Have you ever sat on a waterbed? If you have, you’re aging yourself! If you haven't try to visualize what sitting on a bed of water would feel like. Because the inside of a waterbed bed is fluid, when you sit on one area of the bed pushing it down, a different area on the bed pops up. The fluid has to go somewhere.
A car purchase transaction is a lot like that old waterbed. There are several different variables inside the transaction: the price of the car, the value of the trade-in, type of equipment on the vehicle, the interest rate, loan term, and down payment amount, Each of these variables is fluid. When you sit on one of them, chances are that another will pop up.
The dealership looks at the entire transaction to determine its profit: the new car, the trade-in, the financing, and any accessories and add-ons. Most consumers, on the other hand, want to think of these items separately. They may even get a bit emotional about the price, interest rate or the trade-in value. Consumers tend to focus on the price of the car and monthly payment rather than all the variables that actually make-up that monthly payment.
Dealerships know this and point you towards the monthly payments to simplify the negotiation process. The dealership is not doing anything wrong, it is protecting its overall profit in the deal by adjusting the trade-in value or add-on product prices to account for the discount you negotiated on the purchase. If you were relying on the dealership to also provide financing, your rate and/or term may go up as the price of the vehicle went down. Auto dealerships often earn income off the loan they offer you by marking the interest rate up and “participating” in the increased interest rate. Again, auto dealerships are businesses and need to make a profit to stay in business.
Your BlueHarbor loan allows you to minimize the number of variables you must consider. By removing the financing variables from the equation, you simplify the transaction dramatically. Then, you can concentrate on finding the car you really want and negotiating a fair deal. BlueHarbor can also provide extended warranties further minimizing your exposure to the waterbed affect.
The Bottom Line
To negotiate successfully, you have to think like a car dealer. For example, suppose you’re able to negotiate a rock-bottom price to purchase your perfect car. If you do that, chances are that the dealership will quote a lower value for your trade-in than you think is fair. Why did they do that? Well, by sitting on the price of the new car, you caused the fluid variables in the deal to pop up around the trade-in. Nail both of these variables and the dealer may turn to the financing interest rate to boost profits.
Don’t get hung up on the exact price of the car or the exact value of the trade-in. Concentrate instead, on what the dealership calls the “difference.” Here’s an example:
- Target Price of new vehicle: $28,000
- Wholesale Book Value of trade-in: $15,000
- Difference: $13,000
In this example, it doesn’t matter what figures you use to arrive at the final deal, as long as the difference remains around $13,000. You could just as easily make a deal to buy the car for $2 6,500 and get $13,500 for your trade-in. You’ll pay the same amount: $13,000.
In fact, depending on the sales tax laws in your state, your total cost for the transaction may be slightly less if you can lower the price of the new car in exchange for taking less money on the trade.
- Purchase price of new vehicle: $28,000 | $26,500
- Value of trade-in: $15,000 | $13,500
- Sales Tax at 5% (on purchase price): $1,400 | $1,325
Prices shown are examples only. Sales tax rates and regulations vary by location.
Now, imagine if you had to keep track of the interest rate, the loan, term, the down payment, and a host of other variables at the same time. You’ll begin to see just how simple BlueHarbor can make it for you to negotiate a fair deal.
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