Here’s some important advice if you don’t want to overpay for a new or used vehicle: Never negotiate your purchase based on the monthly payment that is being offered to you.
The only thing that you first need to determine is the selling price of the vehicle. Even if you want to lease, this will still apply. Once that is done, and only then, should you get a trade -in value if that applies.
Other factors, such as the interest rate, number of months of the loan or lease, your remaining loan balance on your trade, or your amount of down payment should not be used to determine the selling price. The dealer has too many ways to lower your payment yet still pad their profit by manipulating these and other factors. Too many consumers focus solely on whether the monthly payment will fit in their budgets and wind up paying thousands of dollars more than they should.
A very simplistic example of this is lowering the payment by extending the number of months of the loan. The problem here is that you’ll be paying more in interest cost and also risk owing more for than the car is worth when you are ready to trade it in. They don’t need to reduce their profit to offer you a lower your payment, but it’s a way to get you to say yes to a selling price that’s likely much higher.
Dealers would prefer to avoid negotiating price if they can get a commitment from you based on one of the other factors mentioned above. Another example is: ” Would you drive the new car home today if I can deliver it without needing any money down and keep your payment amount under $500 per month?”. In this case if you said yes, that allows them the flexibility of applying incentives, charging more for their car, or using higher interest rates, just to name a few ways to increase their profit. By negotiating the price first, and then addressing interest rates, etc., you may have kept that payment well below the $500 amount you agreed to.
The takeaway here is to focus on the price first and then determine the best finance options, etc. Consumers need to realize that payment buyers will almost always pay more profit and dealers just love them for that.
