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Rules of the Road: What You Need to Know About Buying a Car

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If you’ve ever felt like the deck was stacked against you while shopping for a car or truck, you’re not wrong. The truth is, the dealer has always had the upper hand.

That’s because in most cases, the person selling you the vehicle knows the car-buying game way better than you do. But that’s not your fault. Unless you’re in the business, why should you be expected to know all the tricks of the trade? Depending on the model, dealers typically mark up the “invoice price” (what they paid for the vehicle) 5-10 percent. Add that to the fact that they also make an average of $1,600 per sale on financing and insurance (F&I) alone, and you start to see how overpayment is basically written into the buying process.

Many factors go into selling — and buying — a vehicle. If a consumer had all that information readily available, it would level the playing field. This is what inspired us to build CoPilot: we wanted to create the most comprehensive tool to not only find the best cars for sale, but get the best deal. And to make sure we offer the most accurate, unbiased data, we don’t accept advertising fees from dealers.

Now, let’s take a look at some basic rules to follow the next time you’re in the market for a new or used car.

Rule #1: Do Your Research

The process of buying a car should always begin online. Today, there’s no shortage of resources available to the consumer when it comes to learning not only about the features of an automobile, but how it’s priced in a given area. That information is essential when you walk into the showroom.

Because when you do, a salesperson will try to gauge how much (or how little!) research you’ve done. The heart of the sale is here, and it hinges on who’s got the best information. A resource like CoPilot can help you through the process of comparing cars, features, and prices. It’s free, and you’ll be assigned a real-life “copilot” to help you navigate the process of choosing the right year, make, and model of car, truck, or SUV, as well as the most competitively priced offers in your area. In fact, CoPilot will show you the exact vehicle (new or used), its current sticker price, and where it’s located. Knowing exactly what you want will increase your chances of getting a fair price.

Rule #2: Find a “Comp”

Perhaps the most powerful piece of leverage a consumer can have is the option to buy a similar product for the same price (or less) somewhere else. When you conduct your research online it’s important to identify the car you want as well as a similar offer for a different vehicle. In the industry, that’s called a “comp,” and it’s every prospective car buyer’s best friend.

I heard a story from one of our CoPilot users in Chicago who found the exact car she was looking for, and headed to the dealership to buy it. She also found a less expensive comp in Milwaukee (an hour and a half away), and saved the listing on her phone. In the middle of the negotiation, she slid her phone across the salesperson’s desk and showed him her other option. Not wanting to lose the sale, he matched the price of her comp. She ended up saving several thousand dollars.

There are a few things to keep in mind when selecting an effective comp:

Your comp should be, well, comparable to the car you are setting out to buy. A car’s value can vary significantly based on a number of factors, including mileage, year, features, and special packages. Two cars may look and cost about the same, but be wildly different in terms of performance and actual value upon closer inspection.

Car values often differ from city to city, as in the case of the buyer above. Use this information to your advantage by explaining that while you may not mind driving a bit further for a better deal, you’d prefer to buy it from a dealer closer to home.

Rule #3: Get Pre-Approved for a Loan

A 2015 Federal Reserve survey reported that only 31.6 percent of people who bought or leased a car attempted to negotiate the vehicle’s financing rate. This is alarming, since dealerships will usually offer to arrange bank loans for consumers to finance their vehicles. And while this may be the better option for those with spotty credit who can’t ask their bank for a loan with a straight face, it’s important to know that dealers profit off these arrangements by marking up the interest several percentage points. In fact, car manufacturers will sometimes even subsidize these rates to dealerships.

If you have decent credit, you can get pre-approved for an auto loan from your banking institution before walking into a dealership. (The average credit score needed for a loan was 714 for a new car and 655 for a used vehicle). Getting a locked-in rate beforehand insures that no matter what, you won’t do worse than that offer. But it also gives the salesperson the incentive to beat it, so long as they can clear their own margins — even if they’re a bit slimmer than they might want. Auto interest rates current range from 4.84 to 5.44 percent, and dealers, on average, will mark up interests rates by 2.5 percent. Remember this figure as you are discussing the financing terms of your next car.

Rule #4: Review Your Financing and Insurance Products Immediately Afterward

The last person you will speak to in the car-buying process is someone in the Financing and Insurance (F&I) department. Remember that this is one of the biggest profit centers at any dealership, and high margins mean more room for negotiation.

While you should purchase the add-on products you feel are right for you, there are usually only two things most experts recommend that you consider: an extended warranty and gap insurance. An extended warranty may be worth it for a used vehicle in case something goes wrong. Gap insurance protects you if your vehicle gets totalled and what you still owe on the loan is worth more than the the value of your car.

Each has its benefits, and it’s important to do your research about them up front. But also make sure you can cancel these offers during a certain period of time after purchase (you’ll need to check the specific regulations in your state). California, for example, has no official “cooling-off period” after these purchases, but you can buy a two-day window for reconsideration of the deal.

Long story short, you may be able to find a better deal on F&I products online. After driving your car off the lot, go home and make sure that you got the best price on any add-on you selected.

There’s a caveat here as well: In some cases, there is a benefit to rolling the cost of your add-ons purchased through the dealer directly into your monthly payment from them. Just be sure to weigh each of these options against one another and go with whichever benefits you most.

Which leads to the last rule:

Rule #5: Ask for Lower Interest Rates

Be aware that an F&I salesperson will sometimes offer lower interest rates to accommodate these add-ons. For example, he or she could offer a longer loan term with a lower rate to include gap insurance, and this would only result in a higher monthly payment of, let’s say, $30. However, the slightly higher payment and longer loan term will actually result in an an extra cost of $1,000.

The difference between an OK deal and a great one is a matter of research and access to the best data. Do your homework before walking into the F&I office — or the dealership in general. Putting in this effort ahead of time will likely save you thousands of dollars. Read our car buying guide.

To learn more about how CoPilot can help navigate you through the car buying process, visit us at Copilotsearch.com.

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CoPilot is a great tool for discovering the best car for you, finding a reliable dealer in your area, and preparing you with everything you need to walk into a dealership with confidence. It’s free to use, and you get your own personal CoPilot — who’s an actual human, not a robot — to be your trusted ally in the car buying process. CoPilot has access to all the same data that dealerships use. In fact, it was created people who used to build auto pricing and appraisal software, so you can be confident you’re getting the most accurate information out there. To learn more about how Co-Pilot can help you, visit us at Copilotsearch.com.