Buying a car is extremely confusing. There are add-on offers, sales prices, the out the door price, special rebates … The list goes on and on. By the time you finally agree to the numbers, you’re left wondering, “How do I know if I am getting a good deal or not?”
And then, after the arduous task of negotiating and agreeing to a selling price with your salesperson, you’re hit with even more numbers, products, and offers in the finance and insurance office.
Answering the simple question, “Am I getting a good deal on a car?” Is comparable to rocket science! It’s truly ridiculous!
Here are our suggestions for how you can answer the burning question: How do I know if I am getting a good deal on a car? If you prefer to watch instead of read, simply click on the video above.
Let’s dive in.
Are You Getting a Discount off the MSRP?
Generally speaking, no one should pay full price for a car. Nobody. Unless you’re buying the most in-demand vehicle on the planet, you should really get some sort of discount off the MSRP.
MSRP stands for Manufacturer’s Suggested Retail Price. It’s the dollar amount that the manufacturer tells the dealership that they should charge for a new car. New is an important word here … You’ll never pay the MSRP for a used car, but many times car dealers will try and sell new cars for their MSRP price. You shouldn’t pay that much.
One of the clearest ways to answer the “How do I know if I am getting a good deal on a car?” question is to look at the discount you’re receiving from the dealership. How much are they deducting from the MSRP? Finding this answer can be challenging, and that’s why we always recommend asking for an itemized out the door price quote from the dealership (something like what you see below), so that you can clearly see the dealer discount.
If you’re like most car buyers (who buy a car once every few years), it can be hard to determine how much of a discount you should be receiving from the dealership. This is exactly why we built the Market Price Report, to help you understand what a “good deal” looks like for the chosen vehicle. Getting $2,000 off the MSRP might be asking too much for your future car, but it could also be asking too little. Enter a VIN and see what the suggested offer is.
Do your research before you head to the dealership. You should have a sense for how much of a discount you can receive before stepping onto the lot. If the dealer won’t give you any discount off the MSRP, leave and try another dealership. They likely aren’t the only dealership selling that car within 100 miles, and it’s worth shopping around for someone who will work with you. If you’re buying used it can be a slightly different experience, but the same principle applies; you should be able to get some discount from the selling price.
Are You Paying for Anything You Don’t Need?
When you buy a car, be prepared for an avalanche of add-ons and accessories. Car dealers have found new ways to make extra money, and adding all sorts of ancillary products into your car deal is one of the most common tactics.
Are you prepared to say no? Or do you actually want what’s being offered? This is one factor to examine when asking, “How do I know if I am getting a good deal on a car?”
Let’s break down the common offers that you’ll receive at most car dealerships:
- GAP insurance. If you’re financing your car, you better believe that you’ll be offered GAP insurance. Short for Guaranteed Asset Protection, this is a special type of insurance that we hope you’ll never have to use. If your vehicle is totaled in an accident, your normal car insurance will give you a payout based on the market value of your car. But what if you still owe more than the market value? That’s when GAP insurance steps in; it’ll cover the rest. Understanding whether or not you actually need it depends on how much equity you have in the car when you drive it off the lot. If you put $500 down and financed the rest, you need GAP insurance. If you put 50% down, you probably don’t.
- Prepaid maintenance plans. These plans cover all the standard maintenance that your new car will need for the duration of the agreement. This means oil changes, air filters, and maybe a belt here and there, which can actually save you money since dealerships discount their service rates to ensure your return business. That’s right, these plans are pretty much dealership retention tools. They can be a win-win though, depending on the price. Since they discount their service rates to keep you coming back, you could very well end up getting the cheapest oil changes in town.
- Vehicle Service Contract (VSC). Colloquially known as an extended warranty, a VSC provides longer coverage than the manufacturer’s warranty. We tell everyone to never buy these at dealerships (at least not at list price). Not only are they marked up substantially, but they begin when you buy them. If you’re buying a new car you’ll already have a manufacturer’s warranty, which means you don’t even need it until after the three years or 36,000 miles. (There is still a reason to buy one on a new car, but don’t expect dealers to explain this to you). You also need to consider if you’re going to keep the car past the included warranty, or if you want to get rid of it in a few years. Keep in mind that you can add a VSC to your car several years down the road; you don’t have to do it when you buy the car. How do I know if I am getting a good deal on a car? If you’re buying the VSC at the dealership, the chances are that you are not getting a good deal.
Prepare yourself for each of the above offers; you’ll be seeing them. Make sure that you come ready with your answers. Be firm and confident with your decisions, and don’t leave any room for overcoming objections.
You should also feel comfortable pushing back on unnecessary and egregious fees. We explain what fees you should and shouldn’t pay for in this article.
Are You Getting a Discount On F&I Offers?
Agreeing to the selling price of a vehicle is only part one of your car buying saga. Part two comes when you enter the F&I office. That’s where you’ll receive the offers we discussed above.
Let’s say you actually want some, or all, of their ancillary products. Do you simply say yes? Of course not; you need to negotiate! How do I know if I am getting a good deal on a car? Discounts on ancillary products are a pretty clear indication.
The VSC (a.k.a extended warranty), GAP insurance, maintenance plan, and anything else they offer you are all negotiable. Don’t accept their numbers at face value (especially when they’re rolled into your monthly payment). Let them know you’re interested in each offer for X amount or not at all. Play hardball with them; you can bet they’ll do it with you. Use everything you’ve learned about negotiating to your advantage and get the deal you deserve.
If you’ve already purchased your car and think that you could’ve gotten a better deal on some of the F&I products, check your agreement. Most F&I products have a cancellation policy where you can get your money back if you cancel within a set period of time.
One of the most important things that we can teach you is that you always have the most powerful negotiation tool in your back pocket: you can choose to walk away. There’s nothing keeping you at the dealership and nothing making you go through with a deal that you don’t feel comfortable with.
Are You Happy with The Deal?
A good deal is a state of mind. We can talk numbers and discounts all day long, but if you’re not happy with what’s being offered, it’s not a good deal.
If you are happy, and the dealer is happy, it’s a good deal for everyone. Sometimes, it’s as simple as that. You don’t need a 50% discount and a free extended warranty to brag about your amazing deal. You only need to be happy with the car you bought and the terms of the agreement.
How do I know if I am getting a good deal on a car? It boils down to your state of mind when you drive away in your purchase. If you feel remorse, it was a bad deal. If you’re happy, it’s a good deal. If you haven’t made your purchase yet, imagine how you’d feel with X price versus Y price. Which number should you shoot for to seal the deal and drive away with a smile?
At the end of the day buying a car is really difficult, and we empathize with you greatly. By taking the time to even read this article you have educated yourself more than 99% of all car buyers. The likelihood that you’ll get a good deal has increased exponentially thanks to the fact that you have researched and informed yourself about the car buying process.