by keeping your loan status in your pocket for a while, you may be able to get a lower price before the dealer knows you already have a loan lined up.

The Vehicle Evaluation & Auto Loan Comparison Worksheet

Prepare to Negotiate

Most of us are accustomed to walking into a store and paying the marked price for the items we want. At a car dealership, though, if you pay the sticker price then you’ve left money on the table.

We recognize that negotiating a price may be intimidating if it’s not something you do every day. Here are a few things to avoid saying from Lauren:

  • I don’t know anything about cars. It’s important to do your research and negotiate from a position of strength. It’s never a good idea to admit you don’t understand cars, because it puts the salesperson at the wheel for the entire negotiation.
  • I need a car today. Again, you want to enter the negotiation with the upper hand. If you need a car, a skilled salesperson will see that admission as an opportunity. You should be prepared to walk away without a car if you can’t get an advantageous deal.
  • I really love this car. Admitting that you’ve fallen in love with a vehicle lets the salesperson know that you might be reluctant to let go of it.

So, what should you say? Here are some suggestions:

  • I’d prefer to keep the trade-in on my current car separate from negotiations for a new car. This lets the salesperson know that you won’t be drawn in by an attractive offer that they might then use to drive up the asking price on a new car.
  • I’d like to see the invoice. Sometimes, salespeople tell you that “everybody” pays for something. The vehicle preparation fee is an example – but if the manufacturer doesn’t charge for it, you shouldn’t be paying for it.
  • That’s not going to work for me. This is a phrase that lets the salesperson know you’ll be willing to walk away without a car. That’s the last thing they won’t, so don’t be afraid to use this phrase if you’re not happy with the way things are going
  • No. This is a simple one, but it’s ideal when a salesperson tries to convince you to pay for rust proofing, sealant or anything else that you might be able to get more affordably somewhere else.

Salespeople expect car buyers to negotiate and that means there’s always some wiggle room in the price. Going into a negotiation armed with some information and negotiating tactics can help you get as close as possible to the dealership's walk-away price, and that’s what you want.

Avoid Dealer Financing

Related to getting pre-approved for a car loan is the issue of dealer financing. Dealers tend to charge higher interest rates than credit unions because they can earn money that way – even if they cut the price of the car to get you to buy it.

Mason Miranda of Credit Card Insider says:

“Many dealerships are starting to offer their own in-house financing, instead of having outside banks or lenders do it for them. Oftentimes, these financing options can have extremely high interest rates, so make sure to do your homework beforehand. The lower the interest rate, the less money you pay in the long run, and the better your finances turn out.”

As a reminder, you should try to avoid talking about financing until you negotiate a price for the car you want. A dealership may reduce the price if they think you’ll get financing with them and keeping your approval status out of the discussion can help you with negotiations.

Know the Pros and Cons of Paying Cash

It’s common for people who offer advice on buying cars to suggest paying cash as a way of getting a better price. That’s a tactic that can work, but you’ll need to be careful if you want to avoid overpaying.

Mason says:

“One of the best ways to buy a car and save money on that car is to buy it outright in cash. Most dealers love this because they don’t have to go through the hassle and paperwork of getting you set up with a loan. If you buy in cash, some dealers will even be willing to negotiate a lower price.”

But, Lauren adds:

“Don’t tell the salesperson too early that you intend to pay cash. If dealers assume you’re going to finance the car, they may offer you a better price because they’d make up the difference with the in-house financing. Breaking the news to them later in the process could save you quite a bit of money.”

In other words, the same negotiating tactics apply with a cash sale and a pre-approval. If you play things carefully, you can get the salesperson to reduce your price before you reveal that you don’t need financing from the dealership.

Be Prepared to Walk Away

One of the most important negotiating tools in any sale is a willingness to walk away if you don’t get the price you want.

Rebecca Hunter of The Loaded Pig says:

“One of the best ways to prepare for a negotiation is to do thorough research on the value of the car and decide on your ideal price and walk away price before beginning the negotiation.”

Knowing your “walk away” price is crucial. You may want to start by using our free calculator to determine the maximum amount you can afford to borrow.

Keep in mind that borrowing the maximum you can afford might not be the best choice, particularly as the COVID-19 pandemic is far from over in the United States. If you’re worried about financial insecurity or job insecurity, then you may want to build some wiggle room into your evaluation. That way, if your income is reduced, you may still be able to afford your car payment.

Whether you’re buying your first new car or you’ve already bought several in your lifetime, it’s essential to negotiate from a position of strength. That way, you can get the best deal possible for the car you want.

Ready to buy a new car? Click here to read about Addition Financial’s flexible auto loan options now!

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.


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