Why should you not tell a car salesman you are paying cash?

Paying cash may hinder your chances of getting the best deal "When dealers are negotiating the purchase price, they anticipate making money on the back end, via financing," Bill explains. "So if you tell them up front you're paying cash, the dealer knows he has no opportunity to make money off you from financing.

cnn.com - What NOT to tell a car dealer - CNN.com

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(AOL Autos) -- Apprehensive about shopping for a new car? Afraid you'll say the wrong thing to a car dealer that will give him the upper hand in the price battle?

Doing your research beforehand will better prepare you to read between the lines of what a car dealer is saying. Shopping for a new car, or even a used one, doesn't have to be that kind of nerve-jangling roll of the dice that it was many years ago. For starters, the advent of the Internet allows car shoppers to go into battle armed with more information today than ever. It's quite easy to get basic information that includes MSRP, features, options and reviews on any car you might have your eye on before you visit a car dealer, rather than having to trust the dealer to educate you. With more car dealers out there now than ever before, consumers also now have more leverage. It's a common consumer tactic to play two car dealers off each other, or in auto dealer parlance, "cross-shopping," to see which one can give you the best deal. But it still helps to know what to say and what not to say as you and the car dealer play the game of haggling the price, because, you could still say the wrong thing to give the car dealer a leg up on the negotiations. We spoke to an AAA car-buying expert and an auto dealer to find out what NOT to say once you're on a car dealer's turf and what TO say.

Don't talk about monthly payments

"Under no circumstances should you start talking about monthly payments," says John Nielson, Director of Auto Repair and Buying for AAA. "You should just focus on negotiating the purchase price. Once you start talking about monthly payments, everything gets confusing, because suddenly you don't know if that's the payment for 24 months, or 36 months, or how much of that would include interest charges if you're financing the purchase through the dealer." Nielson's advice on this matter is supported by a sales representative at a Virginia car dealership, who agreed to speak to us on the condition of anonymity. "After all, I don't want to shoot myself in the foot," he says. So we'll call him Bill. "Dealers will absolutely try to get you to negotiate monthly payments instead of purchase price, because we make more money if we do it that way," says Bill. "We'll say something like, 'I can get you into this car for $300 a month,' but we won't say how many months that's for. If we can get you to commit to a longer payment structure and we're doing the financing, we're making more money off you in interest payments."

Don't tell a car dealer about your trade-in

Fundamentally, says Bill, "dealerships like to move money around. So it probably also is not in the buyer's best interest to mention right up front that he or she has a car they want to trade in. Because once we know that, we know you're looking to get as much money as you can out of the trade-in." Bill explains how getting more currency for your trade in can be a smokescreen that won't save you money in the end. "We'll assess the value of the car, and if it's worth, say, $15,000, we'll tell you we'll give you that amount," he says. "But once we do that, we'll be pretty hard to budge on the sale price of the car. So in that instance, you'll probably end up paying full MSRP for your new car."

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Bill informs us, "These days, with CarMax being so prevalent, consumers might want to consider not trading their car in at all, and just selling it via CarMax. You will almost always get a better price for it if you sell it than what a dealer will give you in trade-in value." Nielson of AAA has similar advice on this front, although he comes at it from a slightly different perspective. "It's OK to mention that you might want to trade your car in, because you don't want to get caught telling them something that isn't true. But just tell the sales rep, 'We'll talk about that later, let's just focus on the price of the new car for now'," says Nielson. "Anytime you add the trade-in value for your existing car into the negotiation of the price for the new car, the numbers start moving back and forth, and you could end up being confused about how much you're really paying for the new car," warns Nielson. "The number one way consumers can go wrong in this scenario is to lose sight of the purchase price of the vehicle, which is the number you are in best position to negotiate." Nielson laughs, "You probably also shouldn't tell them that you recently had a car repossessed, or that you have bad credit. That kind of information probably won't work in your favor." And while it may be unwise to tell a dealer you're desperate for a car -- information that can being out the shark in any sales rep -- there's nothing wrong with telling the car dealer that you're definitely looking to a buy a car in the next few days. "Face it, dealers are trying to make a living," says Nielson. "So if they think you're just out kicking tires and are six months away from making a purchase, they might think you're wasting their time, so you won't get as much attention from them."

Get your own financing to save on interest rates

Back to the financing question: Bill reveals, "One tactic dealers sometimes take is getting the buyer lost in the numbers, by asking them, 'Where do you want to be? What's your budget?' And then once we know that, we start talking about financing through us, which is a way we make a lot of money on the back end of the deal. That's why Nielson advises prospective car buyers, "Do your homework, find out what incentives are out there, and use a payment calculator you can find online so you're educated on how much car you can get into for the price you want to pay." Also, it's best to get preapproved for a car loan before you even walk into the Thunderdome -- er, the dealer showroom. Bill says, "That way, if we know up front you're pre approved to get your financing elsewhere, we're not going to try and hit you with a high interest rate. That's what a lot of dealers will try to do without even knowing what your credit rating is."

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Paying cash may hinder your chances of getting the best deal

One issue to factor in is whether or not you intend to pay cash. (If only all of us should be so lucky to have that kind of coin lying around.) If you do intend to pay cash, Bill tells us that's something you may not want to say right up front. "When dealers are negotiating the purchase price, they anticipate making money on the back end, via financing," Bill explains. "So if you tell them up front you're paying cash, the dealer knows he has no opportunity to make money off you from financing. So, he might not be as moveable on purchase price if he already knows he isn't going to make any money off you from financing." This likely holds true if you've been preapproved for financing. It's best not to reveal your hand on the outset that you don't plan to use dealer financing before you negotiate the vehicle price. It's not necessarily bad form for the buyer to tell the car dealer up front that he's strongly considering financing the car through the dealer -- and then, later, saying, "I changed my mind," after negotiating the purchase price. "The buyer CAN get a better deal if he does that," concedes Bill, "because all along, in that scenario, the dealer is maybe knocking something off of the top of the purchase price thinking he's going to get some interest out of you on the financing." Finally, confirms Bill, "It's OK to say you've been to other dealers, because cross-shopping between two dealers is always a good idea. From the dealer standpoint, customer service is what separates one dealership from another dealer who sells the same brand. Some customers are willing to pay more money if they were treated right during the purchase process, because that's a pretty good indicator that you'll also be treated right later on, when you come back to have your car serviced or repaired."

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cnn.com - What NOT to tell a car dealer - CNN.com

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