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What to say when a car dealer asks your budget?

Instead, politely say you would like to discuss the price of the car, including all fees and taxes. You want to know the "drive-away" or "out-the-door" cost of the vehicle they're willing to give you, not the MSRP, or sticker price.

cars.usnews.com - 13 Tips for Negotiating With a Car Dealer | U.S. News

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On a list of things most Americans would like to do, negotiating the price of a car at a dealership probably wouldn't make the top 100. Instead, it would probably rank somewhere between getting a root canal and falling down a well.

It doesn't have to be that bad.

When you are prepared with the right information and go into the price negotiations in the proper frame of mind, there's no reason negotiating with a dealership should trigger your anxiety. By following some simple rules, knowing what you can and can't negotiate and removing as many variables as possible from the deal, you can remain focused on one thing, the price of the car. Remember, a dealership's sales consultants sell cars all day long, every day. If they're not negotiating a car sale, they're learning how to negotiate a car deal successfully. They do so by incrementally moving you to the deal they want you to accept. On the other hand, most car buyers only get a new car a couple of times per decade. Knowledge is your best tool to help level the playing field, and your ability to walk away from a bad deal is your most powerful negotiating tool. In the age of the coronavirus pandemic, buying a car has changed. With online sales processes and home delivery options now becoming commonplace, the only reason you need to visit a physical dealership is to take a test drive. As you'll see in the steps below, most of the work happens before you get to the dealership. We'll start with the preparation, then show you some strategies to follow when it comes time to haggle over the price.

1) Knowledge Is Power

Today's car shoppers have more information at their fingertips about vehicles and the car-shopping process than ever before. That lets you find the exact vehicle you want, know how much you should pay and set up financing before you ever leave your house. You can find out about trade-in values, get an instant cash offer, explore dealer inventories, look and talk to multiple dealerships using your phone, computer or tablet. Our new car deals and lease deals pages help you find special offers from automakers.

Finding the Right Car

Any buying or leasing journey starts with finding the right car to meet your needs, budget and lifestyle. Our new car rankings and reviews are an excellent place to start. They're designed around the questions new vehicle shoppers have when they're in the market for a new ride. Our car comparison tool allows you to explore the features of different models side-by-side. Used car shoppers can weed out vehicles on dealership lots that aren't worth their attention by looking at vehicle history reports from companies such as Carfax or AutoCheck. It's also important to consider the cost of auto insurance, which can vary dramatically from car to car. Our guide to auto insurance takes you through the coverages you'll need, the cheapest car insurance in your state and money-saving car insurance discounts.

Knowing Your Credit Score

Your credit score is a critical factor in knowing how much your financing will cost. Knowing it before you start car shopping will help you set a budget and give you a good idea of the auto loan interest rate you will qualify to receive. If a dealership offers you a financing deal that's priced well above what your credit score should qualify for, you'll know that's where they're trying to make money on the deal. The last place you want to find out about issues with your credit score is when you're sitting in the dealership's financing office. It takes away much of your negotiating leverage when the dealer knows more about your situation than you do.

Finding the Right Financing

While dealers are happy to arrange financing for car buyers, you'll want to research your car loan options just as thoroughly as you study the vehicle you want to buy. You can talk online with local banks and credit unions, along with online lenders. In many cases, you can get financing offers from multiple lenders by filling out one online application.

Finding the Right Dealership

Not every car dealer is as consumer-friendly as others. Online reviews allow you to find car dealerships with better reputations than others. Of course, no dealer is going to have 100% positive reviews, but you can get an idea of how a retailer performs from their overall ranking and the tone of their reviews.

Knowing the Value of Your Trade-In

You don't want to offer up your current vehicle as a trade-in without having a good idea of its value. You can find that out online, through an instant cash offer and by looking at what similar cars are selling for from private-party sellers. You'll rarely get the amount dealers are selling similar vehicles for, as the dealership's refurbishment and other costs are built into those prices.

2) Remember It Is a Business Transaction

Getting a new car or a new-to-you used car can be emotional. There's the excitement of getting behind the wheel of a new ride that's often tempered by anxiety about the buying process. There can be stress added if you need a car quickly. You may even be angry if things aren't going your way. The best way to avoid letting your emotions creep into the negotiation process is to remember that buying a car is a business transaction, nothing more and nothing less. Unchecked emotions will get in the way of negotiating a great deal. The more sensitive or emotional you are, the more power you give the salesperson to take advantage of the situation. You should also expect the dealership staff to treat it as a business transaction. As nice as they might be, they are not your new best friends. As we'll talk about a bit later, each piece of information you provide gives them an edge when negotiations begin. In the end, what should happen is you'll end up paying a bit more than you wanted to spend, and the dealership will end up accepting a bit less than they wanted to get for the sale. That's how negotiation works. Of course, both you and the seller need to act professionally, honestly, ethically and legally throughout the process. If you sense the dealership isn't, it's time to walk away. Just as you deserve a fair deal, the dealer is entitled to a fair profit. Some buyers believe they can game the system by trying to bully their way to a good deal. The thinking is that by being super tough and not bending on anything, they'll intimidate the salesperson and their managers into writing a great deal. Unfortunately, that strategy will likely backfire, as sales professionals have seen it before, and it just steels their resolve to get the most they can out of the deal or ask the customer to leave. It's much easier for them to justify giving a lousy deal to a jerk than it is to take advantage of a pleasant customer. On the other hand, some salespeople will attempt to confuse, persuade or even bully you into taking a horrible deal. Having a trusted friend along reduces the chances of that strategy working.

3) Don't Focus on the Payment

One of the most important pieces of advice car buyers need to follow is not focusing on the monthly payment when they're buying a new or used car. If you negotiate based on the payment alone, your chances of getting a good deal drop to zero. While the monthly payment does need to fit your budget, you want to focus instead on the price of the car. Unfortunately, nine times out of ten, one of the first questions a salesperson will ask is how much you can pay each month. While you should have a number in mind, it's not an answer you should ever tell a car salesperson. When they know the top of your budget, they can move the rest of the numbers around in the deal to make it look like you're getting a bargain, even when you probably aren't. A trained salesperson can manipulate the numbers in the deal to absorb every cent of your budget (or more) while overcharging you for the car, getting you overpriced financing with a term that's far too long, or stuffing the deal with unnecessary and costly add-ons. A common tactic is to extend your loan out to six, seven or even more years to bring your payment down into your budget. When they do so, they can charge you more for the car, give you less for your trade-in, charge you higher interest or add fees or add-ons you don't need. Our guide to long-term car loans shows why having a loan that's too long is a horrible idea. Instead, politely say you would like to discuss the price of the car, including all fees and taxes. You want to know the "drive-away" or "out-the-door" cost of the vehicle they're willing to give you, not the MSRP, or sticker price.

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4) Know What You Can and Can't Negotiate

In any car deal, there are things you can and can't haggle over. It's not worth wasting your effort talking about something the dealership has no control over. Instead, you want to talk about the numbers the dealership can change.

Things You Can Negotiate

The list of things you can negotiate starts with the car's price. Every new vehicle has a price sheet on the window, called the Monroney sticker, which shows the car's Manufacturer Suggested Retail Price. It's also known as the MSRP or sticker price. The big term here is "suggested." It is merely the price the automakers suggest dealers sell the car for. As independent franchises, dealers are free to sell the car for whatever price they want to. Some dealerships and brands have developed no-haggle pricing. The price on the window is the price of the car, they say. In most cases, you'll still need to negotiate the value of your trade, the cost of financing and the price of any add-ons. If a car is in high demand, a dealership can charge far more than the sticker price. When demand is lower, you can expect to pay less than the sticker price. A good negotiator can sometimes get the car at or below the dealer's invoice price. You can also negotiate the price they're willing to give you for your trade-in, as well as dealer fees such as dealer prep, documentation fees, advertising charges and other miscellaneous costs. If a dealer has installed add-ons you don't want, you should request they are removed or negotiate a deeply discounted price for those items. There are generally substantial profit margins on dealer-installed add-ons, so negotiating a discount shouldn't be a deal-breaker. If a dealer tells you that credit insurance and gap insurance are required, you should insist that you know they are not. If they continue to pressure you to take them, consider it a red flag and tell them you're walking away from the deal. While some leasing companies do require gap coverage, both products are typically available outside the dealer from lenders and insurance companies, and they're often sold at much lower prices.

Things You Can't Negotiate

The list of things you can't negotiate is much shorter. A dealer can not negotiate taxes or registration fees, as they just pass on the money to the proper government authority. Dealerships won't negotiate the destination charge that's listed on the vehicle's Monroney sticker. It's the cost of getting the car from the factory to the dealership, and it's charged by the automaker. You do, however, need to look out for unscrupulous dealers trying to add a second freight charge to the final paperwork. That charge should be negotiated, or eliminated, as the cost of getting the car to the dealer's lot is already part of what's on the sticker price.

5) Know the Deals

Like putting a car on sale, when a vehicle isn't selling fast enough, or there's a new model on the way, automakers will offer incentives to pick up the pace of sales. You can find the best of them on our new car deals page, which tracks cash back offers (sometimes called rebates or bonus cash) and financing deals, and our lease deals page, which showcases offers with low monthly payments and little due at signing. Our used car deals page shows financing deals on certified used cars. Getting a car deal is like getting a discount without having to negotiate for it. However, you'll want to know about the offer before you start shopping, so you can insist it is reflected in the price or financing you're offered. You can't expect a salesperson always to volunteer that there's a deal on a car. Most lease and financing deals are only offered to shoppers with excellent credit, and they may be limited to specific models, trim level or a percentage of a dealer's stock. The details of most car deals are based on where you live, though a few differ by where you purchase or lease your car. You should also check to see if any vocational discounts are available on the vehicle you're considering. Many automakers offer discounts to military members and first responders. In the wake of the COVID-19 pandemic, some have extended the deals to frontline healthcare workers. Just because there's an automaker's incentive on a new or certified pre-owned car doesn't mean you shouldn't still work to negotiate the vehicle's price, fees and financing.

6) Have Pre-Approved Financing Before You Shop

A proven way to get a good deal on a car and reduce the number of items you have to negotiate is to take your car loan and trade-in out of the equation. We'll get to the trade-in in a moment, but let's talk about financing first. You can, and should, get a financing deal in place before you even think about getting near a dealership. It's easy to do online with most banks, credit unions and other lenders offering web-based lending sites where you can apply for a car loan. Once you have a pre-approval in writing, you've taken that piece out of the negotiation puzzle, or at the very least, set a limit on the rate and length of loan the dealership can offer you. A side benefit is getting a pre-approved car loan outside of the dealership helps you set a realistic budget you can afford. A dealership may be able to beat the pre-approved auto loan you have, but they won't have any incentive to do so unless you show them that you can get your car loan somewhere else.

7) Separate the Trade-In

Trading in a car is easy. The dealership takes care of all the paperwork, and you might even save some money in sales tax. However, making it part of a used or new car purchase adds another variable that you'll need to negotiate. Salespeople often use trade-ins as part of a shell game. They can give you a massive value for your trade by raising the price of the new car. They can lower the cost of the new car by giving you less for your trade-in. You can take the trade-in completely out of the new car deal by selling it yourself. You'll likely get the most money with a private-party sale, but it can be quite a bit of work. An easier way is to sell your car to an independent used car dealer, a used car superstore or a franchised new car dealer. If your vehicle is relatively new and in great shape, a new car dealer of the same brand may give you a good price, as they can sell it as a certified used car. Another easy way to sell a used car is with an instant cash offer. With the U.S. News Instant Cash Offer program, you simply enter some basic information about your current vehicle, and certified dealers will quickly set the amount they're willing to pay for it.

8) Shop at Multiple Dealerships – Online

Now it's finally time to start talking to car dealerships, but not in person. You want to email or use a dealership's online messaging system to contact the internet managers or sales departments of multiple dealers. At this point, you want to find out if the car you want is available and ask about the price, including all taxes and fees. You want to cast a wide net, contacting dealers from across a metro area, for example. If the car is popular or in tight supply, you might look beyond local dealers to other states. Some dealers will ship vehicles to you, or you can plan a road trip to get your new car. If you only shop at one dealership, you'll never know if you're getting a good deal. Plus, when a dealer discovers you're only shopping at one place, they know they don't have any competition. While a growing number will be willing to discuss the vehicle's price via email, some will want you to set up an appointment to come in and chat. They want to get you on their turf, where they can control the pace of the negotiations, while also making it harder for you to continue your research. It's OK to visit a dealership to test drive a car at this point. Only do so, however, if you've completed your preparation, have a car loan in place and are willing to walk away once the sales pressure starts.

9) Timing It Right Can Save You Money

While timing your purchase or lease right can save you some money, there's one auto-buying urban legend we can dispense with. Some shoppers believe the myth that by showing up just before the dealer closes, they'll get a great deal. They think that the dealership staff will make a quick deal so they can go home for the night.

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What usually happens is you'll be invited back to complete the deal on another day. Annoy them enough, and you make it easier for them to justify sticking it to you with a lousy deal. If you find a particularly motivated salesperson, they'll stay late or keep in contact with you by email. It's better to time your car buying by looking at the calendar. Dealerships and their salespeople have monthly, quarterly and annual goals. If they haven't quite met them as the end of the period nears, they'll be much more likely to make a deal. Of course, it only works if they haven't met their goals. That's another reason to shop at multiple dealers.

10) Negotiate the Price First

OK, you're finally prepared for the negotiation. It may happen face-to-face in the showroom, or it may be part of an email chain. Whichever way, the basics are the same. As we talked about earlier, your focus needs to remain on the vehicle's price, and it's critical you don't get distracted from it. Ask the salesperson for the price of the car, including all fees and taxes. They'll want you to tell them what you want to pay. It's preferred, though not critical, that they throw out the first price. One of the rules of friendly negotiation says once you as a buyer mention a price, you can't go any lower. Once they, as a seller, mention a price, they can't go any higher. The first price they'll give will probably be near, or even above, the sticker price. You then want to counter with a price that's near the dealer invoice cost, less any cash back incentives. This lets the salesperson know that you've done your research, you know the invoice price, and you can justify the number you just presented. It's good at this point that the sales consultant knows that you're shopping at multiple dealerships. What comes next is some back and forth, with the salesperson running back and forth to their manager. Part of it is a tactic to make you impatient, so you'll just settle on their price and move things forward. Instead, every time they get up, you should get up too and start walking around. Have them find you to present their next proposal. When you get close on price, or things reach an impasse, you can start negotiating non-monetary pieces of the deal. When the salesperson asks for a higher price, counter with them throwing in floor mats, protection packages or other add-ons. Ironically, the less urgency you show, the faster and easier the process will likely go.

11) Avoid Costly Extras

Even after you've settled on a final price, your wallet is not yet safe. The next hurdle you'll likely face is the dealer's finance office. (Some dealerships have the salesperson handle the entire transaction, though they'll offer many of the same add-ons that the dealership's finance manager would.) There, you'll be offered a dizzying array of add-on products, ranging from extended warranties to interior protection packages and nitrogen for your tires. You'll face pressure to buy them on the spot and include some in your financing. If you're not careful, all of the money you saved through careful negotiation will vanish. Many of the add-on products the dealer will offer can be purchased outside of the dealership, often at much lower prices. They don't need to be purchased immediately, and you'll want to take the time to research the products and the companies behind them before you buy. You rarely want to finance an add-on, as it raises the loan-to-value ratio on your car loan, potentially giving you negative equity. Some products, such as gap insurance, may be required by your leasing company or lender. You don't have to buy it at the dealership, though. You can generally get more affordable policies from your car insurance company or lender. By this time, you're probably ready to get out of the dealership and take your new, or new-to-you, ride home. There's a bit more work to be done, however. No matter how much you want to get home, it's crucial you take the time to read and understand the papers you're signing. The documents need to accurately reflect the deal you agreed to. If there are numbers you don't understand, make sure they are explained to your satisfaction before you sign. Never put your signature on a piece of paper that is incomplete or contains errors. Politely insist that the document is completed accurately, as correcting a signed document is more difficult than getting it right in the first place.

Avoid the Yo-Yo Financing Scam

You never want to leave a dealership until you are confident that the financing has been approved and its paperwork has been finalized. If you do, you're open to an unscrupulous practice known as yo-yo financing. The scam starts with the dealership telling you that everything's done, and you're welcome to take the car home. Sometimes they'll tell you that they will file the loan paperwork the next day; sometimes, they won't say anything at all and let you assume it's complete. The finance manager may genuinely believe you can qualify for the loan or may know that there's not a chance you will qualify. A week or so after you've taken the car home, grown fond of it and made it part of your life, you'll get a call from the dealership telling you to come back. You'll be told that your financing fell through, and you have to sign for a new loan, often at a much higher cost. You'll likely face extreme pressure and be told that you don't have another choice. In most states, you still do have options. After you get the call, the first thing to do is to start contacting local banks, credit unions and online lenders to line up alternative financing. If you can't, you should return the car to the dealership and insist that the deal be undone, since it was never complete in the first place. Unfortunately, some states favor the dealer, while others offer strong consumer protections. You can avoid the yo-yo financing scam entirely by getting a pre-approved loan in place before you start shopping.

13) Be Prepared to Walk Away

At this point, you may be thinking the dealer and its sales professionals hold all the cards. However, you, the customer, hold the best card of them all. If you don't like the deal they're offering or just feel uncomfortable with the way things are going, you can simply walk away.

It's a superpower far too few shoppers take advantage of.

Many shoppers won't walk away for fear of embarrassment, or because they don't want to lose the time they've "invested" in the process. Some don't want to make the salesperson they've become friendly with lose a sale. Some feel they're locked into a deal because they've signed offer sheets throughout the process. All of those feelings favor the dealership. Here's the longer view: A moment of perceived embarrassment or a few hours of your time pales in comparison to paying too much for a car, especially if you're going to be making payments for five, six or more years. Not wanting to disappoint the friendly salesperson means that you've lost sight that the car purchase is a business transaction, and their demeanor is part of their negotiation strategy. Finally, no car deal is complete until you sign the final paperwork. The signed offer sheets only serve to make you believe you've committed to an agreement. Of course, you want to walk away the right way. That means not storming out, getting angry at the salesperson or their manager, or slinking out a side door. Instead, you want to leave your contact information, explaining that you're open to further negotiation if they're willing to come to a more agreeable price. It might take a day or a week, but if they need a few more sales to meet a goal, your phone may just ring.

More Shopping Tools From U.S. News & World Report

The goal of the U.S. News Best Cars team is to help you find the right car at the right price. To help you through the car-buying or leasing process, we've developed several guides and tools:

cars.usnews.com - 13 Tips for Negotiating With a Car Dealer | U.S. News

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