Still not confused or even a trifle concerned about how expensive negotiating from a monthly payment angle can be?
OK, fair enough.
Let’s take a look at a real life example with some real numbers maybe that will help.
So, pay close attention.
You’re a customer who believes you have done your homework, and you have made it to crunch time… the negotiation stage of the car deal. After serving and volleying with the sales staff, you are holding to your predetermined limit of not spending one dime over $15,000 (this is a relatively low number. a higher number would mean even a greater expense).
Let’s say the car in question is priced at $15,500. Negotiations are beginning to slow and the salesperson asks what your current payments are now. You innocently tell the salesperson they are about $300 a month and that you have three payments left (an egregious negotiating error).
Now… please stay with me on this.
The salesperson asks you to be patient just a few more minutes while they go to negotiate car prices a bit more (with that bad, bad man) the sales manager on your behalf… sure they are.
In a few minutes the sales person comes back and compliments you on the hard bargain you drive. And how he really didn’t think the sales manager would go for it… but let’s get this thing done before he changes his mind. The salesperson continues… with your trade, I can get your monthly payments around $300! Shall we put the deal together at those numbers?
This is where the salesperson just redirected your focus back to the monthly payments getting you to blink from your not a dime over $15,000 mantra.
The negotiations have been going on for a while and although it’s been a bit of a long day you are puffing up with pride over your cunning and tenacity. You’ve been comfortable the past few years making your $300 a month payments and you really like the car and heck… you’re going to be under $300 a month now and you got a new car to boot… what could be wrong with that?
So, you now make the next fatal step and tell the salesperson your payments cannot be over $300 a month, in fact get them under $300 pal to put this deal together.
You’ve been sucked into the monthly payment vortex.
The sales person grimaces and says “man you’re tough, but I’ll see what I can do.” In a few minutes the salesperson returns and says, “how does this sound. We’ll pay off the balance on your trade which is $900 and give you $1,800 more to use for the down payment on the new car. This will put your payments right about $290.”
You have what you think is one last spurt of negotiating the car deal in you and you say… “wait a minute, just what do you mean about $290? I want to know exactly.”
You mentally pat yourself on the back as the salesperson leaves once again and with the return says… “how does $291 a month sound?” And just so you can put the hammer down one more time to show ‘em who’s in charge you let them know it better not be more than $291 a month or I’ll walk.
Put a fork in your butt, because you are done my friend.
Hey, what could be wrong with upgrading the car you’re driving by a few years and lowering your monthly payments in the process? Well… in all honesty nothing if you’re happy with the deal you got.
But remember this website isn’t about being warm and fuzzy. It’s about letting you know how to get the most for your hard work and your hard earned money.
Bringing the monthly payment point home…
Let’s debrief. I’m going to put a few numbers together based on our scenario… the numbers are real only the interest rates will have changed to protect the innocent.
Let’s say you get your $291 per month at an interest rate of 9%. On a 60 month loan, this calculates to $14,000. Remember your trade. You better, They did. The dealer paid off the balance of $900 plus gave you $1,800 to apply as a down payment.
Let’s do the math: $291 a month for 60 months @ 9% interest = $14,000. Take that $14,000 and add it to your down payment of $1,800 and you just spent $15,800 for your new car.
Still a good deal?
You are probably wondering what happened to the selling price of the new car in the numbers you just showed me… doesn’t matter does it? Because you were will to buy the monthly payment.
And this was actually a rather mild example of how settling on monthly payment can cost you.
Don’t mix and muck up the new car part, the trade-in part, and the financing part. It will only muddy the waters for you and you’ll lose.
Let’s look at dealer holdback next…
