Get access to the same vehicle valuation tool that dealers rely on. With Black Book, you’ll have insider data to accurately assess trade-in and purchase values—empowering you to negotiate the best possible deal.
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.
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.
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.
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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As if buying a car wasn’t difficult enough, buying a car on craigslist, eBay, or from any private party ads an additional layer of complexity. Knowing you are buying a car that is reliable and safe is one concern. Making sure you get a fair price is yet another. At the end of the day, buying a car private-party poses many of the same challenges you experience when purchasing from a dealer, and then some!
That’s why we decided to take the time to draft this guide to buying a car on craigslist (or similar peer to peer websites). The last thing you want to do is get taken advantage of, and by reading through this guide, you’ll be more prepared as you navigate your buying process.
Without further ado, let’s dive in! And, as always, if you’d prefer to watch instead of read, you can click “play” on the video up above.
Check the title of the car
It may come as a surprise, but the first thing you need to confirm is that the seller of the vehicle is actually the owner of the vehicle. Yes, people sell cars without owning them, and when they inevitably get caught, you’ll be the one who no longer has a car. That “great deal” you see on craigslist? Yeah, there’s a chance that’s because the person selling it isn’t actually the person who owns it!
I’d sell a car cheaply (and quickly) if I wasn’t the actual owner of it! Sure, when you buy a car from a car dealership you don’t have to worry about confirming that the name on the title of the vehicle matches the person selling it to you, but when you purchase from a private party, you certainly do.
How can you confirm that the seller of the vehicle is the true owner of the vehicle? Simply ask for a copy of the vehicle title and a copy of the seller’s driver’s license. The two names should match. If the title is in someone else’s name but they have “signed off” on the back of the title, that isn’t good enough. The current owner needs to take the signed off title to the state and get a new title in their name.
Once the vehicle title and the seller’s identification match, you can purchase the vehicle without hesitation.
Get a CARFAX or VIN history report
Let’s say the car you’re interested in is being sold lawfully by the current owner. Great, now what? The first thing I would recommend is that you call your insurance company and tell them you are interested in purchasing a vehicle, and that you were wondering if they could run the VIN to see what history they are able to pull on it.
Insurance companies are in the business of maximizing their profits, and one way they do that is by keeping track of every vehicle on the road to make sure they are able to charge a fair price to insure it. That being said, insurance companies have access to much more robust systems than you and I, and as a customer, you are well within your right to call them and ask for their help in assessing the history of a vehicle.
Of course you can also check the Carfax on the vehicle, however, as we have discussed in recent videos on YouTube, a vehicle’s Carfax is only as good as the information Carfax was able to receive. At the end of the day, a vehicle’s Carfax is not entirely accurate, and frequently key service and repair records will not be available on the report. Carfax reports are also not “realtime,” meaning that there are sometimes serious delays in when an event happens, and when it ultimately appears on the Carfax report.
Our recommendation is that you work with your insurance company to get their full history report on a VIN before purchasing a Carfax or AutoCheck report. However, what is most important to understand is that you need to get some VIN history on the vehicle before purchasing it.
Get a pre-purchase inspection
The history of a vehicle is critically important, however, there is something that is even more necessary for you to consider before buying a car on craigslist or a similar peer-to-peer website; a pre-purchase inspection.
Buying a used car is a crapshoot. Whether you’re buying a used car on craigslist, Facebook Marketplace, or from the local car dealership, you really don’t know what you’re getting yourself into. As I like to say, “no two used cars are the same.”
With that in mind, the worst thing you can do is blindly purchase a used car without ever having a qualified mechanic look it over. Buying a used car without a pre-purchase inspection is like buying a house without a home inspection. You just don’t do it.
This is especially true when buying a car from a private party. What warranty does the individual selling the car have to you? None! If they sell you a piece of junk, and you don’t realize it, there are very few repercussions for them. At least when you buy from a dealership you can go to the Better Business Bureau and leave online reviews. When you buy a car on craigslist and it turns out to be a clunker, what can you do? Not much.
Last but not least, make sure you negotiate a fair price for the car you are buying. Sometimes people think that just because they are purchasing a car from a private party, they can’t negotiate on the price. This couldn’t be further from the truth.
Cars, trucks, and SUVs are some of the few commodities that we negotiate on in the United States. Just because you are dealing with a private party, and not a dealership, doesn’t mean you can’t, or shouldn’t negotiate on price.
Some things in life are worth checking twice. For example, when you leave your home it isn’t a bad idea to double check that you locked the door. Checking twice can save you a lot of headache, right? The same principle applies when purchasing a used car, and it’s exactly why you need to consider getting a pre-purchase inspection (PPI) on any used car you’re thinking of buying.
We’ve recorded countless videos for our YouTube channel talking about pre-purchase inspections and their importance. The long and short of it is that pre-purchase car inspections are 100% necessary for used car purchases. If you’re buying a used car, you need to get a pre-purchase inspection on it first, no ifs, ands, buts, or maybes.
Let’s dive into the details of what a PPI includes.
What is a pre-purchase inspection?
Simply put, a pre-purchase inspection is a vehicle inspection that occurs in advance of a vehicle sale. There are no set parameters for what constitutes a pre-purchase inspection (that is to say there isn’t a universally accepted “checklist” of things that a mechanic needs to review to complete the inspection).
Pre-purchase inspections (commonly referred to as PPIs) are simply a mechanical review of a vehicle in advance of a sale.
When should I get a PPI?
As the name suggests, you should get a PPI conducted in advance of purchasing a vehicle. Specifically you should have a PPI conducted the same day, or within a few days of taking delivery of a vehicle.
The last thing you want to do is have a pre-purchase inspection conducted only to have an issue crop up a few days later unexpectedly. Taking ownership as quickly as possible after your PPI is conducted is a best practice.
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Where can I get a pre-purchase car inspection?
There are a few options for where you can get a pre-purchase inspection completed. First and foremost, if you have family or friends who are auto mechanics, ask them to help. If not, fallback to your trusted local mechanic. If you don’t have a local mechanic who can help (or if you’re buying the vehicle from out of state), consider using a national service like Lemon Squad.
We recommend Lemon Squad because they have been in business for a decade and have an “A” rating with the Better Business Bureau. We don’t get compensated for saying that, we simply think they’re a viable option if you don’t have a trusted family member, friend, or local mechanic.
What should be inspected?
It’s important to keep in mind that there is no universally accepted “checklist” for what is inspected during a PPI. That being said, there are a few things your mechanic will absolutely pay attention to. Specifically they’ll inspect:
The vehicle dashboard
Tires and suspension
Fluids
Brakes
Engine
Transmission
Exhaust
The body and frame of the vehicle
Lights
HVAC
At the end of the day each mechanic will have a slightly different pre-purchase inspection process. Bear in mind that most mechanics will find at least one thing that should be done on the car. Remember, it’s their job to find things and make you aware of them!
A PPI is similar to a home inspection on a house. You want your mechanic to be thorough (just like you want the home inspector to be thorough), and so you’d almost be disappointed if there wasn’t anything wrong with the car (or the house). Keep this in mind when you receive the pre-purchase inspection report. Your mechanic will make you aware of what is really important, and what is lower priority.
How much does a pre-purchase inspection cost, and who pays?
If your mechanic charges you more than a couple hundred dollars for the pre-purchase inspection, you may want to ask them a few questions. Depending on the vehicle, a PPI should range anywhere from $100 to $300.
Considering the vehicle you’re thinking of purchasing is most likely worth tens of thousands of dollars, the investment upfront in a PPI is well worth it. The headache you save, and the peace of mind you gain makes a pre-purchase inspection a worthy investment.
Do you have other questions about pre-purchase car inspections? If so, let us know in the comments down below.
Deal School is an entirely free online curriculum that is intended to teach you the bare minimum of what you should know before you buy a car. Taught by Ray and Zach Shefska, Deal School is two and half hours of video content, plus six quizzes to test your knowledge along the way. The goal of Deal School is to help you better understand the car buying process, and how car dealerships operate.
Why did you create Deal School?
Deal School was born out of frustration. Frustration that buying a car is so challenging. As the CarEdge YouTube channel began to grow, we realized that we could help a lot of people by simply organizing our content into a logical progression. With over 100 videos on YouTube, it can be hard to find the exact topic you are looking for. With Deal School, you can simply glance at the curriculum, find the topic you’re interested in, and jump right there. We created Deal School so that when people ask us “How can I negotiate a car deal?” We can simply link them to Deal School, and know that they are getting a good answer. We hope that if a friend or family member ever asks you about how you bought your car, you’ll tell them about Deal School as well.
What’s the catch?
There’s no such thing as a free lunch, right? So what’s the catch? If there is a “catch” it’s that you have to sign up with an email address to access Deal School. Otherwise, there is no “catch.” We’ve disabled advertisements on Deal School videos, so you won’t be interrupted by those. Instead, you should be able to click through video to video and focus on learning.
Why do we want your email address? Because in the not too distant future we are going to have products that we are going to sell. Those products will help you navigate the car buying process, and we’ll try to make money from selling them. If you sign up for Deal School with your email address, then we have a way to contact you in the future when we have products to sell (and other free resources too).
How long will Deal School be available?
There is no “expiration date” on Deal School. My dad and I will most likely need to update the course materials in a year or so (as dealership practices change), but aside from that, what you see is what you get, and it will be that way into the future.
What will I learn from Deal School?
Deal School is broken into six core lessons:
How Car Dealerships Operate
Initial outreach to the dealership
How to select a car
How to negotiate a car deal
Choosing how to pay for the car
What to expect in the F&I office
Each lesson has a varied number of topics within them. Topics have associated videos and course materials (blog posts, other video, other resources, etc.).
In total there are 50 videos that are a part of the course.
What if I want a different course?
As of right now, Deal School is the only course we have available. We’re very interested in producing more, so if you feel strongly about another topic (for example an entire course dedicated to financing a purchase), then please let us know. How should you let us know? Take a look down below!
How can I share feedback?
Your feedback is invaluable. CarEdge has become what it is today thanks to you. To share feedback with us about Deal School, please complete this short survey: https://caredge.com/deal-school/survey/
For many, buying a car is the second most expensive purchase they’ll ever make. Buying a depreciating asset (a vehicle) for tens of thousands of dollars is a major financial commitment. If you’ve ever asked yourself, “How much should I spend on a car?” You’re not alone. Knowing how much you should spend on a car is an age old question, and one that we’re going to address today with the 10% rule.
If you search online, you’ll find many different opinions on how much you should spend on a car. There is no “right” answer, and there is no “wrong” answer. At the end of the day, you have to make a decision that you feel comfortable with.
That being said, we do have some advice we’d recommend you follow. We’re here to help you learn about the 10% rule, and how it helps you determine how much you should spend on your next car.
Assess your financial situation
First things first, to determine how much you should spend on a car, you need to assess your financial situation. This means auditing your monthly gross income. How much gross (before taxes) income do you make each month?
I say monthly income on purpose, because most car buyers are shopping for a monthly payment that meets their budget. This is as good a time as ever to mention that if you can afford to buy a car in cash, and you intend to keep it for decades, please do that. That is the most financially responsible car buying decision you can make (i.e. no interest payments).
Having said that, most of us aren’t in a position to pay for a car in cash upfront, and most of us want a little variety when it comes to what vehicle we’re driving in (we’ll get a different car in two or three years). If that’s you, then start this exercise by analyzing your monthly gross income.
Write that number down, we’re going to come back to it.
Ask yourself “why” you need a car
Are you buying a car because you need transport from point “a” to point “b,” or are you getting a car to make a statement?
I remember when I worked at an Acura dealership in the early 2000’s and a customer came in and purchased an Acura RL in the top trim. This was an expensive and luxurious car. The same day this customer took home his new car he came back. Why? Because his wife wanted him to buy a Lexus instead. To her, the Acura didn’t portray the image she wanted to her neighbors (it wasn’t “showy” enough).
In this case, the “why” behind purchasing a car was to make a material statement, not to simply get from point “a” to point “b.”
If you’re trying to make a statement, it’s my strong recommendation you figure out a cheaper, more fiscally responsible way to make that statement. Consider buying a watch, a house, a painting … literally anything other than a car — they simply lose value too quickly.
Factor in all cost of ownership expenses
Buying a car entails a lot more than making a monthly car payment. Insurance, gas, maintenance, depreciation, the list goes on and on. If you’ve ever owned a car before, you know just how expensive it is. Plus, insurance costs are rising quickly.
That being said, it’s critically important to consider the total cost of ownership when thinking, “How much should I spend on a car?” Your monthly car payment should include:
The lease or loan payment;
Insurance;
Maintenance;
Wear and tear; and
Depreciation.
When you factor each of these items into your monthly car payment you see that a $500/mo car payment is actually $1,000/mo. And this is where the 10% comes in. I counseled all of my clients over 43 years to consider spending 10% of their gross income on their car.
That means that if you make $60,000 per year ($5,000 per month), you can aim for up to $500 per month to go towards your car payment. That doesn’t mean you can afford any car that has a monthly payment of $500, it means the combined cost of the payment, the insurance, and the maintenance (I purposefully leave out depreciation from the 10% rule because if I included it you wouldn’t be able to afford a car) all needs to be $500 or less.
Some personal finance gurus suggest that you can afford to spend much more than 10% of your gross income on a car, and banks will even loan you the money you need to purchase a car so long as your debt to income ratio is below 40%. The 10% rule isn’t a commandment, it’s simply a suggestion. Spending more than 10% of your monthly gross income on a depreciating asset is a tough pill to swallow, but for some it’s worth it.
Don’t buy, lease instead
I highly recommend you consider leasing a car instead of buying it. Leasing has some distinct advantages compared to purchasing; mainly you know exactly what you are signing up for. The cost of depreciation and maintenance are built into the lease, whereas when you buy a car outright neither of those factors are known.
The 10% rule applies to leasing. For example, I am retired (sort of), and my monthly income is a bit more than $4,000. My Mini Cooper lease is $380/mo, and when you factor in insurance and gas costs, I am just a bit over the 10% rule. Just like you, I’m human, and I want things that I can’t necessarily afford. In this case, I made the conscious decision to bump the 10% rule to 12%, and I am happy.
Leasing allows for a certain level of cost certainty since most lease terms are in the 36 to 48 month range and most cars are under warranty for most, or all of that time. Some brands even include free scheduled maintenance during your lease term, essentially making the monthly payment and the cost of fuel and your insurance premium your total car expenses. Trust me, cost certainty is a beautiful thing, once you experience it you will wonder how you ever lived without it.
A car is NOT an investment!
Ultimately how much you spend on a car comes down to how much money you are willing to set aside on a monthly basis. Additionally, always remember that when you buy a car, it will lose value. These are not investments.
How do you play it smart then? My recommendation is that you follow the 10% rule. It’s fair, it’s reasonable, and it’s not overly constrictive. Plus, when you drive somewhere in your new car, if you follow the 10% rule, you’ll still have some money in your pocket to pay for things when you get there!
You can drive a really nice car, and you might not be able to afford to enjoy the other aspects of your life. Or, you could drive an inexpensive car and you can afford all kinds of things, but you hate what you drive. My suggestion is to find a balance that allows you to do both, and for many people who ask themselves “How much should I spend on a car?” The 10% rule does the trick.
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