For many people, buying a new car is right up there with getting a root canal on a back molar. It can be a painful process fraught with shady practices and dealer add-ons you never asked for. It’s no wonder so many people dread the negotiations that often lead to long waits while a salesman checks with his manager about giving you a better deal.
As with so many things, COVID has crept into the mix, ultimately leading to a shortage of new cars. Ronald Montoya, senior consumer advice editor for Edmunds, says the lack of new vehicles caused by a shortage of semiconductors (a part needed to make newer cars work) is having a significant impact on selection and price: “Since the owners have fewer cars to sell, they want to try to maximize profits. You are going to get less of a discount than you might have.”
That’s putting it mildly. Montoya’s company was looking to buy a new cargo van recently and found one for about $7,500 over the sticker price. When they asked for a lower price, the dealer offered to lower the markup by half. They walked away, then found a similar van at another dealership for about – you guessed it – $7,500 less than the first van.
While there are certainly honest auto dealers out there, not everyone is on the up-and-up. If you are in the market for a new vehicle or want to make sure you get the best deal possible when you are, consider these warning signs that you may be getting ripped off:
The Car Only Comes With Dealer-Installed Options
In this market, you are going to see vehicles featuring a lot of additional accessories that don’t always come standard, Montoya says. Think fabric protection, etched glass and wheel locks. Depending on the dealer, they may not want to take those items off. If the fabric protection was sprayed on, it’s not coming off. You also may not see these extras reflected in the price of the car if you are shopping online. He suggests asking for a discount on the price of the add-ons if they can’t be removed.
They Want to Know Your Target Monthly Payment
This seems like such a harmless request. And it might be if you were anywhere else but a place where you are being asked to plunk down a huge sum of money for something that will begin to lose value the moment you leave the lot. “Never answer that question,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. “If you do, at that point, they’ve got you. Only negotiate the cost of the car. Period.”
They Sold That Car, Here’s a Higher-Priced Model
If you see a vehicle offered online at a dealership, call first to verify the car is going to be there when you come for a test drive. Variations of this switch-and-bait scam have been around for years. A seller gets one or two cars without the bells and whistles and advertises them at a rock-bottom price. Those models sell fast. When customers come in looking for that specific car, they are sometimes told ‘it just sold’ and then shown more expensive models.
They Pressure You to Get an Extended Warranty
When it comes to extended warranties on new cars, not everyone thinks they are a smart investment. A Consumer Reports study found most people didn’t get the value they paid for in the extended warranty. “I can’t speak for everyone, but I personally don’t buy them,” Montoya says. “If you are getting a car known for reliability, it seems counter intuitive to get the extended warranty.” Plus, you are not obligated to buy the extended warranty when you purchase the car. When you do that, you could end up paying interest on it if it’s rolled into the payments. He suggests saving up some money to buy the extended warranty later on, right before the regular warranty is set to expire.
They Want to Mix Financing and the Price of the Car
The most important thing people need to recognize is that financing a car and negotiating a sales price for the car are two separate transactions, Rheingold says. It’s just like when you buy a house. First, you get approved for a mortgage and then you make an offer on a house. Because most people need financing for a new vehicle, you should secure that from a financial institution before you go to a dealership. Rheingold cautions consumers to only identify the total price they are willing to pay – the out-the-door price and “never, ever, ever mix the financing and the price of the car.”
Another important note is that dealers can make a tidy profit on the back end of a car sale by charging someone a higher interest rate on the loan, even if the buyer happens to qualify for a lower one, says Rheingold.
They Add a Dealer Mark Up Because It’s a Popular Car
Remember the cargo van? If you are looking for a car that tends to be in demand, you may run into a dealer mark up, which means they can afford to charge a premium for it, Montoya says. Dealers charge higher prices because they can get away with it. A much anticipated Jeep Wrangler with a V8 engine, Montoya says, already has buyers on waiting lists willing to pay $30,000 above the sticker price. If you’re not willing to pay a higher-price on purpose, be ready to walk away and take your business – and hard-earned money – somewhere else.
They Offer Very Little for Your Trade
Before the pandemic, people trading in an older car as a way to lower the price of their new car didn’t have high hopes for how much dealers would give them. Shortages of used cars on the market have changed that for now. Because of the lack of vehicle inventory, people are making more than they ever expected on used cars right now, Montoya says. Which means if a dealer is offering you way below the market value for a trade, and your car is in good shape, that’s a red flag you are potentially being ripped off.
How to Buy a Car Like a Pro
Admittedly, the way most cars are sold in the U.S. is ridiculous, says Rheingold, the consumer advocate. “There should be a big supermarket of cars and the prices should be listed as opposed to the smartest, most sophisticated person getting the best deal.”
To avoid being scammed, take these steps before purchasing a new vehicle:
- Do your homework and research the price of the car online with a service such as Kelley Blue Book, at KBB.com.
- Get your financing lined up by being pre-approved for a loan at a bank or credit union.
- Only negotiate the price of the car with the seller, not the financing.
- When trading in a vehicle, know its value by using an online resource.
- If you don’t want dealer-installed options, ask for them to be removed, if possible.
- Wait until a new car’s regular warranty is about to expire before buying an extended warranty.
- If a dealer wants you to pay much higher than the sticker price, be willing to walk away.
More on HerMoney:
- Car Buying Experts on How to Save Big on Your Next Vehicle
- Insurance Checkups for Auto and Homeowners
- HerMoney Podcast Episode 229: How to Buy a Car and be Smart With Big Purchases
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