Buy The Best Car

Check Loan ⇦ Buy the best Car ⇨ Car Sales People

What is your buying power?

Now that you understand what you will get for your part exchange and how the finance works, you can now combine these and work out the best way you are going to buy a new car:

Let’s say you have looked up and worked out (adjustments for mileage and condition) the Trade price for your part exchange car and that price is £3400. How much can you afford to spend – either in cash or in monthly payments? Let’s say that you have decided you can afford £250 per month.

Using our Car Loan Calculator you can now work out how much that monthly repayment will allow you to borrow to buy your new car. Say the flat rate is 3% and you are happy to take a loan over 3 years: -

£250 per month over 3 years at 3% means that you can borrow £8,256.88 so you can buy a car for up to £3400 + £8,256.88 = £11656.88 … call it £11700

That figure, obviously, is the maximum price of any new car that you want to buy… or is it...?

The problem is that, early on in speaking with you, dealers often ask you how much you want to spend so you have to be careful what you say AND which cars you go to look at… and that depends on what you want to achieve…

Do you want to buy the best car you can afford?

If you want to spend your maximum and buy the best car you can afford then, yes, the above figure of £11700 is your top price. However, you don’t want to be looking for cars at that price. You have valued your car correctly and added your loan (or cash) amount to that but – what about discount on the car you are going to buy?

If you went to a dealer who had a car advertised at £11700 and you showed them your part exchange and told them that you could spend £250 per month they would LOVE you and fleece you for all they could. In fact, they would probably say that you couldn’t buy the car at that and get you to spend just that little bit more per month or add a bit more cash. They would be laughing all the way to the pub that evening... not the best outcome!

If you know that your maximum budget stretches to £11700 (as in the above example) you should be trying to buy a car advertised at MORE than that. How much more depends on the price range… you can safely assume that a dealer will intend making AT LEAST £1000 clear profit on every car they sell. Depending on the dealer and the price of the car they are selling this figure can be much, much more.

Remember, they want to make that sort of profit, ideally, but when you are the prospective customer sitting in front of them, they WILL reduce that profit as much as they have to, to get you to buy their car – as you will see in the next section. Just make sure that you don’t start off on the wrong footing by looking at cars that are too cheap compared to how much you want to spend.

So if your spending power adds up to £11700 you should be looking at cars advertised at something in the range of £12700 to perhaps £14000. Use any of the used car price guides to get an idea of prices – that will help you identify any dealer advertising a car at too high a price, indicating that they have allowed an even bigger margin of profit - but remember these will be “starting prices”, prices from which you CAN negotiate (downwards – down towards your £250 per month maximum)!

Or do you want to buy a specific car at the best possible price?

Alternatively, if you know exactly what car you want to buy and you want to get it for the best price, your approach needs to be different.

Again, you need to assume/know that any car advertised in a dealers’ will have a large margin of profit built into the price but that they WILL substantially reduce that profit, by giving you discount, in order to get you to buy the car.

So, let’s say that the car you want to buy is advertised at £11495. If you have the same part exchange we talked about above and would be happy going up to the same £250 per month, the car at £11495 is already within your budget… that is, if you want to get fleeced!

The difficulty arises if/when the salesperson asks you how much you want to spend. Remember, if they are going to ask this, it will normally happen early on when they first start talking to you. If you let them know that you could go up to £250 per month you can’t later, in the final negotiations, say that you can’t afford that much!

You simply need to have in mind the right monthly figure (or cash sum, if you are paying cash). If the car is advertised at £11495 how much discount should you go for? Follow the £1000+ idea. Again, check used car price guides to see if the particular car you have seen is being advertised at an over the top figure before you start. Perhaps, with this £11495 car you might assume you could get £1000 off the advertised price… maybe you could get more, maybe less… it depends on how hard you are going to negotiate to get the best price.

If we assume £1000 then your total spend would need to be £10495. Knock off the price for your part exchange car (£3400 in the above example), leaving a balance of £7095. If you are getting a loan for that, use our Car Loan Calculator and you will see that the monthly repayments work out at £214.82 (over 3 years at 3%) so IF they ask you how much you can spend to buy a car, tell them in the region of £200. Later, in the final negotiations they will try to get you to increase that payment because they “can’t do the deal”… You will learn much more about the negotiating process, and how to handle it, in the next section but, at this stage, having the right figures in mind means that you start off in the right way and avoid shooting yourself in the foot!

Now… let’s see how you should deal with car salespeople…

Check Loan ⇦ Buy the best Car ⇨ Car Sales People