Home > Auto Loans > The Secret to Beating a Car Dealer

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As players get ready to snap the football in every college and NFL home town in America, baseball builds up to the crescendo of the World Series and duck hunting season is less than 30 days away in some parts of the country, another kind of contest begins in earnest. Wading their way through billions of dollars of ads and eagerly navigating through fields of auto-malls throughout America, consumers are on the hunt for the best deal on a 2013 model, oblivious to the fact that they, indeed, are the prey.

Yes friends, the end-of-summer auto clearances are beginning in earnest as dealerships across the nation fight to “move metal,” making way for the 2014 model year. Dealers are dropping prices and manufacturers are ramping up a new batch of 0% financing deals on many current models.

There’s a whole lot of money floating in that new car smell and tucked tidily in the seats. Never forget, in the world of automobiles, the dealer wins by netting as much of your money as possible. Every deal point needs to be carefully thought out and vigorously negotiated. You win by knowing the rules of the sport and making them fight for every dollar.

While it’s true that getting a good price is a big part of the hunt, the biggest, most important, super-secret strategy to turn the stealth hunter (them) into the prey: stand tough and fight to maximize your dollar throughout the process.

The Loan

If you are borrowing the money, the biggest ticket item will be your car loan. An astounding 80 percent of car buyers finance their vehicle at the dealership. Every one of them is a sitting duck for an aggressive salesman. Dealers have relationships with several banks, including the financing arms of manufacturers, and they earn a fee for every borrower they refer to the bank. The more money you are willing to pay for access to the money, the more money they make.

Getting the best auto loan deal is a two-step process. First, you need to check your credit report and score. You can use Credit.com’s free Credit Report Card to get your credit scores along with an overview of the information in your credit report. If you want to take a deeper dive, you can get a free copy of each of your credit reports, but that’s limited to once a year. If you want regular access to your credit reports, then you’ll likely have to subscribe to a credit monitoring service.

Once you have a solid handle on your credit history, the second step is to shop for a loan. Check with your credit union or bank, other lenders (both online and bricks and mortar) to find the loan with the lowest fees and interest rates. Cutting the dealer out of the process and being pre-approved for an auto loan could save you hundreds, possibly thousands, of dollars.

The Invoice Price

Once you have your finances ready to go, it’s time to negotiate the price of the car you want. Before you visit the dealership, do some research online to determine the invoice price — i.e., what the dealership paid for the car of your dreams, wants or needs.

Secret: when the dealer buys a car from the manufacturer, there’s a “holdback” that usually equals 2%-4% of the total invoice price. Think of it as their vig. After the dealership sells the car, it receives that amount of money back from the manufacturer over the period of a year.

Offer less than the invoice price — unless you’re buying a popular model, in which case the laws of supply and demand favor the dealership — and then use the holdback to walk the price down to something you can live with.

If they give you a hard time about paying invoice, remember there is always another guy selling cars. Even if you drive off the lot without paying a single penny above the invoice price, the dealer has turned a profit. If the dealership won’t sell you a car for invoice, and it’s not a hot selling car, it’s their loss. You’ll find someone willing to do the deal with you. Keep shopping.

The Warranty

New cars come with various warranties. The dealer may try to sell you an extended warranty, often with fine print that will prevent you from actually using it should anything go wrong, according to Consumer Reports, which suggests ignoring such offers entirely.

If you’re buying a late-model used car with low miles, the dealer will offer you a warranty to cover future repairs. Make sure the original warranty is used up first. If it is, bear in mind that warranties offered are usually not great deals, written to cover only things that rarely break, such as the power train.

If you decide you want a warranty, shop around. Before you walk onto the lot, get a quote for a third-party warranty that provides the best coverage for the least money. Compare this plan to the one offered by the car dealer, and be prepared to walk away from whatever they offer. The dealer’s warranty is likely limited and overpriced. Ask what the warranty costs them, and offer that amount.


As surely as the sun rises in the east and sets in the west, the dealer will offer less for your trade-in than it’s worth. Maybe they offer expensive add-ons such as tinted windows, a better stereo, heated seats, a sports package, or etching the vehicle ID number into the windshield. Whatever the case, do your research beforehand to find out what these goodies should cost. Let them know that you know, and insist on cost. Negotiate the price of each item separately.

Car dealers are in business to make money. That’s fair. You have the responsibility to assure they make as little of that money from you as possible. By getting your loan first and then negotiating everything else separately, you’ll have a much better chance of getting the best deal.

Image: Fuse

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  • EricC

    Interesting article. I work in finance at a car dealer. I agree there are dealerships to be wary of, but often times I am able to offer a better rate and terms than a customer’s credit union. If I am not able to offer match or beat their rate I am happy to provide any documents that they need to take to their credit union or bank. The goal is a happy customer that will return and buy again. I am troubled by the author’s statement that customers should be sure that dealer makes as little profit as possible. If you walk into an Apple store would you expect to do the same thing? What would they tell you if you asked them for the invoice on a MacBook and insisted on only paying that amount? Lastly I agree that there are worthless warranties on the market. I only offer one third party warranty and that is because of their payment history with our service department. Call the service department and ask them about the warranty you are being offered. That will tell you everything you need to know.

  • Reighn9

    `This was August last year I walked into a dealer to buy a new car. My credit union told me I had financing, just to bring in the sales order and some other paper from the dealer. I was looking at a 2013 because it was cheaper than the 2012s. The salesman was worthless, knew nothing about the features, wouldn’t, find a car with features I wanted and wouldn’t negotiate price. Others in the dealership located the vehicle I wanted at a distant dealership and had it driven in. I paid invoice plus factory delivery charge plus add-ons. No one would negociate price. The finance manager ran my credit with several banks and each hard inquiry has been counted separately against my score. He did this without giving me the paperwork to take to my credit union.. I still don’t kno what happened to my pre-approval. They did a lot of this in the background without talking to me. I had done my research before going to the dealership as far as MSRP and model/features. I did get the car, but nothing went like you just mentioned or any of my other car buying experiences, and I had done my homework before I walked in.

    • Gerri Detweiler

      Sounds like a really bad experience. Did you consider walking away at some point?

    • see what I did there…

      How could he run a hard inquiry on your credit without you giving up you SSN? Why would you 9if you did..) if you already had preapproved financing elsewhere?

  • Smarter in Las Vegas

    Word of warning if you walk into the dealership with you loan already approved of from a bank or credit union. I almost got sucked in. When I was ready to go pick up my Scion XB, (the dealership called & said it was in and ready to be picked up,) I just needed to come in to sign some papers. I called my credit union & they told me before they could release the $ to the dealership, they needed the dealership to fax over the paperwork, (which the dealership was not doing.) The nice lady warned me, DO NOT sign anything at the dealership. (why should I? … I was paying cash for my vehicle.) More importantly, here’s the scam. You sign the dealership’s paperwork. Buried deep and in small print in the paperwork is a little clause that states that if the dealership doesn’t have it’s money within x number of days, THE LOAN AUTOMATICALLY CONVERTS OVER TO THEIR FINANCIER, (in my case it would have been TMCC.) Once the paperwork is signed, the dealership just sits back (not faxing over the necessary paperwork to your bank or credit union so they can pay the dealership,) they wait until the x number of days passes and ….Voila! Your loan is kicked over to TMCC (or whatever financier your dealership is using ……….probably at a much higher interest rate than you arranged for with your bank or credit union,) and you’re now a customer of TMCC, (or whoever,) per the terms of the contract you signed at the dealership. Slick, yes?
    I called the dealership & told them if they wanted my business to get the necessary paperwork faxed over to my credit union, that I would be coming over to pick up my Scion XB and that I would NOT be signing anything for them. If they didn’t want to give me the car…..fine. There were at least 3 other Toyota dealerships in town & I would head over their way, so they could cancel the deal if they wanted to. I drove over and got my car that afternoon. No further problems. Unbelievable.
    And I thought the salesman was such a nice man! Silly me. Buyer beware. Although I paid $10,000.00 in cash and only financed $7,000.00. Smarter and better still to follow Dave Ramsey’s teaching and don’t borrow, don’t use credit. No borrowing, no credit, no way, no how. Period.
    I repeat, BUYER BEWARE.

    • Gerri Detweiler

      Very important warning – thanks for sharing it!

    • BoxCutter

      Did you know you were buying a Scion xB? THERE’S where you got suckered.

  • Ryan

    Why don’t you a great big article about big box retailers like best buy and Walmart lowering their prices? It’s always the big bad car dealer that sees a customer once every 3.7 years and your worried about them? How about furnature stores…that mattress you sleep on has $700 worth of profit how much did ou beat out of them?

    • Steve

      Good point. We worry so much about the car dealer making money on us but nobody ever questions the huge markup on other household and everyday items they buy.

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