Use Good Negotiating Skills
Once you know which car you want, it is time to talk to the dealer about price. Some people enjoy negotiating; others would prefer to avoid it. You can save yourself hundreds, even thousands of dollars by following a few basic negotiating rules:

Know in advance how much you can afford and what the car is worth;
Check the NADA “Blue Book” for used vehicle values for comparable used vehicles. Check Edmunds and other authorities on new vehicle values;
Shop around beforehand for financing;
Remember that the dealer is a business person, not your friend;
Put everything you agree to in writing;
Do not be afraid to ask questions if something is not clear;
Walk away from high-pressure sales tactics or deals that seem dubious for any reason.

Understanding the Buyer’s and Seller’s Interests
Whether you are negotiating with a private seller or a dealer, remember that the seller’s main interest is to sell you the car for the highest price possible. On the other hand, your interest is to get the best car you can for the least amount of money.

Always focus the conversation on the car and the price.

Maintaining a healthy distance between you and the seller is important. Questions about your family, job, or other personal information may not be just an attempt at friendly conversation; the seller may be trying to determine how much you are willing to pay and make you less likely to ask the right questions about the car.

Be especially careful if you are buying from a friend, a relative, or a friend of a friend. Just because you know someone does not guarantee that the person is knowledgeable or will be truthful about the car’s condition.

Making Your Offer
Dealers will often bring up financing, trade-ins, or rebates early in the negotiation, then raise the price of the car to compensate for any price reductions. If you have your financial package already in place through your pre-planning you can begin to negotiate the car price first. Do not let questions about financing or trade-ins enter the price negotiation. Also, never give the seller your bottom line right away or act as though you love the car — your bargaining advantage will instantly vanish.

Do not be afraid to ask the dealer to throw in extras as part of the deal, like a spare tire, a free extended warranty, or upgraded equipment.

You should make the first offer, regardless of what the dealer is asking for the car in the ad or on the sticker. Based on the price guides you have consulted and the ads in the local newspaper, make an offer that you think is reasonable based on the dealer’s cost, not on the sticker price. But leave yourself some room for negotiating.

If the dealer does not accept your initial offer, ask for a counteroffer — do not let the dealer make you raise your initial offer without getting a counteroffer first.

The general rule of thumb is to raise your first offer by no more than half of the difference between that and the dealer’s counteroffer, but use your judgment. The most important thing to remember is not to raise your offer too quickly.

A dealer may say that a price is only good that day, but often that is not true. It is not uncommon for the dealer to call you back with a better offer later.

Your best negotiating tool is your ability to walk away. If you think the price is too high, or the dealer is not willing to give you the information you want, or you feel like you are under too much pressure, get up and leave. You can always return later, and it may increase your bargaining power to let the dealer know that you are looking at other cars and have found a better price elsewhere. Do not leave a deposit “to hold” the car. It is not easy to retrieve deposits.

Do not negotiate on the basis of the monthly payment amount — that just distracts you from focusing on the total purchase price. Lower monthly payments — payable over a much longer period — may result in paying much more than the vehicle is worth.

Be Aware of Dealer Negotiating Strategies
Dealers have developed elaborate strategies to give them advantages in negotiating:

The salesperson tells you that the manager must approve your offer and leaves you for several minutes.

This is done to make you anxious about getting the car and give you the impression that your offer is too low.

To counteract this strategy, ask to talk to the manager directly, or go for a walk. If you begin to act disinterested, the salesperson will come back more quickly. And if you are waiting with a friend, do not talk about the deal while the salesperson is gone. The walls may have ears to hear what you are saying about the price.

The salesperson leaves and another salesperson takes over the discussions. Or a second sales person joins the first to talk to you.

This may be an attempt to start the negotiations over again after you have already made some headway or to increase pressure on you. Insist on finishing the negotiations with the original salesperson and/or the manager. And remember that your best defense against high pressure sales tactics is to leave.

The dealer tells you to take the car home “on the spot,” before you have committed yourself to the deal or while the loan application is still pending.

If the loan does not go through or the dealer tries to 20 change the terms of the contract, you may feel obligated to keep the car because it is already in your possession. Since the car cannot be insured or registered in your name until the deal has been completed, there could be problems with liability if you are cited for a traffic violation or involved in an accident, or if the car is stolen or vandalized.

Do not take physical delivery of a car until everything has been agreed on and the paperwork has been finalized.

It is against the law for you to use dealers’ license plates, except for a test drive. If the dealer suggests this to you, or refuses to show you the car’s title, walk away — fast! Under state law and regulation, the dealer must deliver the title to you, or to the lender, when you take delivery of the car. No title is a red flag — the car may still have unpaid loans on it, or other problems, such as a lost title. Find another car!

Consider Which Extras to Buy
Not only are you negotiating the base price of a car, but in a dealer sale there may be factory or dealer-installed options to discuss. You do not have to take extras you do not want, and you should remember that the prices for extras are negotiable.

Options and Add-Ons
Some dealers try to require buyers to purchase equipment or other extras as a condition of the sale. This practice, known as “option packing,” is illegal in Massachusetts. You should be able to order a new car with any of the features you want, depending on what options and combinations of options are available from the manufacturer.

Options that come from the dealer, such as rust-proofing, paint sealant, fabric protection, extended service contracts, and theft deterrent devices are big profit-making items. They may not be necessary or worth what the dealer is asking. For instance, most new cars already come with manufacturer’s guaranties against premature rusting or defective paint. Similarly, it may not make much sense to have a used car rust-proofed, since it may already be rusted.

Look into how much these options would cost if you bought them elsewhere before you decide whether to purchase them from the dealer.

Extended Service Contracts
Extended service contracts, also called extended warranties, are options that may cover certain repairs for a longer time or more fully than the manufacturer’s or dealer’s standard warranty. They vary in price, length of coverage, number of miles, and parts and labor that are covered.

Not all extended service contracts are the same. Be sure to determine exactly what is covered before you decide whether to purchase an extended service contract.

Extended service contracts may duplicate much of the coverage you already have from the dealer or manufacturer. There are usually many restrictions, limitations, and exclusions for coverage. When you are considering an extended service contract:

Evaluate the cost. Many contracts are expensive, $1000 or even more;
Determine how long you plan to keep the car and how likely it is that you will need repairs within the covered period;
Assess whether the manufacturer’s or dealer’s warranty already provides the needed coverage;
Be aware that there is usually a deductible, ranging from $25 to $100, that you must pay toward each covered repair;
Review the contract, not just a brochure summarizing the warranty, to see exactly what is covered and what is not;
Check to see what you have to do in order to get warranty service. For instance, is the warranty company available toll-free, 24 hours a day, to respond if you need emergency repairs?

Sometimes extended warranties do not cover certain parts if they failed because of problems with other parts that are not covered in the contract. Also, “diagnostic” services necessary to determine what is wrong with the car may not be covered.

There may be unreasonable requirements for you to furnish proof of regular maintenance before problems will be covered. In some cases, payment will be made directly only to 22 “participating” repair shops. You may have to pay the bill yourself and then seek reimbursement from the warranty company.

Extended warranties are not considered to be insurance policies under Massachusetts law.

Usually extended warranties are administered by “third party companies,” not the dealers or the manufacturers. Because the warranties are not insurance, they are not backed by any fund to protect consumers if the warranty company goes out of business. In that case, it may not be possible to get repairs covered or payment for the warranty refunded.

Another thing you should be aware of is that most extended warranties can be canceled at any time for a refund pro-rated according to how much time has gone by. Be aware that sometimes the refund is calculated on the amount that the dealer gave the company for the contract, not the amount you paid the dealer.

It is not uncommon for dealers to double the cost of extended service contracts when they are sold to consumers. Because it is so profitable, the dealer may try to pressure you to buy a service contract. Be aware that a dealer cannot force you to buy one as part of the sale.

Finance Options
If you take out a loan for a car, you will generally pay a percentage of the car’s cost up front as a down payment. Lenders usually require a down payment for two reasons — to demonstrate your commitment to the deal, and to instantly address the fact that the car’s retail value is higher than its wholesale re-sale value.

Lenders have specific guidelines to tell them how much you can really afford — information that is useful to you when you are car-hunting. Here are some of the things they look at:

Your payment history on other financial obligations;
More than one year at the same job;
No more than half of your gross income committed to fixed expenses, such as rent, loans and other credit cards.

Some lenders may put different emphasis on each of these factors, so always check with more than one lender if you have problems in any of these areas. Truthfully explain any difficulties in the past.

If you have already shopped around for financing, you know whether the bank or credit union is willing to lend you money, how much you can borrow, and at what rate. Having that information enables you to act quickly to clinch the deal. If you are looking at cars on dealers’ lots, you can compare the financing they may offer to what you can get on your own.

When the dealer gets the financing for you, he or she usually gets a percentage point or two of the loan rate from the lender as profit.

You may be able to get a better rate yourself. On the other hand, you may need the dealer’s help if you have poor credit and cannot find a lender to give you a loan.

Be wary of ads or dealer statements that “all credit applications will be accepted.” Even though a dealer advertises that all credit applications will be accepted, it does not mean that all applications will be approved or will be approved at an interest rate you can afford. You should also be wary of ads offering financing even if you have “no credit, slow credit, or bad credit.” The dealer may be able to get you financing, but it may be at a high interest rate or on other terms that will be difficult for you. For the same reason, be wary of finance companies that offer loans to high risk individuals who are not considered for loans by banks.

Understand the Cost of Credit
Federal and state law requires the lender to clearly disclose all the costs and terms of financing to you in writing before you sign the loan agreement. Read the information carefully, looking for these items:

Sale price of the car;
Amount of that sale price that you are borrowing (called the principal);
Annual percentage rate (interest rate);
Total amount of finance charges you will pay for the loan;
Total loan amount (principal plus interest);
Schedule of payments (amount per month, number of months, dates payments are due).

You may also be responsible for late fees or costs of collection if you do not pay on time! Those terms should all be spelled out in the finance agreement.

Whether you are obtaining financing through the dealer or directly from a lender, compare the monthly payment amounts and the total cost to your own budget calculations — you know best how much you can afford. If a lender or dealer tries to get you to pay more than you feel comfortable paying, back off. You may want to borrow less or try someone else.

Remember that loans are usually set up so that in the beginning, more of your payment is applied to interest than to principal.

Car loans have also gotten longer — although 3 years used to be common, loans now may be written for 4-6 years. What will the car be worth at the end of that time? Will it last that long? Not without maintenance!

When you take out a loan the lender owns the car, not you. If you lose your job, suffer a disability, get hurt in an accident, or otherwise cannot make your monthly payments — you risk having the car repossessed. When your car is repossessed it is taken back by the finance company.

If you fall behind in payments and the car is repossessed, or you sell the car before the time set for the loan to end — you may not get enough money in resale to pay off the loan, leaving you on the hook for the difference. So when financing a car purchase, ask yourself:

How long do I plan to keep the vehicle?
What is the largest down payment I can afford to make in order to reduce the amount I am borrowing? A large down payment will reduce the amount financed and your monthly payment.
What is the lowest interest rate I can get?
What is the most I can afford to pay each month to pay off the loan as quickly as possible?

Credit Insurance
The dealer or lender may ask you if you want to purchase credit life or disability insurance. These types of credit insurance cover the loan payments if you die, or become ill or disabled, but they usually only pay for limited periods of time, not indefinitely.

You cannot be required to buy credit insurance when you get a loan. You may already have coverage through your own life insurance or adequate savings to cover your payments in an emergency. Credit insurance is an additional expense, and it is even more expensive if you are paying finance charges on it. So think carefully about whether it makes sense to buy credit insurance.

Leasing Your Car
Leasing provides consumers with an alternative to financing the purchase of an automobile. When you lease a car, you are paying to use the car for a period of time. During the term of the lease, you do not own the car even though you are usually responsible for maintaining and insuring the car. Though leasing is not for everyone, it does provide an alternative to financing if you do not have a lot of money for a down payment, you know how many miles you will be driving over the lease term, and your budget only allows for a low monthly car payment.

Understand the Cost and Terms of a Lease
Federal laws and regulations require the lessor (the company leasing the car to you) to clearly and conspicuously disclose a number of important leasing terms to you before you sign the lease agreement. (See the informative brochure published by the Federal Reserve Board, called: “Keys To Vehicle Leasing: A Consumer Guide.” www.federalreserve.gov/pubs/leasing/ for more information, or call the Boston Federal Reserve Bank for a copy at: 617-973-3000). As with any contract or important document, you should take time to carefully read the entire lease agreement and make sure you understand the terms.

Specific terms must be disclosed in the lease agreement, separated out from the other lease contract terms. They must appear in a document that you can take with you:

An itemized list of the amount due at lease signing;
The number, amount, and due dates or periods of payments and the total amount of all payments due during the term of the lease;
The total amount of other charges itemized by type and amount that are not included in periodic payments, such as a disposition fee;
The total amount you will pay by the end of the lease;
A step-by-step illustration of how your periodic payment is calculated including disclosure of the gross capitalized cost (the negotiated value of the car and any items paid over the lease term), the capitalized cost reduction (the down payment, including rebate and/or trade in value) and the rent charge (comparable to the finance charge in a financed sale);
A disclosure that you may have to pay a substantial charge, up to several thousand dollars, if you end the lease early;
A notice of the standard that will be used for determining whether or not the car is subject to an excessive wear and use charge at the end of the lease. The lease must also specify the amount or method of determining any charge for excess mileage;
If there is an option to purchase the car at lease end, the document must disclose the purchase price or the method for determining the purchase price at lease end.

Other disclosures need not be separated out, so you will have to look closely at the entire lease agreement for them. The lessor must disclose, among other terms, any conditions under which either you or the lessor can terminate the lease and the amount of (or description of the method for determining the amount of) any early termination penalty you will have to pay; a statement of who is financially responsible for maintenance of the car during the lease term; a statement of the standards that the lessor will use to determine whether an excessive wear or use charge will be imposed at the end of the lease; and information about any penalties for default, delinquencies or late payments.

The required disclosures should give you enough information to compare lease offers. If you decide to lease a car, it is always wise to compare all the lease terms to determine which lease is best for you. Though one lease may have a lower monthly payment, it may be for a longer term, requiring you to pay more over the life of the lease.

Understand the Sales or Lease Contract
When you buy or lease a car, there should be a written contract spelling out all of the terms between you and the seller or lessor.

Do not sign any document that has blank spaces on it. Fill everything in, or write “not applicable” in the spaces. You must be given a copy of the finance or lease agreement you sign — this is separate from the motor vehicle purchase agreement.

Private Party Contracts
In a private sale, you do not need an elaborate contract. However there should be a bill of sale, which may be typed or handwritten, that includes:

The date of the sale;
The year, make, mileage, and vehicle identification number of the car (this can be found on the title or on the top of the dashboard);
The odometer reading;
The amount of money paid and method of payment (cash or check);
Any special conditions or promises;
A list of any serious defects that the seller knows about;
The seller’s and buyer’s names, addresses, and phone numbers, and their signatures.

Make sure that the name on the title is the same as the name of the seller.

All sellers must disclose the actual mileage of the cars. The seller must indicate on the title if the odometer has rolled over and started again at zero, or if the mileage displayed on the odometer is not accurate.

Do not accept a title from the seller if the mileage is not filled in and/or the title is not signed.

Deposits in Private Sales
When you give a private seller a deposit to hold a car for you, do not assume that you can get your money back if you change your mind. If the seller agrees to refund your deposit, get it in writing.

Dealer Contracts
Dealers use forms called “Motor Vehicle Purchase Agreements.” While these are fairly standard, they are not always identical, so it is important for you to read the contract and understand all of its terms. You may be worn out after tough negotiations, but do not be rushed or intimidated into signing the contract before you have had a chance to read it.

Once you and the dealer sign the contract and you receive a copy of it, you are both bound by that agreement.

Before you sign on the dotted line:

Read the contract carefully, preferably by yourself and not while the dealer or salesperson is sitting there. If you prefer, ask if you can take it home to read. If the dealer refuses that should caution you about engaging in further dealings with the dealer;
Make sure you understand everything. If something is not clear or you think it is incorrect, ask the dealer;
Do not be afraid to say you want something changed if it does not accurately reflect the verbal agreement;
Make sure everything is included.

If the deal was supposed to include a free service contract, is that noted in the contract? If the deal is contingent on (depends on) your ability to get financing, or on the financing being available at a certain rate, does it say that? If the dealer agreed to make particular repairs before you take the car, are they listed? Make sure that all the terms that you have negotiated and agreed to are listed on the contract.

Document Fees
The amount that the dealer can charge you for helping to prepare the title paperwork is set by Massachusetts law at $5. However, there is no limit set by law to how much can be charged for other services, such as preparing the finance agreement, getting the registration application stamped by your insurance agent, or going to the Registry of Motor Vehicles for you.

When you see unspecified “document fees” on the contract, do not be shy about questioning fees and asking for an itemization. While dealers may be justified in asking for some compensation for this work, the fees are often very high. Try to negotiate a lower fee.

You may be able to save some money by going to your insurance agent and the Registry of Motor Vehicles Office yourself, if you have the time.

Deposits in Dealer Sales
You may be asked to leave a deposit to hold a car, even before you have agreed on all the details or your financing has been approved.

You should be aware that the dealer may not be required to return your deposit if you decide to cancel the deal and if:

You and the dealer have signed the contract and;
The contract has a special section on the front page, clearly blocked-off, that states the circumstances under which your deposit will be kept and;
The specific dollar amount is filled in and;
You initial that clause, separately from your signature at the bottom of the contract.

Do not place a deposit on a car unless and until you are serious about buying the car.

Make your deposit as small as the dealer will accept in case you have to forfeit it.

The Buyer’s Right to Cancel
While there is no automatic cooling off period for canceling a motor vehicle purchase agreement, in some situations the buyer does have the right to cancel the contract and receive a full refund of any money paid:

When the contract has not yet been signed by an authorized dealer representative;
If the agreement was “contingent” on getting financing or on other terms that did not occur after reasonable attempts to fulfill them;
When the dealer attempts to deliver a car that does not conform to the contract;
If the dealer fails to deliver the car within the time period specified in the contract or, if no time was promised, within 8 weeks (unless the delay is caused by acts beyond the control of the dealer and manufacturer).

If you order a car and it arrives with options you do not want or without a promised feature, you can cancel the contract, or you can negotiate a new agreement, if you like. If repairs were promised on a used car before delivery and they are not made, you do not have to take the car.

Remember, once the car is registered in your name, it is much harder to cancel the contract and get your money back.

Buying a Car Over the Internet
The Internet can be a useful tool for car shopping but requires even more care. For many years, millions of motorists have turned to the World Wide Web to research car models and prices. In recent years consumers have used the Internet to negotiate the actual purchase of a car, and even arrange for delivery of it to them. The risks can be high, though, when you make an expensive purchase of a used vehicle on-line with a seller in another state. Successful complaint resolution let alone legal jurisdiction gets complicated. Consider the following suggestions when using the Internet for car shopping.

Purchasing a Vehicle on the Web
If you are buying a used car your Internet research can arm you with direct leads to used car sellers, both individuals and licensed dealers, and you can complete the negotiations in person. Yet, the Internet also can allow the entire transaction to be completed on-line, via an auction site, a used car dealer’s site, or a private seller posting his vehicle for sale; and the purchase completed with terms negotiated via Internet and telephone discussions. All that is left is to arrange for delivery or to pick up the vehicle.

Some car buyers travel to the seller’s location to physically inspect the vehicle and if satisfied, bring it back home. This may be smart and even worth the cost of a one-way plane ticket, especially as it will allow you to test drive the vehicle, and arrange for an independent mechanic to inspect it for you. Some auction-focused web sites allow competitive bidding for vehicles or straight set priced transactions. eBay, and similar sites, have some built-in protections such as a way to learn about the reputation of the seller based on other transactions, and also an opportunity to use an escrow payment system to protect against non-delivery or misrepresentations about the features or functions of the vehicle. Be aware, however, that some sellers may post praise for themselves by using other identities, so take recommendations with the proverbial “grain of salt.”

Many, many “brick and mortar” car dealers are using the web to attract sellers who might be seeking a particular make, model, and color, thus, drawing from a much wider geographic reach for customers. In these instances the transaction is usually completed in the traditional way, with a visit to the dealership to purchase the automobile.

To protect yourself when buying a vehicle over the Internet, keep the following tips in mind:

Verify the seller’s identity before you do business with him/her. Identify the company or private party seller’s name and the city location and physical street address, and phone number;
Check out the seller’s reputation. Contact the Office of the Attorney General and the Better Business Bureau in your state and in the seller’s state to see if the seller has a history of complaints. Be aware that a seller with no complaints does not guarantee that the seller is legitimate.
Research the vehicle’s title history through CARFAX—to do this, you will need the vehicle’s “VIN”—vehicle identification number; Examine the vehicle’s history as it may have been in an area of the country where floods or other problems that may not be readily evident occurred;
Carefully examine car. If you are knowledgeable examine it yourself or have an independent mechanic or trusted friend check it out. If possible—test drive it;
Do not rely on one photo, but seek more shots of the interior, under the hood; etc.;
Understand the terms and conditions of the sale. Ask how and when the car will be delivered, and find out about the seller’s return policy. Is the seller a licensed dealer and if so, does his state require certain warranty protections for the consumer-buyer? Will the dealer honor those warranty protections for you?
Get written information about any warranties offered or required on the vehicle. Ask about procedures for dealing with any needed repairs or other problems that may arise.
Talk to your insurance agent to see if there are procedures so you can arrange coverage if you want to go pick up the car and drive it home before you register it. Ask what the insurance agent’s “blue book” estimates as its worth. Check on anticipated insurance costs before you commit to buying the vehicle – many a deal involving a “cool car” can become a problem if an inexperienced purchaser does not know what to budget in advance for both the vehicle and the insurance for it;
Don’t pay for the car via a wire transfer or provide your checking account information for an electronic transfer…use a check or credit card; or better yet, put the payment in escrow until you have the car and are sure it is what you expected;