Car Buying Tips: Mastering the Trade Difference

Understanding the Four-Square Worksheet

The four-square worksheet is a common tool used by car dealerships to present deals. Originating in the 1980s, it often misleads customers by focusing on less critical numbers. The four squares typically include:

1. Their Price: The dealership's price for the car.
2. Your Trade Value: The value of your trade-in vehicle.
3. Cash Down: The amount of money you put down upfront.
4. Monthly Payment: The monthly payment amount.

The Sales Tactic

Salespeople often use this worksheet to steer the conversation towards monthly payments and down payments, rather than the overall cost or trade difference. Here’s a typical scenario:

1. The salesperson presents the worksheet, pointing to each square.
2. They emphasize the monthly payment and down payment, often quoting high numbers initially.
3. After some negotiation, they lower these numbers to make the deal seem more attractive, without adjusting the car's price or trade value.

The Real Focus: Trade Difference

The trade difference is the key number you should focus on. It’s the difference between the dealership's car price and your trade-in value. This number, along with the total financed amount (trade difference plus your trade-in’s payoff), determines the actual cost of your new car.

Steps to Get the Best Deal

1. Know Your Interest Rate

Get pre-approved for a loan from your bank, credit union, or another lending institution. This gives you a benchmark for interest rates. According to the Federal Reserve, the average interest rate for a 60-month new car loan was 4.21% in Q2 2023 (source).

2. Determine Your Budget

Use a loan calculator to figure out your monthly budget, desired down payment, and loan term. For example, a $15,000 loan at 8.9% interest over 60 months would be approximately $311 per month.

3. Gather Information

Research the selling prices of the cars you’re interested in, the value of your trade-in, and your exact payoff amount. Websites like Kelley Blue Book (source) and Edmunds (source) can provide valuable insights.

4. Evaluate Your Trade-In

Try to get your trade-in evaluated first. While some dealerships may not do this upfront, it helps you understand how much vehicle you can afford. Remember, dealerships might offer different trade-in values, but the trade difference is what matters.

5. Visit Multiple Dealerships

Visit several dealerships to gather trade differences on similar vehicles. Use this information to negotiate the best deal. According to a 2021 study by Cox Automotive, 61% of car buyers visit more than one dealership before making a purchase (source).

6. Discuss Payments with the Finance Manager

Only discuss payments with the finance manager after agreeing on the trade difference. This prevents the salesperson from adding unnecessary costs. Knowing that a $15,000 loan should be around $310 per month helps you avoid inflated payment quotes.

7. Stay Focused

Stay focused on the trade difference. Don’t let the dealership distract you with other numbers. Bring a copy of this guide if necessary to remind yourself of the key points.

The Competitive Market

The internet has revolutionized car buying, making it harder for dealerships to overcharge. Consumers can now access online inventories, trade-in values, loan calculators, and vehicle history reports. Websites like Autotrader (source) and Carfax (source) provide valuable resources for car buyers.

Interesting Stats

• Online Research: 86% of car buyers conduct online research before visiting a dealership (source).
• Trade-In Value: The average trade-in value for a used car in 2023 was $19,000, a significant increase from previous years (source).

By focusing on the trade difference and following these steps, you can navigate the car buying process with confidence and secure the best deal possible.