Car Deal Mathematics
Negotiating car deals can be a nightmare if mathematics isn’t your strong suit. Many times a car dealer will make the process of negotiations go the way he wants it to go without concern for what’s best for the customer too. It is very helpful to have a general understanding of the mathematics in order to not get lost in the numbers. Take control of the negotiations and the process will go smooth and simple, if not go to the next deal or dealer.
Without a Trade:
Keep it simple. If there is not a trade, determine the final price plus tax, title, and license. In Texas, TTL (tax, title, and license) is approximately 6.5% tax (including inventory tax) plus roughly $300 in fees for quick math. Example-$10000 plus TTL equals $10000 plus $650 tax plus $300 fees which equals $10950. Car dealer lingo will refer to this as a final drive out price. Don’t worry about the pennies, focus on the dollars.
The manner in which you intend to pay for the car is irrelevant in this process. Paying cash for the vehicle, financing with your bank, or using the dealer’s source of financing should have no bearing on the final price. Customer’s think that the price should be lower if they are paying cash (wives tale), however in the eyes of the dealer if the only profit is coming from the principal of the car, then some dealers will actually try to hold a higher price on a cash transaction.
If you are financing, have access to a Payment Calculator so you can figure your own payments. Determine the amount financed by subtracting your money down from the final drive out price. In the example above, the $10000 vehicle including TTL equals $10950 drive out. If you put $950 down, then your amount financed is $10000. An easy way to estimate the payment is to arm yourself with some simple math and a few easy money factors. 60 month loans are approximately $20 per thousand financed ($20 money factor), 48 months is $24/1000 ($24 money factor) and 36months is $31/1000 ($31 money factor). Approximate payments for $10000 are: 60 months-$200 (20x10), 48 months=$240 (24x10), and 36 months=$310 (31x10). When you estimate your payments this way and then qualify for a lower rate, then the actual payment will be less and you will be under budget. The above shortcuts are based on a 7% interest rate. Never negotiate payments, determine the final price and calculate your own payment, or least know how to double check your dealer.
With a Trade:
Once again, I say keep it simple (Price minus Trade = Difference or Trade Difference). Negotiate and compare trade difference when looking at several vehicle options. Remember too that your payoff has no bearing on the trade value. Your loan balance will only come into play once you look at amount financed after you have agreed on the trade difference.
If you are buying an $18000 car and receive $8000 for trade, then the trade difference is $10000. If another dealer sells his car for $20000 but gives you $10000 for trade, your trade difference is still $10000. Dealer’s prices will all be different and their opinion of your trade will be as well. Focus on the trade difference when comparing, because in the end, that is the amount you are spending and should be the determining factor when comparing price difference between vehicles.
In Texas, the TTL is determined based on trade difference. $10000 trade difference plus TTL equals $10950 drive out difference, just like the example above. Check your local state tax rules to determine if tax credits are given for trade values.
If you have a payoff, simply add the payoff amount to the drive out difference amount and then subtract any money down to determine amount financed.
1. Price (-) Trade (=) Difference
2. Difference (+) TTL (+) Payoff (-) Money Down (=) Amount Financed
3. Amount Financed (x) Money Factor (=) Payment
Knowing these simple steps should allow you to feel comfortable during the mathematics of negotiations. Another helpful tip is to buy from someone that welcomes this knowledge. The hardest part of a car deal should be locating the perfect car, not negotiating or buying it. Once you have found the right car, agreeing on the price should be rather simple. If you are armed with this knowledge and the process is not as smooth as you would like, maybe you have found the right car, but not necessarily the right dealer. Shop BBC Motorsports in Dallas and know going into the deal that they welcome your knowledge and strive for comfortable negotiations for both parties.
BBC Motorsports, 1320 Chemical St, Dallas, TX 75207
214-905-6100 Google Map