Car Reviews

Here’s How to Negotiate Used Car Prices

By TheCarzingTeam November 18, 2022 | Car Reviews

Car Reviews

The prices of new and used cars may now be starting to creep beyond the budget of buyers. New cars have reached a sales price of more than $48K. The once affordable used car market also is starting to become out of reach for some buyers.

Unfortunately, a car might be a necessity for many consumers, especially those who need the vehicle to commute to work. For those on a budget, there might be some cars that are still affordable. Negotiating also could help buyers keep the price affordable. Here’s how to negotiate used car prices to get the best deal possible:

  • Understand the credit score
  • Offer a trade-in
  • Research the price of the used car
  • Shop around for the best deal

The First Step When Buying Used is to Set the Budget

How much is too much for a used car? The number really depends on the budget of the buyer. Not understanding the budget or not knowing the financial limitations of income versus expenses could lead to a deal that puts a strain on a consumer’s wallet.

Before shopping for a used or new car, consumers need to understand their financial limitations. Experts recommend allocating less than 10 percent of monthly take home pay for a car loan payment. However, some consumers have more debt than others and might have less to spend per month on this payment.

Look at monthly income after taxes and other deductions like health insurance. This number is ‘take-home’ pay. Then deduct monthly expenses related to credit card payments, housing costs, food, fuel, utilities and other expenses. Include everything and then note the amount that’s leftover.

Car shoppers also may want to allocate for the costs of car ownership. They might need to pay for gas and insurance. Car buyers also might need to pay their sales tax for the car purchase separately; sometimes the tax can be rolled into a loan, but this isn’t always the case.

Once car buyers understand how much they can spend per month on a car payment, they can input this number into a reverse car payment calculator. This calculator can convert the monthly payment into the total price of a car.

How to Negotiate Used Car Price

Understand the Credit Score

Before shopping for a used car, buyers will look at their budget to understand what they can and cannot afford. However, they also might request a copy of their credit report to better understand their credit worthiness (or risk). Every consumer can receive a free credit report every 12 months; reviewing this report helps consumers spot any errors to their credit.

Free reports won’t include credit scores. However, consumers could pay to pull their scores, although the scores might not necessarily be the exact score lenders see. The scores could be close enough to help car buyers get an idea as to the rates they might face when applying for loans.

Credit scores are usually divided up into categories related to credit worthiness/risk. The credit range categories are:

  • 800+ Excellent
  • 740 to 799: Very Good
  • 670 to 739: Good
  • 580 to 669: Fair
  • Less than 580: Poor

Those with higher scores might qualify for better interest rates, while those with lower scores might deal with higher rates. However, as the Federal Reserve recently bumped interest rates by another 0.75 percent, many consumers could face higher borrowing costs.

Consumers who know their credit scores can shop around to find the best rates and terms for auto loans. This could be a point of negotiation in that consumers could walk away from a deal if they think they could get a better rate elsewhere. 

In addition, those who receive a loan from their bank or credit union can visit the dealership knowing that this financing is their limit. This can enable buyers to have the upper hand in some aspects of the negotiation; they might walk away if the cost of a vehicle is simply too high and doesn’t fit into their loan budget.

Use a Trade-In as a Point of Negotiation

Some car buyers want to trade-in their current car to help lower the cost of a car purchase. Before taking a car to the dealership to offer up as a trade-in, car owners should research the value of the vehicle to ensure they are getting a fair deal.

Kelley Blue Book (KBB) lets car owners find the trade-in value of their car using the VIN, license plate number or the make/model/year. Car owners also may need to enter mileage on the vehicle and select the trim as well as any additional features. KBB also might ask about the vehicle’s condition and provide a synopsis on what denotes these condition categories.

Car owners might want to be as transparent as possible when considering the condition of their vehicle. Dealerships may not pay more for a car in good condition simply because the owner marked it as excellent condition via the KBB valuation tool.

The purpose of using KBB is to gain an understanding about the fair market value of the vehicle as it relates to the trade-in price. KBB will provide an average trade-in value and a range of prices, too.

Once the car owner has researched the value of their trade-in, they can take the car to the dealership to offer up as a trade-in. They can use the information from KBB to help them negotiate a fair deal for their trade-in. Understanding this value also can help car owners assess if they are being offered a less-than-ideal price for their car.

The trade-in could be a point of negotiation. For example, the buyer might note that they recently replaced their vehicle’s compressor for the air conditioner or made another valuable change. The price of the trade-in can help decrease the overall cost of the used car and help lower the price of monthly payments, too.

Research the Price of the Used Car

Consumers also may not know they are getting a fair price if they don’t research the estimated sales price of the used car they want to purchase. KBB also lets buyers better understand the price of vehicles as it relates to the sale price.

Buyers can use the same query tool that helped them find the trade-in value to also understand the private sale price. This price could be similar to the price of dealerships.

Another way to find out if the price at the dealership is fair or competitive is to search similar cars offered at other dealerships. Buyers might find that all models are priced nearly the same, or they could discover that one dealership is offering the price at a lower price.

How to Negotiate Used Car Price

Shop Around to Find all the Best Prices

Car buyers who are on a tighter budget can search different dealerships to find the best prices for used cars. However, price isn’t the only aspect to consider. Some dealerships could throw in extra perks with the purchase. Ultimately, buyers want to find the best price but other ‘extras’ could be valuable, too.

Buyers also could offer less than the sticker price. Using this technique, the dealership could counter. However, during times of high demand and low inventory some dealerships might not be willing to negotiate too much.

Nerdwallet recommends waiting for the dealership to make the first offer. Why? In most negotiations, the rule is that the first one who speaks is usually the person who has the least amount of leverage.

Another Tip: Offer More for a Down Payment to Keep the Cost Lower

Experts recommend that car buyers allocate 20 percent of the sale price of a new car and 10 percent of the sale price for a used car for the down payment. The down payment helps lower the price of the vehicle, but it also can help offset the impact of depreciation.

New cars can depreciate anywhere from nine to 11 percent once they drive off the lot. If the down payment doesn’t cover the impact of depreciation during the first few years of ownership, the owner might have a vehicle that’s underwater. This means that the loan balance is more than the value of the vehicle.

Used cars have already been impacted by depreciation, and the down payment can be lower. However, an adequate down payment does help lower the overall cost of the vehicle. Making a larger down payment could help buyers choose a loan with shorter terms.

How to Negotiate Used Car Price

Buyers Also Could Request a Third-Party Inspection for a Used Car

Buyers might feel that they’ve found the best used car at a fair price. However, they might also elect to request a third-party inspection from a reputable mechanic. This inspection could help them find issues that could be costly down the road.

If an inspection reveals a few small issues, buyers could use this in their negotiations. However, major mechanical issues could lead a buyer to search for a different vehicle.

When to Walk Away

Sometimes negotiations at a dealership or with a private seller simply don’t advance to a point that satisfies both the buyer and the seller. Ultimately, the seller wants to make the most money possible while the buyer wants the lowest price. Sometimes there is no middle ground of agreement.

When should buyers walk away from a car? That’s really a personal decision, but if the price simply isn’t affordable then the buyer might have no other choice but to pursue other options. Some buyers might walk away if they feel pressured to make a fast decision; others could walk away from the car if an inspection reveals too many problems.

Ultimately, car buyers should understand their budget, research the prices of the cars they want and also understand how their credit score could impact their financing. A trade-in also could be a point of negotiation that helps buyers score a better deal. During a time of high demand and lower inventory (and possibly higher interest rates), even small negotiations that help lower the car price could make the buyer feel like they scored a huge victory.

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