The nationwide used car retailer CarMax has always done this; until recently most others wouldn’t. But post-2010, many dealers are happy to get any good used inventory they can, and will indeed give you a Trade Bid in writing. This will also help eliminate one of the primary areas of control. for the dealer. They won’t like it, of course, but you’re not there to make friends.
It is critical to stay focused on Selling Price and Tradein, not the next two
Down Payment: Don’t be surprised if the dealer writes out a 20 percent down payment when they first fill out the Four Square. They know that most people don’t have one that big, but want you focused on that—not the fundamentals detailed above. If you are preapproved on your financing, know the selling price, and the ACV of your trade-in, you determine the down payment to suit your needs, not the dealer.
Most lenders don’t require downpayments anymore, as long as you are at or under Blue Book on what you’re buying, have decent credit, and don’t owe more than your trade-in (if any) is worth. If you find that you owe more on your car than the ACV, you can negotiate money off the car you’re looking to buy in order to “absorb” it. In the worst case, at least you’ll know how big a down payment you really need.
Monthly Payment: Dealers absolutely love to get people talking payment. They will do what they can to focus you on this section of the Four Square. Payment is determined by:
- Purchase price
2.Trade-in ACV and payoff (if there is a trade)
- Interest rate and the term of the loan (or lease)
Because there are so many components, it is easier to manipulate a buyer focused mainly on payment. Before you go in, read Chapter 7: Financing, to figure out the payment you want, and the dollar amount and term of the loan that will get you there.
Get pre-approved on a loan before you go shopping
At a minimum, find out your credit scores, and check online to see what interest rates these would get you from various lenders. This will put you in a much stronger position to negotiate. Listed here is a great resource for competitive, online preapprovals. You can also get your credit scores here. Changes in lending laws over the past few years mean that you can try more than one lender without your credit score dropping 1-3 points (temporarily) each time, as used to happen. I cover this in more detail in the Financing chapter.
Beware of interest rate markups
Interest rates are based on your credit scores. Knowing what yours are will help to minimize (or even eliminate) any mark up the dealer tries to add to the “buy rate” the dealer is offered by lenders. Like in a mortgage, banks and credit unions offer the dealer a chance to mark up the interest rate on the vehicle lease or loan; this profit is called “participation.” The buy rate is the interest percentage rate the dealer starts at, before marking it up to the consumer. It is typical for a dealer to mark up all buy rates that aren’t advertised specials