Car Buying Tips: Focusing on Trade Difference

Published: 12th April 2007
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Four-Square. It's one of the most common car deal worksheets used today. It's been around since the 80s. It's designed to rip customers off. How? Normally, the 4 numbers in the squares do not directly include the only one that is important: Trade Difference.

It is an extremely competitive market, more so than ever before. The internet has made it increasingly difficult for car dealerships to make money.



Consumers have access to online inventories and classified sites like Los Angeles Used Cars.

They can get ideas of their trade values at Black Book Online.

They can check loan payment calculators, find affordable warranties, and get a used car's vehicle history report. For all of this, we can thank the Internet.

Having car buyers at the dealership, at the negotiating table, excited about a vehicle and ready to make a purchase is the only time the dealership has a chance to really make some money. The best way they can do this is by making consumers focus on payments.

This is where the four-square worksheet and other tools like it come into play. Usually the four squares show their price, the value of the trade, the cash down, and the payment. Here is a normal method of presenting the deal:

The car salesperson walks in and puts the sheet in front of you, facing you. They point to each square as they go over the numbers.

"This is for ours... this is yours... with $3,000 down, your monthly payments would be $789 per month. Initial here and I'll go get it cleaned up!"

Whoa, whoa, whoa! $789 per month? $3,000 down? What happened to zero down and $249 a month like the advertisement said?

And just like that, they have you. The last two numbers were so outrageous and spoken out loud. The first two we skimmed over and never spoken. You're ready to leave, but before you can, the salesperson will identify the objection, which will usually be the payment and money down, and try to fix it.

After a few rounds of back and forth, they relent to $500 down and $279 per month, magically making the numbers acceptable for you. Still, at no time did they adjust the top numbers. They simply kept the customer focused on payment and cash down. They won.

The best way to prepare for car shopping and get the best deal is to focus on trade difference - the difference between their car and your car. You can also consider "total financed amount", which is trade difference plus your trade-in's payoff.

If you can find an honest car dealer that works strictly with trade difference, such as Oklahoma Town Cars, you'll have a much more enjoyable experience.

If there are no dealerships like them locally, follow these steps and you'll avoid getting redirected in the direction the dealership wants you to look:

1) Determine your likely interest rate. Better yet, get pre-approved at your bank, credit union, or other lending institution. The dealership will probably be able to get a better rate, but knowing what the current rates are for your credit situation and for the kind of vehicles you are considering will help dramatically.

2) Determine your monthly budget, desired down payment (if any), and desired term. Find a loan calculator and plug in numbers until you know match your budget. If you know going in that a total finance amount of $15,000 with zero down will be $311 per month for 60 months at 8.9%, you will be able to find the car that fits your budget.

3) Get all the numbers you need ahead of time. If you know how much vehicles you are considering are selling for at local dealerships, and you know how much your trade is probably worth, and you know your exact payoff, you can determine what your target trade difference and amount financed will be.

4) Try to get your trade evaluated first. Many dealerships won't do it, plus it won't help you in negotiating (despite other articles that claim the contrary), but it will tell you how much vehicle you can consider at that car lot. Do not make the mistake of trying to find the dealership that offers the most for your trade up front. If your car is worth $5,000, some dealerships will say it is worth $4,000, while others may say it's worth $8,000. In reality, they are all giving approximately the same, but you'll find that the dealership giving $8,000 is probably $3k-$4k higher on the price of their vehicles. Again, focus on trade difference.

5) As rough as it is to go to multiple car dealers, it is a good idea. Gather trade differences on similar vehicles, then go back to the dealership with the best one. Then ask them to make it even better. They may or they may not, but it never hurts to ask.

6) Talk payments with the finance manager only, and only after the trade difference is acceptable. If you know that a $15,000 loan will be around $310 per month, there is no reason to argue it with a salesperson who comes with numbers showing the $15,000 loan at $370 per month. They want you to agree to leave a "cushion" for finance to sell you a warranty, bump your rate, or sell some other products. Again, if the trade difference is acceptable, worry about the rest of the numbers with the finance manager.

7) Be strong. Focus on the prize. Do not let anything or anyone distract you from the important number: trade difference. That is the only number you need to negotiate on the floor. Bring a copy of this article if you must, but make sure they know you know what they know. You know?

I hope it helps.


Video Source: Youtube


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