1. Get preapproved for a loan first
The FTC says getting pre-approved before you shop means you know the terms: the APR, the length of the loan and the most you can borrow. It matters because the APR a dealer arranges usually includes an amount that compensates the dealer for handling the financing. You can negotiate that rate too, and a preapproval from a bank or credit union gives you a number to beat. The CFPB suggests comparing quotes from several lenders before you go into the dealership.
2. Know what you can spend, as a total
Decide your top out-the-door price before you visit. Work from your income with the car affordability calculator, then check the payment in the auto loan calculator. Focus on the total cost, not the monthly payment. The CFPB's example: $20,000 at 4.75% costs about $597 a month and $1,498 of interest over three years, or about $320 a month and $3,024 of interest over six. A dealer can always hit a payment target by stretching the term.
3. Ask for the out-the-door price in writing
The FTC recommends getting an "out-the-door" price in writing before you visit the lot. It includes taxes and fees, so you can compare dealers on the same basis. Email or call several dealers and ask for it. Then negotiate from the lowest written offer.
4. Know what's negotiable and what isn't
According to the CFPB, you can negotiate:
- the price of the car, including markups above MSRP,
- the interest rate and loan terms,
- your trade-in value,
- dealer fees such as documentation, preparation and origination fees,
- add-on products, which are optional and whose prices are negotiable,
- and a prepayment penalty, which you can ask to have removed.
Taxes, title and registration fees set by your state and local government are not negotiable.
5. Settle the price before you mention the trade-in
The FTC's advice is to wait to discuss a trade-in until after you've negotiated the best price for the new car. Check your car's value with pricing guides first, and compare the dealer's offer with what you could get selling it yourself. If you owe more than the car is worth, that's negative equity. The FTC says to ask how it will affect your new financing, because it can raise the amount you borrow, the loan length or the payment.
6. Say no to add-ons you don't want
Common add-ons include GAP coverage, window etching, extended warranties and service contracts. The FTC says add-ons are not free, it's OK to say no and to ask the price, and dealers may not hide add-ons in your deal or misrepresent them. Credit insurance isn't required by federal law. Check the contract line by line for anything you didn't agree to.
7. Treat rebates and special rates carefully
The FTC warns not to assume a rebate is already included in the price or terms you're offered. Manufacturer low-rate offers may require strong credit, a larger down payment or a shorter term. If you have to choose between 0% financing and a rebate, use the 0% APR vs rebate calculator.
8. Buying used? Read the Buyers Guide
Dealers must post a Buyers Guide on used cars. The FTC says it tells you whether the car is sold "as is" or with a warranty, and what share of repairs the dealer will pay. Its terms override anything to the contrary in your sales contract. The FTC also suggests having the car inspected by an independent mechanic before you buy.
9. Be ready to walk away
Before you sign, get the trade-in value, interest rate, loan term and payment in writing, as the CFPB recommends, and compare them with your preapproval and other written quotes. If the numbers change at the last minute, you can leave. There's always another car.