So You Want to Buy a Car…

Car dealerships will make it incredibly easy for you to buy a car. That’s their job, after all. You could walk into a dealership right now and drive off the lot in an hour. Because dealerships are so great at selling cars, it’s important to understand what you should plan for when purchasing a vehicle and what you need to discuss at each stage of the car buying process. This article will walk you through some things you should consider when purchasing a car at a dealership.

The Planning Party

Before you even set foot in a dealership, your first step is to determine how much you can afford to spend on a car. You may see a car as a simple tool to get yourself from Point A to Point B. If this is your attitude, your car-spending target should be a very small percentage of your annual income—10% or below. For most people in this group, that would mean an older used car with possibly high mileage, and you’d probably be paying for it outright with cash.  The frugal option, however, may not always be the most reliable, so you might consider flexing this as high as 20-25% of your annual income.

Note that these percentages may rule out many new cars, right off the bat. If you’re really pushing for something outside of this range, ask yourself some tough questions about the value you place on your vehicle. Do you see it as a status symbol, or are you truly a car person? How much value do you get out of owning or driving what is essentially four wheels and a seat for you and your passengers? I admit to being a “car guy,” and I chose to spend more on my vehicle. But I’m guessing for many of you, that won’t be the case if you stop to think for a moment.

Once you’ve determined an overall price point, find a model, preferably several, that fit your price point and needs. Visit a dealership; take the car(s) for a test drive; compare options, and compare baseline MSRP pricing. Don’t go any further than this.  

Dealers will try to sell you right then and there, and it can be incredibly tempting when you’ve just finished a test drive and the salesperson claims “that’s the only car left on the lot like it!” Tell them you’re evaluating all your options, and don’t make a rash decision without getting behind the wheel of all of the cars you’re interested in. I strongly advise not giving out your contact information. Tell the dealer you’ll be in touch when you want to move forward.


With enough planning and test driving, you’ve likely narrowed down your choices to a few select models. It’s time to determine how much you’re going to pay. At this point, you are negotiating the “out-the-door” price on the car (the full price you’ll pay on the car including all fees, taxes, etc.). Do NOT discuss the following:

  • the trade-in value of your car
  • your down payment
  • monthly payments
  • financing

There are various ways to go about negotiating the price of the car. You could simply call various dealerships in the area, and ask for their best prices. You could visit in person and haggle. Here are a couple of common tactics:

The Online Shopper

Once you’ve narrowed down the model(s) you’re interested in, solicit and compare quotes online from dealerships within a reasonable area. I used a 2-hour drive as my baseline when I purchased my car, so I was looking at dealers in my hometown of Charlottesville, VA, as well as Staunton, Waynesboro, and Richmond. The wider your radius, the more cars you’ll have to choose from.

Getting quotes is as easy as e-mailing dealerships and inquiring about listings they have on their website. Be transparent in telling dealers that you’re soliciting quotes from others in the area, and you’re looking for their rock bottom price. I like this strategy because, frankly, I find it difficult and stressful to negotiate in-person, and we live in a digital age where it’s easy to take advantage of fast communication like e-mail.

Give An Ultimatum

Using websites like TrueCar, determine what you feel is a fair price to pay for your car. Walk into the dealership, and demand that price. Then refuse to back down.  Be prepared to walk out—possibly multiple times—if the dealer can’t meet that price. They’ll hem and haw about looking at monthly payments or trade-in values, but you should stand firm. Insist on a commitment to your out-the-door purchase price before you negotiate further. Once you’re happy with the price, you can move forward with financing and other purchase factors.

Your Trade-In

At this point, you have your out-the-door price. If you have a trade-in, now is the time to discuss its possible value. Salespeople will often ask whether you’re trading in your car before they begin to discuss pricing, but you should dodge this question. It’s too easy for the salesperson to muddle together your trade-in value and purchase price in a way that looks favorable to you, but really isn’t.

Note that the dealership will want to look at your trade-in and possibly take it for a drive, so it’s better to start locally before driving further away. Another important tip is that if you’re located in a smaller city, the trade-in value at larger dealerships may be significantly more. My recent trade-in was valued at $9,000 locally, whereas a larger dealer an hour away offered me $12,500.

Your Down Payment

Consider how much you want to put down to help offset the cost of your car. A good rule of thumb is that your trade-in value plus your down payment should be greater than 20% of the out-the-door price of the car. If you can’t meet that 20%, it’s certainly not the end of the world, but you should ask yourself some tough questions about whether you can truly afford the vehicle or not.  Furthermore, if you aren’t able to put 20% towards the purchase of the car, and depending on how risk averse you are, you should consider gap insurance.


At this point, most of the headache and pain (to some of us, excitement) of the car buying process is over. We have numbers! You know the out-the-door cost of the vehicle you’re purchasing, the value of your trade-in, and how much you want to put down on the car.

Notice how at this point we have practically no idea how much we’re going to pay per month on this car? That’s a critical (and good!) thing. The most common tactic dealerships use when negotiating the price of the car is how much your monthly payment are. For example, they may extend your loan term by a year but drop your payments by $50. Sure, that’s a lower monthly payment, but you’ll end up spending much more in total on the car.

The reality is that you can finance your car for as long or as short as you’d like, and the monthly payments will vary based on that. But you should only start considering the loan term once you have firm numbers. If you can afford more each month, finance for just two or three years. You’ll likely get a better interest rate out of a shorter term, as well. If you’re looking at a loan term longer than five years, that’s a sign that you may be looking at a vehicle you really can’t afford.  

Pre-Approved Financing

I would recommend securing pre-approved financing from a bank or credit union with which you have a good relationship. Assuming you’re approved, they’ll mail you a check that you can present to the dealership when you purchase. The pre-approval will generally be good for at least 90 days, giving you plenty of time to determine from which car to purchase and where to buy it.

Financing Through the Dealer

Even if you’re pre-approved, it can be worthwhile to hear a dealer out when it comes to financing. Note that it will cause another hard pull on your credit report, but two hard pulls for a rare purchase like a car isn’t so bad, especially if they’re pulled within a short timeframe.  If you have a pre-approval in hand, you may be able to negotiate for better financing if they can’t match your rates. Surprisingly, when I financed my car, the dealer was able to beat the credit union pre-approval that I brought with me.

Common Questions

What is gap insurance?

Gap insurance pays out the difference between what you owe on the car and what your insurance company would pay if you totaled the car tomorrow. The easiest way to explain it is to use an example.

Say you purchased a $20,000 car without a trade-in or down payment (this is a bad idea!). Immediately after you drive it off the lot, the car will depreciate, generally by around 10%. You now have a car worth $18,000 and a loan of $20,000. If you totaled the car the next day, that $2,000 difference would come out of your pocket. Gap insurance covers this. If you’ve put up a reasonable down payment, there should be no need for you to obtain gap insurance.

What are all these fees?

There are many fees that you’ll just have to pay; they’re part of the sale of the car. Things like registration fees and sales tax are levied by the state and are beyond negotiation. Then there are dealer-related fees, like the documentation fee (“doc fee”), advertising fees, or just general dealer fees. These could be negotiated, depending on the dealer. I’ve found that local dealerships are easier to negotiate with when it comes to these fees, where larger chain dealerships won’t budge due to stricter policies. These fees should all be factored in your out-the-door cost, but asking for a breakdown will help you compare dealer fees, which can sometimes differ by hundreds of dollars!

Finally, a tip: Don’t buy the first year of a vehicle’s production run. In fact, you should strongly consider not purchasing the entire first generation of a vehicle, if you can avoid it. Manufacturers will still be working out engineering details and tolerances, and reliability can be hit-or-miss with brand new models.

Happy shopping, folks!  Drop a comment below if you have other tactics or tips you’ve used to make the car buying process less stressful and a better value.

Topics: cars

2 Responses to “So You Want to Buy a Car…”

  1. Great tips – thanks for sharing. Patience is also key in car buying. If you can ask for quotes online or over the phone and “walk away” when the price isn’t what you want, they will call you in a day, two days, or a week with a better deal. I also advise NOT mentioning your trade in until AFTER you secure the price you want.

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