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Whether you are shopping for a new car or a used one, you know how overwhelming the process can be. No matter how much research you’ve done, or how hard you’ve bargained, you may still second guess yourself, wondering if you struck the best deal.

Here are five things dealers may not tell you that can save you money on your next car purchase.

Invoice Price Isn’t Our Bottom Line

Most of us know that the sticker price is just a starting point for negotiations. And we may even know to research the invoice price. But most of us don’t realize that even when we buy a car “at invoice” the dealer has plenty of other ways to make a small profit. One of those ways is something called the “dealer holdback.”

According to Edmunds.com, an amount called a “holdback” is 2-3% of either the MSRP or the invoice. After the car is sold, the manufacturer pays this amount to the dealer, hence the name “dealer holdback.” On a $20,000 car, a 2% holdback would be $400.

Ummm, There’s Been An Accident…

Shopping for a used car? Your car dealer may be just as reluctant as your teenager to mention that the car’s been in an accident. “When it comes to accidents, it’s don’t ask, don’t tell,” warns Michael J. Sacks,  automotive consumer advocate and director of communications for 1 800 LEMON LAW. A dealer is not going to come out and say a car has been in an accident. You must ask. If you don’t and you find out later, how can you prove the car was misrepresented?”

In addition to asking specifically about accidents, you can check a vehicle’s history through Carfax. “While a Carfax report does not guarantee a problem-free used vehicle, it does help to reduce the risk. Never buy a used car without reviewing its history,” insists LeeAnn Shattuck, Chief Car Chick with Women’s Automotive Solutions.

Low Monthly Payments Are Our Friend, Not Yours

Yes, most of us know that just focusing on the monthly payment, rather than the overall cost of the car, is a mistake. But that’s not stopping us from taking out loans of five years or longer. Experian reports that the average loan term for a new vehicle jumped to an all-time high of 65 months in the last quarter of 2012, up from 63 months in the last quarter of 2011.

The minute you start talking monthly payments with a dealer you’re in trouble, warns Shattuck.

“If you tell the dealer, ‘I can afford $300 a month,’ all they have to do is play with the loan term and get you the payment you want without getting you a good deal on the car.”

The longer your car loan, the more likely you are to be “upside down” on your loan, owing more than the vehicle is worth. That’s especially risky if you drive a lot of miles since the high mileage will also cause the car to depreciate more quickly. “The more miles you drive per year the shorter your loan term should be,” she insists. In addition, interest rates for 60- to 72-month loans tend to be higher. A higher rate combined with a longer term can add up to thousands of dollars by the time the car is paid off.

Your Credit Score Is Different Than Ours

If you’ve checked your credit reports and scores before you started auto shopping (smart move) you may be surprised to learn that the credit score the dealer sees is different than the one you have obtained. Credit.com’s credit scoring expert Barry Paperno explains:

While the typical FICO score predicts the likelihood of any account on a consumer’s credit report going delinquent, auto dealers often use the “auto score” version of the FICO formula to predict the chances of an auto loan — not just any account — incurring late payments.  To do this, the FICO auto scoring formula gives slightly more weight to auto loan-specific information on the credit report, such as auto loan payment history. The result is often a higher auto score than standard FICO for a consumer with positive auto loan history (all things on the credit report being equal), and a lower auto score if there is negative, or a lack of, auto loan history.

Of course, you still want to check your credit reports and scores before you need to finance a vehicle. Ideally, you should check them at least a month before to allow time to fix mistakes you may find on your credit reports. (You can use Credit.com’s free Credit Report Card for an easy to understand overview of your credit, along with your free scores. You can update your Credit Report Card monthly.) In addition, though, you’ll want to shop for a car loan before you set foot in the dealership. If the dealer knows you have already lined up financing, they can’t charge you a higher rate on a loan because your credit “isn’t good enough.” All they can try to do is match or beat the rate on the loan you’ve already lined up.

It Doesn’t Have to Be That Difficult

Dread haggling? Don’t make it harder than it has to be. “The actual process of negotiating a price for a new vehicle is a lot simpler than most people realize,” writes Mike Rabkin, a professional car shopper who walks car shoppers through the process. “It’s all about who you talk to and how knowledgeable you appear.” One strategy, he says, is to bypass the sales person and go straight to the decision maker. That person could go by different names, depending on the dealer: sales manager, general sales manager, fleet manager, Internet manager, etc.

“Whatever you do,” says Rabkin, “make sure you get competing quotes from at least four dealers. To know a good price, you have to know what a bad price is,” he says. “Competition is what makes them more competitive. Even if you don’t plan to shop at other dealers, you have to let them know you are shopping around.”

Other experts agree. “You can buy a car with minimal haggling by calling and speaking to the fleet manager directly,”says Blair Natasi, PR director for MyRedToy.com, an online reverse auction service for car shoppers.

Or find a dealer that is transparent with customers.”The world of car buying is constantly changing and some dealers are finding that less pressure and more transparency helps their sales and earns them enthusiastic customers,” says Edmunds.com Sr. Consumer Advice Editor Phil Reed. “These enlightened dealers realize that many shoppers are well informed and they accept this and are willing to expedite the sales process accordingly. (They understand) how important customer satisfaction is for repeat sales.”

How do you find a straight-shooting dealer? Reed suggests: “You should try to learn as much as possible about a dealership before you give them your business. There is always the BBB to consult. We have dealer ratings and reviews on our site. You can always type the name of the dealership and ‘reviews’ into Google and you will get reviews from a variety of sources. Word of mouth from friends and family is also quite valuable, and it’s not uncommon for friends to refer you to a specific sales person. It’s important, however, to do all of your research on the price of a car, because a referral doesn’t mean you have an inside deal.”

And if you’re still not comfortable negotiating for the best price, you can hire a professional like Shattuck or Rabkin. The car I previously owned was purchased with the help of a professional car shopper and I was confident I got a good deal. I was able to pay it off early and drive it for a long time. My past car I purchased on my own, with help from my hubby, and while I think we did OK, I do wonder if we could have done better.

Image: iStockphoto

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  • Frank

    Credit scoring is a BIG scam to get us all to pay more. I have accounts with the credit bureaus and ALWAYS no matter what I am buying the actual score they give me is much lower when I buy a car, a house, installment loans, credit card, etc. This has been the case for many years with many different transactions I have done. The scores can be anywhere from 50-100 points lower than let’s say what Experian as they claim is your “TRUE FICO” score that they personally report to you and by the way that I have to pay to see. I have an account with them, I know. I think it is about time that someone blows the whistle on these swindlers. Credit scoring isn’t fair at all and we all have the right to know what our “TRUE” FICO scores and other scores are in order for all of us to make the best informed buying decisions.

  • mermaid

    Per my calculator-financing would be “full price” (no warranty?)
    I WALK OUT wo/ signing anything in finance. All 4 in the game surprised.
    Since they pulled my credit (sales promised they would not)
    I asked for a copy! Got a copy of score page had me sign for it.
    (probably for their protection.) I wonder what happens to my info!
    Note they distract by bringing things bit by bit..to sign, play on your time, emotions, tiredness.
    Email and phone call prior to going – “11 miles” on new 2016 Corolla at much
    reduced price!
    Once there-880 miles! (lie #1) I ask what the car was used for, wrong with it..
    Test drove. Sales guy asked how I may pay. (cash or maybe finance) He brings credit form–I say don’t pull my credit (I may pay cash) He assures they just need it signed IF decide to finance-it will be a “soft” credit hit. (my gut thinks different.) He’s back with my credit score – hard hit! (lie #3)
    Brings a Non-Warranty page-I question.He insisted the warranty still applies, but had me sign a “No Warranty” page” since it has over 250 miles. I question that…(lie #4) Sales removes my trade-in lic. plates(Don’t touch or remove from my car till deal is done! I demand they put plates back on..but he threw away the orig. screws)

  • Daniel

    I bought a CPO from a reputable dealer in town and they sold me a structural damaged car that was clearly unsafe according to the body shop inspection. Next time I’ll buy private. I asked before I bought it if it was wrecked before and the sales manager said no as well as the car salesman. So next time I’ll buy private.

  • http://www.Credit.com/ Gerri Detweiler

    They may be correct–they may be required to keep this documentation. But I don’t know for certain.. You may want to take a look at the FTC’s privacy rule as it applies to car dealers and contact the Federal Trade Commission for clarification. Learn about the FTC privacy rule here.

  • sam

    Can i get approved from a car dealership and take the loan and buy a different car from a different dealership ?

    • http://www.credit.com/ Credit.com Credit Experts

      No. When you get financing at the dealership, that dealership is party to the loan. The FTC explains it here: Understanding Vehicle Financing

  • scarhill

    Truth is dealer holdback is intended to reduce the cost of a vehicle to the dealer. As a hidden reduction to cost it is an increase to profit.

    Holdback was set up to reduce the invoice amount many buyers obtain online. As dealers know most buyers look for a price between invoice and MSRP, the hiding of part of the invoice was intended to increase the average selling price.

    Since buyers have caught on to this charade, dealers have now gone to the document fees. Of course, these are not fees and are again an attempt by delears to deceive buyers into thinking they got a better deal than they actually did.

    A smart buyer will always consider holdback to compute a pricing. To not do so is to assure too much was paid.

    There is nothing inherently wrong with dealers attempting to sell at what the market will bear. However little games like holdback and doc fees certainly contribute to the low opinion most people have about car sales people.

  • scarhill

    No fleet manager is going to sell a car to an individual. That is a fallacy. What will happen is a person will get an internet price. That price may appear low and good. It is not. An internet price is just a starting point. Some negotiation is still necessary to get the best price. Anyone who accepts the dealer’s first offer has left money on the table. That applies both to a price at the dealership or obtained via the internet. How much money was left on the table depends on the buyers knowledge. The more you know the less you pay.

  • dre

    I thought i was the only one who saw that idiotic comparison.

  • SeanThomes
  • Dale

    You know I’m so tired of reading all this on car shopping…….I have been in the business for ten years……First thing to know is STOP BEING SOOO CHEAP……Stop listening to these so called pros who say they are professional car shoppers and buyers….I’ll tell you what they really are they were lousy sales people. Two Buy a Honda they are awesome cars and trucks and vans and SUVs. They don’t cheapen their cars by selling them as rentals or giving rebates or 0% That what they do on over priced cars…. Last but not least when you go shopping be nice and reasonable to the sales person Unless they are an ASS…..if so move on and go to the NEXT DEALER

    • https://instagram.com/roaduardo/ Gerry, The Life Of

      You people just HATE consumers to be informed, don’t you. I just love this fit you salesmen throw around all these consumer-protection-type articles. Stop behaving like crooks, don’t tell us consumers to stop being “cheap”. My goodness, do you realize what a sleazy comment that is to make?

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  • Jenny @ Frugal Guru Guide

    It looks like car loans may be the next bubble! I recommend buying what you can save up for with cash, whenever possible. If that means buying a cheap used car, that’s what it means.


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