The sales person knows 85% of people buy vehicles based on the amount of the monthly payment. Remember buying a vehicle is not one transaction based on monthly payment … it is four transactions.  Net Price paid for the New Vehicle, Value Received for your Trade-in, Cost of Financing the New Vehicle and sale of Add-ons by the finance/business office.

By this time you should have negotiated the net price of the new vehicle and the value of your trade-in and decided on your down payment.

This section is where it is extremely important to have researched with the banks, credit unions or Internet financing sites: loan amounts, Interest Rates (APR), down payments and monthly payments before you come to the dealership. See Financing a New Vehicle or Financing a Used Vehicle.  From your research you will already know what your monthly payments will be based on the value of the new vehicle, less the value of your trade-in, manufacturers rebate and down payment.

Buyer Tip: If the buyer brings a pre-approved loan(s) with them to the dealership from one of more banks, credit unions or Internet Financing sites the following negotiation can be eliminated.

Dealership Trick: The sales person will put down an initial monthly payment up to three times the Value of the Vehicle/100 E.g. Value of vehicle is $30,000 then the monthly payments would be written as $900 per month. This will trigger the buyer to start thinking about a much higher monthly payment.  This figure is totally unrealistic since with a 60 month loan you would be paying $54,000 + Value of Trade-in + Manufacturer Rebate + Down Payment for a $30,000 vehicle.

Buyer Tip: Bring a calculator and don’t be afraid to use it.

Dealership Trick: The sales person will write the monthly payment in an odd number like $887 so the buyer will have a difficult time computing the cost of monthly payments for XX months.

Buyer Tip: Bring a calculator and don’t be afraid to use it.

Dealership Trick: The sales person might put a down a range the payment might be e.g. $887 to $867 to give the buyer some hope.  As noted above the monthly payment is in odd numbers so the buyer will have a difficult time computing the cost of monthly payments for XX months.

Buyer Tip:  Yep … bring a calculator and don’t be afraid to use it.

Dealership Trick:  The sales person will ask you what you were thinking about paying as a monthly payment.

Buyer Tip:  The price of the new vehicle, value received for the trade-in and financing interest rates and loan term determines the monthly payment not vice versa.  This is the sales persons attempt to reopen the negotiation on the above three items by combining them into one transaction.

Dealership Trick:  If the buyer gives the sales person a monthly payment amount the sales person is trained to respond with  “$xxx up to ….”

Buyer Tip: If the buyer responds with as little as an additional $50 they have just added $3000 to the price they are willing to pay for their vehicle.

Dealership Trick: The sales person may also put down a payment range e.g. $887 to $867 for a short term loan and $857 to $837 for a long term loan. The salesperson will usually not define short term or long term.

Buyer Tip: Don’t assume you know what short term and long term means.  The sales person is just trying to move the buyer to thinking about a longer term loan since it is less per month but … it brings more profit into the dealership and into the sale person’s pockets. Example: A 48 month loan at $867 will cost $41,600 vs a 60 month loan at $837 will cost $50,200.

Dealership Trick: The sales person will seldom tell you the interest rate on which they base the monthly payments. They are trying to focus you on the acceptability of the monthly payment … nothing else.  If you ask the basis of the monthly payment e.g. interest rate and loan term they will give you a general answer, such as, “This is an average rate for this area based on the general credit level of people coming into this dealership.  If you have a better credit rating the rate will be lower.”

After doing one or more of the above the sales person will ask you if the above is what you were considering.  Obviously not!  They will then reduce the number in small amounts twice and then put your offer down, in small nondescript writing, leaving what will be a fairly large gap between his final offer and yours. This will be the negotiating area.

Buyer Tip: Switch the monthly payment negotiations from monthly payment amount to Interest Rate (APR) and term of loan (length in months). Financing should never be negotiated on the monthly payment amount. Once you talk monthly payment amount you lose!

Buyer Tip:  Price of the New Vehicle, Value Received for your Trade-in and Cost of Financing drive monthly payment not vice verse.

Buyer Question: Should I let the dealership try to beat my pre-approved loan’s terms and conditions?

Comment: Absolutely … remember you are under no obligation to use your bank, credit union or Internet site’s pre-approved loan. If the dealership offers a better deal, take it and save some additional money.  Just make sure it is a better deal.

Dealership Trick: Dealerships have been known to focus the buyer on a lower monthly payment while extending the term of the loan.  

Buyer Tip:  A better deal is not necessarily lower monthly payments.  A better deal is a lower interest rate for the same loan term (length in months). Always compare the dealership’s interest rate and loan term against your pre-approved loan’s interest rate and loan term.  See Financing Your New Vehicle for additional buyer tips and dealership tricks.

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