You’re at a car dealership discussing the price of the car you want to purchase. The salesperson asks you how you will be paying for the vehicle, and you tell him/her that you’re paying cash. Then you proceed to negotiate a price for the car. Without your knowing it, that “paying cash” comment cost you a few hundred dollars.
Like any good business person, a car dealer tries to maximize the profit of each sale. The dealer makes a profit on the base car you buy, but also makes a profit on all of the other “transactions” that occur at the same time, such as an extended warranty or maintenance agreement, dealer installed options, your trade-in, and also financing.
Dealer financing = Dealer profit
In fact, the dealer often makes more money on the loan or lease you get from him than he makes on the base vehicle itself. And the dealer is often happy to sell the car at a low price in order to make the profit from the other items.
When you say upfront that you’re paying cash, the dealer knows that he won’t be making any money on financing, and therefore may be less willing to agree to a lower purchase price.
3 Points to Keep in Mind as You Negotiate With a Dealer
- Tell the dealer you’re keeping financing options open. Regardless of how you think you’ll pay for the vehicle—via cash, loan, or lease—don’t close off any options. It will help to tell the salesperson that you are open to financing through the dealership if the offer is a good one. This way, you may be able to negotiate a lower price on the vehicle itself.
- Agree to the price of the car before you talk about rates and monthly payments. Talking about monthly payments before fixing the price is like talking about the price of an airline ticket before finalizing where you’re going – there are a lot of ways to make a price seem attractive, but you may not be getting what you think!
- Keep an open mind. The finance or lease terms offered by a dealer are sometimes very, very attractive. So when you say to the dealer that you will consider dealer financing, be open to doing just that!