The Secret to Beating a Car Dealer

Aug. 25, 2013— -- intro:

As players get ready to snap the football in every college and NFL home town in America, baseball builds up to the crescendo of the World Series and duck hunting season is less than 30 days away in some parts of the country, another kind of contest begins in earnest. Wading their way through billions of dollars of ads and eagerly navigating through fields of auto-malls throughout America, consumers are on the hunt for the best deal on a 2013 model, oblivious to the fact that they, indeed, are the prey.

Yes friends, the end-of-summer auto clearances are beginning in earnest as dealerships across the nation fight to "move metal," making way for the 2014 model year. Dealers are dropping prices and manufacturers are ramping up a new batch of 0% financing deals on many current models.

Can Your Credit Score Save You Money on a New Car?

There's a whole lot of money floating in that new car smell and tucked tidily in the seats. Never forget, in the world of automobiles, the dealer wins by netting as much of your money as possible. Every deal point needs to be carefully thought out and vigorously negotiated. You win by knowing the rules of the sport and making them fight for every dollar.

While it's true that getting a good price is a big part of the hunt, the biggest, most important, super-secret strategy to turn the stealth hunter (them) into the prey: stand tough and fight to maximize your dollar throughout the process.

quicklist: title: The Loantext:

If you are borrowing the money, the biggest ticket item will be your car loan. An astounding 80 percent of car buyers finance their vehicle at the dealership. Every one of them is a sitting duck for an aggressive salesman. Dealers have relationships with several banks, including the financing arms of manufacturers, and they earn a fee for every borrower they refer to the bank. The more money you are willing to pay for access to the money, the more money they make.

Getting the best auto loan deal is a two-step process. First, you need to check your credit report and score. You can use Credit.com's free Credit Report Card to get your credit scores along with an overview of the information in your credit report. If you want to take a deeper dive, you can get a free copy of each of your credit reports, but that's limited to once a year. If you want regular access to your credit reports, then you'll likely have to subscribe to a credit monitoring service.

The First Thing to Do Before Buying a Car

Once you have a solid handle on your credit history, the second step is to shop for a loan. Check with your credit union or bank, other lenders (both online and bricks and mortar) to find the loan with the lowest fees and interest rates. Cutting the dealer out of the process and being pre-approved for an auto loan could save you hundreds, possibly thousands, of dollars.

quicklist: title: The Invoice Pricetext:

Once you have your finances ready to go, it's time to negotiate the price of the car you want. Before you visit the dealership, do some research online to determine the invoice price — i.e., what the dealership paid for the car of your dreams, wants or needs.

Secret: when the dealer buys a car from the manufacturer, there's a "holdback" that usually equals 2-4 percent of the total invoice price. Think of it as their vig. After the dealership sells the car, it receives that amount of money back from the manufacturer over the period of a year.

Offer less than the invoice price — unless you're buying a popular model, in which case the laws of supply and demand favor the dealership — and then use the holdback to walk the price down to something you can live with.

If they give you a hard time about paying invoice, remember there is always another guy selling cars. Even if you drive off the lot without paying a single penny above the invoice price, the dealer has turned a profit. If the dealership won't sell you a car for invoice, and it's not a hot selling car, it's their loss. You'll find someone willing to do the deal with you. Keep shopping.

How to Get a Car Loan

quicklist: title: The Warrantytext:

New cars come with various warranties. The dealer may try to sell you an extended warranty, often with fine print that will prevent you from actually using it should anything go wrong, according to Consumer Reports, which suggests ignoring such offers entirely.

If you're buying a late-model used car with low miles, the dealer will offer you a warranty to cover future repairs. Make sure the original warranty is used up first. If it is, bear in mind that warranties offered are usually not great deals, written to cover only things that rarely break, such as the power train.

If you decide you want a warranty, shop around. Before you walk onto the lot, get a quote for a third-party warranty that provides the best coverage for the least money. Compare this plan to the one offered by the car dealer, and be prepared to walk away from whatever they offer. The dealer's warranty is likely limited and overpriced. Ask what the warranty costs them, and offer that amount.

quicklist: title: Haggletext:

As surely as the sun rises in the east and sets in the west, the dealer will offer less for your trade-in than it's worth. Maybe they offer expensive add-ons such as tinted windows, a better stereo, heated seats, a sports package, or etching the vehicle ID number into the windshield. Whatever the case, do your research beforehand to find out what these goodies should cost. Let them know that you know, and insist on cost. Negotiate the price of each item separately.

Car dealers are in business to make money. That's fair. You have the responsibility to assure they make as little of that money from you as possible. By getting your loan first and then negotiating everything else separately, you'll have a much better chance of getting the best deal.

Adam Levin is chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.