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Business Insider Business Insider 7/25/2015
© Provided by Business Insider car salesman
If you're looking to save money, big purchases can be a great opportunity to do so.
Unfortunately, when it comes to big-ticket items like a new car, most of us make mistakes and end up overpaying. The experienced and crafty car salesman doesn't help our cause, either.
We spoke to Scott Chesrown, who spent nearly a decade working in auto dealerships before transitioning to VP of Marketing at Vroom, a New York City-based car sales startup that brings the car buying, financing, and selling process online.
Chesrown shared four common tricks that car dealers employ to get you to spend more:
1. They start very low on the appraisal of your trade-in.
The first step in buying a new car is trading in your old one. Car dealers love to price your old car much lower than it is actually worth and assume you will start negotiating from the price they suggest, Chesrown tells us.
Don't get off to a lousy start by trading in your car for an unfair price. Do your research ahead of time, using resources such as Kelley Blue Book to determine exactly how much your car is worth. If you're armed with that information, you become the person controlling the conversation. "In today's world, buyers can hold the upper hand in the transaction," Chesrown says.
2. They get you in the door by offering low prices and then sell you something different (and more expensive).
Car dealers thrive on the classic bait-and-switch tactic. "Most tools online are geared towards getting you in the store because that's when car dealers have the most opportunity to sell the car," Chesrown explains. "The cars are right in front of you, it's usually a high-pressure situation, and these guys know how to sell cars. The stigma of the car dealer is still very much true in the industry."
What they'll do is tell you a great deal is available to lure you into the store, knowing that they can switch you on to a different, pricier car. Or, they'll tell you the "great deal" was already sold, and proceed to selling you something more expensive.
You have two options to overcome this trickery. You can call the dealership right before visiting and ask them to confirm that the vehicle is in stock. If they do, don't stop there ask them to email or fax a signed statement indicating it's available for sale. Option two is to forego the dealership all together and buy online, or opt for a service such as Vroom, which can help you find a deal online and then deliver the car straight to your doorstep.
3. They try to sell you a bunch of protection services for your car that you don't actually need.
"By the time most consumers get into the financing process, they're exhausted," Chesrown tells us. Dealers will use that to their advantage, and try to extract more money out of you when you're fatigued and desperate to leave with a new car.
"They'll start throwing on extended warranties and different types of protection you probably don't need on your car," explains Chesrown. "People end up buying a lot of things that ultimately don't protect them."
To avoid this pitfall, make sure you know exactly what these additional items cover and then ask yourself if you truly need them. Most of the time, you'll find you don't need so much protection.
A common trick to look out for is tire protection. Often, you'll find in the fine print that you're only covered if a nail was found in your tire any other damage not involving a nail will not be accounted for. Also, dealers may try to sell you an extended warranty that just covers their electrical system. This doesn't necessarily make sense, Chesrown explains, as modern cars don't have a lot of electrical problems.
This doesn't mean you should opt for the other extreme and forego all service contracts. "It is important to have a service contract," Chesrown tells us. "I'm a very big fan of extended warranties on cars when they cover the right stuff."
4. They mark up the interest rate on the car.
When it comes to financing the car for you, dealers can make a lot of money by marking the interest rate up, and oftentimes, consumers are completely oblivious that they're getting ripped off.
"The perception of most consumers is that the interest rate came from the bank, which they trust" Chesrown tells us. "The interest rate did come from the bank, the car dealers just put more interest on top of it."
Customers with excellent credit (780 or above) should expect an interest rate between 1.49% and 3.49%, and customers with average credit should expect between 4% and 6%, Chesrown says. The range accounts for factors such as income, debt, and the amount you want to borrow.
While the best dealers will always try and get you a competitive rate, they will also typically start at a slightly higher range to hold back a percentage for profit. Chesrown's rule of thumb is that if a dealer is quoting you an interest rate for the first time, expect it to be 2% higher than what the bank is actually charging them.
"The best way to protect yourself is to learn what your credit is, and then talk to your bank directly about what you would qualify for and the interest," advises Chesrown. "That would then give you the ammo you need before walking into a dealership."
One final tip from the expert: Don't jump the gun and tell the dealer how much you want to pay per month before you're approved. "That allows the car dealer to pack your payment full of all the products if they can beat your monthly payment, which they can usually do by extending out the length of the loan," Chesrown warns.
