Negotiate for monthly payments
Most car salesmen will try to negotiate the monthly payment with you, not the car price. This is a costly trick. If the unscrupulous dealer focuses on monthly payments, he can obscure the price of the car. This will force you to get out your calculator to double-check the monthly figures. So, if it’s possible, negotiate for the car price. And you must know the price you can afford before you go into the dealer. Once you know the price you want, then negotiate for the monthly payment. If you got your loan through your bank or credit union, they will have already worked out a payment schedule anyway.
Bait & Switch APR
Does this sound familiar? You trade-in your old car, sign a contract with a good APR, and drive off the lot happy with your new car. Then, unexpectedly, you get a call two weeks later from the dealer saying, "Uh oh, the bank didn't approve your APR. That means we have to add $1,000 to the price, and you'll have to pay an extra $50 monthly."
The dealer may be pulling a scam. He probably knew from the get-go that you wouldn't qualify for the rate he promised. Just like your bank, dealers know what interest you qualify for. But he sold it to you anyway at that low APR because in the contract it states “subject to loan approval.” So, now that you have the car, and have driven it around for two weeks, what can you do?
Head this problem off at the pass by not financing at the dealer. Get financing from your bank or credit union. If you can't, get a cosigner with strong credit, save for a larger down-payment, or buy a cheaper car.
Loan Guaranty
Most dealers will promise you that it's no problem if you default on your loan — they'll pay it back for you. This is sugar-coating the brutal truth. As you probably know, you cannot back out of a loan because it is a contract. If you do break the contract, the penalties can cost you thousands of dollars and damage your credit rating. Then, the dealer pays off your bank loan, so you know now owe him — which is worse.
Additional Dealer Markup
As you can probably tell, dealers like to use tricky language to tell you that something is necessary or required. "Additional Dealer Markup" is one. The MSRP is what matters. Additional Dealer Markup is pure profit for the dealers.
No Rebate
There are many variations to this scam. You are promised a rebate for your car, and everything looks fine. But make sure you double-check the contract and the payment schedule. The dealer will attempt to make up the rebate in other ways.
Extra Warranty
Some dealers propose you buy an extra warranty. Before you say yes, you should ask yourself “why would I need an extra warranty?” Sometimes dealers say that the bank requires it — not true. Why would a bank that's already loaned you thousands of dollars want you to spend even more money on a warranty? It will only make it harder for you to pay back the bank's loan.
While a warranty sounds great, remember it will cost. Also, focus on the details of the warranty. What does it really protect you against? Or is it just hollow protection? Also, most cars have warranties anyway. Why add another one that adds little and costs a lot?
Leasing Option
If you’ve done your car buying research, you will know the Manufacturer’s Suggested Retail Price (MSRP) before you step foot on the car lot. If you do, you’re in a good position to negotiate price with the dealer. So, the dealer will try to get you to think about leasing. Why? Because the dealer assumes you don't know much about leasing and can charge you more for the vehicle. What’s more, a monthly lease can also obscure the price of the car. If you know you want to purchase a car, don't even discuss leasing — period.
Next step: Technical Tricks
