How to Negotiate the Price of a Car

1. Nail Down Your Budget

Before you even step foot in a dealership, it's important to know how much you're willing and can afford to pay. Some costs to consider include:

• Down payment: A larger down payment can reduce how much you have to borrow, but depleting your savings can increase the risks of a potential financial emergency.
• Monthly payment: Your monthly auto loan payment will be determined by how much you borrow, your desired repayment term and your loan's interest rate. You can use an online car payment calculator to get a sense of what your payment might look like based on these assumptions.
• Other costs of ownership: The total cost of car ownership goes far beyond the auto loan payment. Other expenses to consider include fuel, insurance, taxes, registration fees, maintenance, repairs and depreciation.

Keep in mind that dealers can sometimes manipulate the monthly payment by offering longer repayment terms. A lower monthly payment may be a better fit for your budget, but you'll end up paying more in interest over the life of the loan.

Learn more: How Much Car Can I Afford?

2. Get Preapproved

Having the dealer arrange your financing can be convenient, but you may get a better deal if you work directly with lenders to get your financing.

In fact, getting preapproved for an auto loan before you head to the dealership can allow you to essentially shop like a cash buyer. Instead of negotiating a monthly payment, you'll be focused on the price based on your preapproval amount.

You don't even need to disclose the terms of your preapproval until after you've reached an agreement. To maximize your chances of securing a good offer, it's a good idea to get preapproved with multiple lenders and compare the terms you get from each.

Tip: Applying for multiple auto loan preapprovals within a two-week period can minimize credit score impact.

Learn more: How to Get Preapproved for a Car Loan

3. Come to the Negotiation Prepared

Dealers are skilled at negotiating, so it's important to come to the conversation armed with the necessary information to level the playing field. Here's what you can do:

• Research the vehicle's value. With a new car, you'll want to know the manufacturer's suggested retail price (MSRP) and the invoice price, which is what the dealership paid for the car. For used cars, you can look up values using websites like Edmunds, Kelley Blue Book or J.D. Power.
• Look at prices online. Scout prices out from multiple dealers in your area for the model you're interested in. While mileage, trim and other features may vary, try to get a few comparable models, so you can use those prices to potentially secure a better deal.
• Consider online negotiations. If you're not comfortable with negotiating in person—maybe you don't feel like you're quick on your feet or you're concerned about getting flustered—you can go through the process online. Dealers typically have internet salespeople you can chat or email with instead of talking in person.
• Make it clear you've done your research. Dealers are less likely to try high-pressure sales tactics or mislead you if they know you've done your homework.

4. Leverage Your Trade-In

If you're thinking about trading in your vehicle, you'll want to know its value so you can maximize your savings. The difference between what the dealer offers and how much you owe on the vehicle can directly reduce how much you have to pay for the new car.

To help with your negotiations, make sure the car is clean and detailed and that you fix minor issues. Having a history of regular maintenance will also help improve its trade-in value.

If you want to get the most for your current vehicle, though, you'd be better off selling it to a private buyer. Dealers typically offer less—sometimes thousands of dollars less—because they need to make a profit when they turn around and sell the car.

Learn more: How to Sell Your Car to a Private Party

5. Negotiate New vs. Used Car Prices Differently

If you're thinking about buying a new car, your primary goal is to pay less than the MSRP, which is the sticker price that's featured on the car's window. You may not have a lot of flexibility to go much lower than the MSRP, but you could potentially negotiate a lower interest rate—some manufacturers even offer 0% financing to buyers with excellent credit—or a cash rebate.

With used cars, dealers may have more flexibility to lower their price, especially if the car has been on the lot for a long time. In some cases, they may be willing to sell the car at cost just to get it off the lot to make room for more inventory or to meet a sales quota.

6. Decline Dealer Add-Ons

In an attempt to increase profits, dealers may try to persuade you to include certain add-ons with your vehicle purchase. Common examples include:

• Prepaid maintenance plans
• Extended warranties
• Anti-theft devices
• Window tinting
• Floor mats
• Splash guards
• Wheel locks
• Cargo trays
• Alarm systems
• Gap insurance
• Rust-proofing
• Fabric or leather protection
• Paint protection
• VIN etching
• Nitrogen tire inflation

In many cases, however, these extras tend to cost more than they're worth. What's more, you can often purchase the ones you do want later on at a lower price.

7. Know When to Walk Away

Before you enter the negotiation for a car, it's important to know both your ideal price and the maximum amount you're willing to pay. If the dealer isn't willing to offer something within your range or displays aggressive sales tactics, don't be afraid to walk away.

In some situations, even suggesting that you'll walk away may be enough to get the dealer to work with you. But if not, you can go to another dealer in your area.

Keep in mind that this is easier said than done if you're on a tight deadline to buy a new car. As such, it's best to avoid waiting until you absolutely need a new vehicle before you begin the process of buying one.

Frequently Asked Questions

Prepare Your Credit to Maximize Your Savings

Negotiating a car price can help you save money by reducing how much you need to borrow to buy your next car. But qualifying for a low interest rate can potentially save you just as much or even more.

Check your FICO^® Score^☉ to get an idea of your overall credit health. You'll have a solid chance of scoring a lower interest rate if your credit score is considered good or better. If it's not quite there yet, review your credit report and see which factors are influencing your score. If you can, take steps to address those factors and continue to monitor your credit to track your progress.

It can take time to build your credit score to a level that helps you secure a low-interest auto loan. If you need to buy a car before that time, you may consider refinancing your loan down the road. But if you have time, it may be best to wait until you're credit-ready for a car loan.