No, do not tell a car dealer your target monthly payment. Focus exclusively on negotiating the total "out-the-door" price of the vehicle first. Disclosing a monthly payment allows dealers to manipulate loan terms, such as extending the duration, to hide the true, higher cost of the car and maximize their profit.
If you tell a salesperson you're willing to pay $500 a month for a new vehicle, the salesperson is trained to say, “Got it—$500 up to?” in the hopes you'll increase what you're willing to pay. Then the salesperson might write down a down payment amount and say, “Were you planning on putting that or more down?”
The FTC Red Flags Rule requires auto dealerships to have a written Identity Theft Prevention Program (ITPP) to detect, prevent, and mitigate identity theft, especially in financing/leasing, by spotting signs like suspicious documents (altered IDs, mismatched photos), inconsistent application info, or unusual account activity, with consequences for non-compliance including hefty FTC penalties and lawsuits, notes the Federal Trade Commission. Key steps involve identifying vulnerable accounts, spotting specific "red flags," creating detection/response plans, training staff, and regular audits, with a senior manager overseeing the whole program, say Dealertrack and Total Dealer Compliance.
In many cases, it can be a good idea to tell the dealership you have your own financing for a car lined up because it could mean a better deal for you. But timing is everything – when you tell the dealer about your pre-approval is key if you're looking for the best deal you qualify for.
Dave Ramsey's core car rules emphasize paying cash, avoiding new cars (unless you're a millionaire), keeping your total vehicle value under half your annual income, and using a strict budget, often suggesting the 20/4/10 rule (20% down, 4-year loan, 10% total car expenses) as a guideline if financing, but preferring no debt at all to avoid depreciating assets trapping you. He stresses buying reliable, used vehicles to prevent debt and build wealth.
The Nine Worst Things to Do at the Car Dealership
A little preparation, and knowing some of the common car dealer tricks used by salespeople, can help you close on a car with confidence.
5 Tips on How to Beat the Car Salesman
Take Out A Loan Instead
You'll pay far more for your car if you ask to pay for it all upfront with cash. That's because the dealership will not be willing to negotiate as much on the front-end of the car deal since you will not become a sales opportunity for the back-end of the deal (aka in the F&I office).
How much of my income should go toward a car payment? Most financial experts recommend spending no more than 10% of your take-home pay on your monthly car payment and no more than 15–20% on total car expenses including gas, insurance, and maintenance.
Take time before going out shopping to educate yourself on what is available and the current market value of the car you want. This will give you a better idea of how much to pay, so that you can avoid being overcharged by a salesperson. The more knowledge you have, the better equipped you will be to spot a good deal.
Depreciation. Cars reportedly lose 20% of their value in the first year of ownership and retain just 40% of their original value after five years. Clearly, that is not a good investment. “Your goal should be to buy the least expensive car. Period,” said Orman. “That should steer you to a used car rather than a new car. ...
The 50/30/20 rule is a simple budget guideline: 50% of your after-tax income for needs (like housing, groceries, and car payments/expenses), 30% for wants (dining out, entertainment), and 20% for savings and debt repayment. For a car payment, this means your total monthly car expenses (loan, insurance, gas, maintenance) should ideally fit within the 50% "Needs" category, with some experts suggesting car costs shouldn't exceed 10-15% of your income overall, making a modest car a "need" and luxury vehicles a "want".
Signs your car is being targeted include subtle markings (chalk, scratches) on the body, tampered locks, moved mirrors, electronic glitches (radio static, key fob issues), missing or moved items inside, suspicious loiterers, unfamiliar vehicles circling, or physical obstructions like screws near tires; these often signal a thief scoping it out for theft or surveillance.
On average, dealers may be willing to come down by $500 to $1,000, depending on the vehicle and the specific circumstances of the deal. This is why it's always a good idea to negotiate when selling to a dealership.
Rates and terms are subject to change without notice. Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.