How to Negotiate at CarMax, Carvana, and Other “Negotiation Free” Car Dealers
Key Takeaways
- Although the price is firm, you can negotiate other parts of your deal at Carvana, CarMax, and others.
- Your auto loan interest rate is the most negotiable part of your deal. A lower rate can save you thousands of dollars over the long run.
- Negotiate your extended warranty price, or shop for one elsewhere to counter with a competitive quote.
We all know that buying a car is harder than it needs to be. From the prolonged sales process to the trip to the “back office” for financing and warranty sales, buying a car certainly isn’t as fun as you’d think the second largest purchase of your life should be.
Fortunately for us there are a handful of people out there who recognize this terribly unpleasant process and took action to make it better. I’m referring to one-price, or negotiation-free car dealers like CarMax, Carvana, and others. The premise of negotiation-free car dealerships is in the name; the price is the price, there are no gimmicks, no haggling, no bartering, no headache.
A lot of people like buying a car from a one-price car dealer. It doesn’t take a rocket scientist to figure out why. The experience is simply more pleasant and less aggravating than going to a traditional car dealer. There is one downside though, you can’t negotiate!
It may sound paradoxical, but one of the biggest frustrations when buying from a negotiation free car dealer is that you can’t get them to lower their selling price of the car. It may come as a surprise, but you actually can negotiate at a negotiation free car dealership, the trick is what you are negotiating on. Interested to learn more? Let’s dive into how you can negotiate at CarMax, Carvana, and any other negotiation free car dealership!
Car dealers don’t make their money selling cars
Go ahead and re-read that title … Yes, it is true, most car dealerships don’t make their money selling cars. Instead, they make most of their profits from fixed operations (parts and service), as well as when they sell finance and insurance products.
Specifically, dealers make money when they originate the loan you use to purchase your vehicle. Dealers also make a healthy margin when you purchase a vehicle service contract or GAP insurance. The sale of a car is simply a means to an end for a lot of car dealers.
For example, Carvana, one of the largest used car dealers in the United States makes more than 50% of their gross profit per vehicle sold on the “back-end” of the car deal; the sale of loans, extended warranties, and more.
One price car dealerships do make money selling their inventory, and if you buy a car from one of them, you will be buying at a bit above market value. That’s simply the reality of purchasing from a negotiation free dealership.
If you buy a car from CarMax, it is true that you cannot negotiate the price of the actual vehicle, however, where you can negotiate at CarMax (and Carvana, et al) is on the back-end of the deal.
CarMax also has a ‘Love Your Car’ Guarantee. For a full review of that program, click here: /guides/carmax-love-your-car-guarantee/
Negotiate the interest rate on the loan
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Do dealers want you to negotiate on the interest rate of the loan they secure on your behalf? No. Should you negotiate the interest rate on the loan they secure on your behalf? YES!
When you buy a car from a dealership and require financing for your purchase, you have a few options for how to secure a loan. You may be tempted to secure a loan through the dealership. When a dealer provides you with financing options you need to understand that the dealer is profiting from this.
Car dealers place a lot more loans than any individual would. Because of this, they are able to work with their financial partners to secure lower interest rates on loans. When you fill out a credit application at a dealership the dealer circulates your application to multiple lenders and receives many quotes for what you qualify for. The dealer will then present to you options that are marked up from what they received from their lending partners.
For example, if you qualify for a 3% interest rate loan, the dealer may present to you a 5% interest rate loan as your best option. Why would the dealer do that if you were approved for 3%? Because the dealer is able to pocket the difference. This has been going on for decades, and this is one of the primary revenue channels for car dealers, especially one-price dealerships.
What does this mean for you? Two things:
- Always consider getting prequalified from your local credit union or bank before going to a dealership; and
- Negotiate the interest rate the dealer presents to you.
This is the first area in a negotiation free car dealership that you can negotiate.For example you can negotiate at CarMax when you’re presented with an interest rate of 6% and you know you can qualify for something better. Don’t agree to 6%. The dealer will not want to lose a car deal simply because you won’t agree to their marked up interest rate. Even in negotiation free car dealerships this is negotiable.
Negotiate the extended warranty
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What do you do when your salesperson tells you that for only $10 more per month you can get an extended warranty on that 2017 BMW X3? You sign the dotted line, don’t you? Not so fast … This is yet another area within a one-price dealership that is actually negotiable.
Don’t be swayed by sales tactics that make it seem like you’re getting a “great deal” when you add a $2,500 extended warranty onto your purchase, “but Mary, it only increases your monthly payment a few bucks each month.”
The reality is, extended warranty sales, GAP insurance, tire and wheel protection, and any other insurance product you can buy after you purchase your vehicle are all negotiable. These products are generally marked up 200-300%. Yes, you read that right, 200-300%. That means the $2,500 extended warranty you are “tacking on” to your loan might only cost the dealer $700-$800.
Not only are insurance products negotiable at a one-price car dealership, you should also consider buying them from a different provider. Shopping extended warranties at other dealers or directly from providers is a wise move. But at a minimum, be sure to negotiate at CarMax, Carvana, etc, when you think about purchasing an extended warranty or other insurance product.
Negotiate the sale of your vehicle
Last but not least, you can always negotiate the selling price of your trade-in (if you’re in a position to sell your current vehicle). One price dealers are constantly looking to secure new inventory so that they can sell more cars (to ultimately sell more loans and more extended warranties), and nine times out of ten, they’d prefer to buy a car directly from you rather than from an auction.
Buying vehicles from the auction entail many other expenses, so generally speaking, it’s more profitable to purchase vehicles directly from consumers. Keep this in mind if you’re purchasing from a CarMax, Carvana, or somewhere similar. You can and should negotiate the best selling price for your car before agreeing to what you are initially offered.
proceed with caution
Is online car buying too good to be true? Carvana and Vroom have been subject to controversy in 2024. Vroom is under investigation in Texas, and Carvana is all over the news for failing to transfer car titles, selling vehicles in horrible condition, and more.
Carvana Lawsuit: Can You Trust Them?
Before you give online car retailers your business, it’s wise to be informed about the latest lawsuits and license revocations that could impact your own buying experience. This is a developing situation, we’ll update this page when we know more.
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