So, how do you avoid getting ripped off at the dealership?
The first thing you need to make sure in order to get a good deal is to do your research. Know what you want before you walk in. Compare the engine power, features, specifications, options, and reviews. This may take a few trips to different dealers and test driving different cars before you are ready to make a decision. But once you have done this, you should narrow down to a few options you are seriously considering.
But you can’t know if you are getting a good deal if you don’t know what the right price should be. To do this go online to a reputable impartial website such as Edmund’s or Kelly Blue Book and look up your choices and be sure to compare the trims as many cars will have different pricing based on the trims. The MSRP of a 2011 Mazda CX-7 Sport could be $23,000. You need to ascertain this first in order to determine what the monthly payment SHOULD be, not what the dealer tells you it should be. When you do go to the dealer and they ask you how much of a monthly payment do you want to pay. I advise you to avoid answering this, and instead speak on the cost of the vehicle even if you are leasing it. The only exception to this is if you have already figured this out and feel brash enough to pull it off, which comes with experience and depending on the personalities you are dealing with.
Lease or Finance?
You should decide if you want to lease it for three years or finance it for five years. The main difference being with a lease you don’t pay for repairs and don’t have to worry after three years about selling it, you just return it. With financing you will pay more monthly but if you keep it beyond the five years of payments you are essentially driving it for free, except for gas and insurance, for as long as you can, and then can sell it or trade it in to recoup some of the money. However, you will pay for repairs after the warranty is up.
Now, if the car in this example is $23,000 and you will be leasing it, you need to first subtract a certain percentage because when leasing you are only paying for the time you are actually using it, not the entire value of the car as when financing. For financing you just add the interest rate you expect to qualify for and then divide the total by 60 months, after adding state sales tax, and that is your monthly payment. We are not taking residual value and depreciation into consideration here but you will pay more leasing cars in which the value holds up well like the major brands. For leasing the calculation is similar to financing except the interest rate will be much lower with good credit, and as mentioned you first deduct a percentage. How much to deduct? About 40% usually gives a rough idea.
Let’s break it down.
A car lease will be the price divided by the years, of payments as if you were financing it and that gives you $4,600 each year, then take two of those for the years you will not have the car anymore because you are leasing for the first few years only, and that gives you $9,200 you can deduct from the capitalized cost for a balance of $13,800 you are responsible for. Keep in mind there are some upfront costs such as tags and title that must be added in, and if you are making a down payment you must subtract this from the cap cost before determining the monthly payment schedule. Remember with leasing to add a tiny percentage for interest and fees, then your state sales tax as with financing mentioned previously, and divide by 36 months. Now this would you give you $383 but guess what? All that was calculated on the MSRP but we all know this is exaggerated and able to be reduced. The only problem is usually once you add back the fees and complex charges, it ends up around the same as the MSRP again. However, you should never actually agree to pay for Destination Charges, Since you do not pay a retail outlet for their cost of bringing merchandise to their store, you should not have to for the dealer to bring cars to the lot either. Don’t worry, they are used to savvy shoppers that know this. Just make sure the cost and monthly payment, including taxes, match your bottom line.
Therefore, in the example we are using here, to pay even less for this car monthly, you would negotiate down the cap cost $500-1000, if you can. Dealers make the most margin from used cars, so there is more room to haggle with those, but we are talking about new vehicles here. If you do that, and restrict the fees they will try to charge, you can bring down your monthly price to $275-300. You would be wise to ask for free extras too, such as: Oil Change, Floor Mats, Cargo Nets, etc. Often these can be thrown in at no cost to you, although dealers try to get extra money for these items when they can, even though the cars come with them installed already. Now that you know how much to pay, you just need to choose your color and options they have available in your make, model and trim but of course, those will cost extra.