Warning: Don't Do This When Buying a New Car

Image source: Getty Images.

The other day I found myself on a car lot, testing driving a new-to-me car. I had mixed feelings about being there because up until a few days before, I had been driving the same old, reliable car for12 years, and I really didn't want to shell out money for new-ish vehicle. I wrote about my experience with that car in an article a few months back, so I won't rehash everything here, but let's just say that after racking up 235,000 miles on the odometer, my old car was ready for retirement.

As I walked into the dealership, I kept reminding myself about the great value I got out of my last car, and committed to not overpaying for the new car.But in order to that, there's one thing I had to remember not to focus on: the monthly car payment.

It's worth mentioning two things here. First, if you can pay for a car in cash, that's typically the best way to do it.Second, you need to make sure you can afford the monthly payment, of course, but keep your focus on the out-the-door price. That's the final cost of the vehicle after negotiating, plus any fees, taxes, etc. It's what you're actually paying -- and if you lose sight of that, then you'll end up overpaying for sure.

Do your research and stick to a price

I went into the dealership with about three months of research under my belt. I knew exactly what car I wanted, what other dealers were charging for similar models, what the reliability rating reviews were, what that specific vehicle's CarFax report said, what the TrueCar estimate was, the Kelley Blue Book value, what the dealer probably paid for it when it was traded in, what I could resell it for, and -- most importantly -- what I wanted to pay for it.

Now, no one needs to (should?) spend months researching cars. I've had a weird quirk since I was a kid that's made me actually enjoy reading vehicle reliability ratings, so I may have spent slightly more time than I needed to on my research. I know this because my wife told me on several occasions, "Just go buy a car, already!" But these days, you can find out all of the above information online in less than an hour, so there's really no excuse not to.

After the test drive and a thorough look around the car, inside and out, I knew I was ready to negotiate. This step can be intimidating for many people, but let me offer a couple of bits of advice. First, I'm not an extremely outgoing or talkative person, so don't think that you have to be an extrovert in order to negotiate well.

Second, remember that you are always 100% in charge of your wallet. I can almost guarantee that no car salesperson will, at any time, reach across the table and steal money out of your pocket. That's important to remember because even though I technically needed a car, I didn't need that dealer's car.

Image source: Getty Images.

When the saleswoman and I started negotiating on the price, she did what most car salespeople do. She kept bringing me back the monthly payment, tried to get me to put down a larger down payment to lower the monthly cost, and showed me all of the costs that were unchangeable (i.e. taxes). But what she never brought up, and what I had to continue steering her toward (car pun!) was the actual price of the vehicle.

After about 20 minutes of negotiating, a couple of price drops on the car's actual cost, she said to me, "I like you Chris, and I want you to get this car today," then she handed me a pen and said, "Come on, just sign it and let's be done." I kindly responded, "I like you too," pointed to the price of the car and said, "But this price needs to come down just a little bit more."

At one point she told me that her manager won't want her to sell the car any less. That's when I did a quick glance around the showroom, saw that virtually no one else was in the dealership buying a car that day, and told her that her manager would be very pleased that she's actually making a sale on this slow day.

But the key to my negotiating was in staying focused on the out-the-door price that I wanted, ignoring the attempts to get me back to thinking about the monthly payment, and being willing to walk away from the deal.

This helps too

When buying a used car, it's impossible to know how much the dealer actually paid for it. So I can only guess as to what they paid, based on some numbers from Kelley Blue Book. But by focusing on what I wanted to spend -- and being willing to leave the dealership without a vehicle -- I was able to get a great used car, for a great price, that I'll hopefully have for the next 10 years.

After all the negotiating was all done and we had agreed on a price, the saleswoman asked who taught me how to negotiate the way I did. I told her that it wasn't anyone in particular, and added, "I just don't like spending money."

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Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends TrueCar. The Motley Fool has a disclosure policy.