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How to Negotiate at CarMax, Carvana, and Other “Negotiation Free” Car Dealers

Written by Ray Shefska

My career in the retail automotive business started in 1977. Buying a car doesn’t have to be anxiety inducing, stressful, or painful. Instead it can be confidence inspiring, fun, and convenient. Let me show you how.

September 29, 2020

Update 1/19/21: CarMax recently announced their Love Your Car Guarantee. For a full review of that program, click here: https://yourautoadvocate.com/guides/carmax-love-your-car-guarantee/

We all know that buying a car is harder than it needs to be. From the prolonged sales process to the trip to the “back office” for financing and warranty sales, buying a car certainly isn’t as fun as you’d think the second largest purchase of your life should be.

Fortunately for us there are a handful of people out there who recognize this terribly unpleasant process and took action to make it better. I’m referring to one-price, or negotiation free car dealers like CarMax, Carvana, and others. The premise of negotiation free car dealerships is in the name; the price is the price, there are no gimmicks, no haggling, no bartering, no headache.

A lot of people like buying a car from a one-price car dealer. It doesn’t take a rocket scientist to figure out why. The experience is simply more pleasant and less aggravating than going to a traditional car dealer. There is one downside though, you can’t negotiate!

It may sound paradoxical, but one of the biggest frustrations when buying from a negotiation free car dealer is that you can’t get them to lower their selling price of the car. Sure, you get a more pleasant experience, but you know you are paying a premium for that privilege.

It may come as a surprise, but you actually can negotiate at a negotiation free car dealership, the trick is what you are negotiating on. Interested to learn more? Let’s dive into how you can negotiate at CarMax, Carvana, and any other negotiation free car dealership!

Car dealers don’t make their money selling cars

Go ahead and re-read that title … Yes, it is true, most car dealerships don’t make their money selling cars. Instead, they make most of their profits from fixed operations (parts and service), as well as when they sell finance and insurance products.

Specifically, dealers make money when they originate the loan you use to purchase your vehicle. Dealers also make a healthy margin when you purchase a vehicle service contract or GAP insurance. The sale of a car is simply a means to an end for a lot of car dealers.

For example, Carvana, one of the largest used car dealers in the United States makes more than 50% of their gross profit per vehicle sold on the “back-end” of the car deal; the sale of loans, extended warranties, and more.

One price car dealerships do make money selling their inventory, and if you buy a car from one of them, you will be buying at a bit above market value. That’s simply the reality of purchasing from a negotiation free dealership.

If you buy a car from CarMax, it is true that you cannot negotiate the price of the actual vehicle, however, where you can negotiate at CarMax (and Carvana, et al) is on the back-end of the deal.

Negotiate the interest rate on the loan

Do dealers want you to negotiate on the interest rate of the loan they secure on your behalf? No. Should you negotiate the interest rate on the loan they secure on your behalf? YES!

When you buy a car from a dealership and require financing for your purchase, you have a few options for how to secure a loan. One of the simplest ways to secure a loan is through the dealership. When a dealer provides you with financing options you need to understand that the dealer is profiting from this.

Car dealers place a lot more loans than any individual would. Because of this, they are able to work with their financial partners to secure lower interest rates on loans. When you fill out a credit application at a dealership the dealer circulates your application to multiple lenders and receives many quotes for what you qualify for. The dealer will then present to you options that are marked up from what they received from their lending partners.

For example, if you qualify for a 3% interest rate loan, the dealer may present to you a 5% interest rate loan as your best option. Why would the dealer do that if you were approved for 3%? Because the dealer is able to pocket the difference. This has been going on for decades, and this is one of the primary revenue channels for car dealers, especially one-price dealerships.

What does this mean for you? Two things:

  1. Always consider getting prequalified from your local credit union or bank before going to a dealership; and
  2. Negotiate the interest rate the dealer presents to you.

This is the first area in a negotiation free car dealership that you can negotiate.For example you can negotiate at CarMax when you’re presented with an interest rate of 6% and you know you can qualify for something better. Don’t agree to 6%. The dealer will not want to lose a car deal simply because you won’t agree to their marked up interest rate. Even in negotiation free car dealerships this is negotiable.

Negotiate the extended warranty

What do you do when your salesperson tells you that for only $10 more per month you can get an extended warranty on that 2017 BMW X3? You sign the dotted line, don’t you? Not so fast … This is yet another area within a one-price dealership that is actually negotiable.

Don’t be swayed by sales tactics that make it seem like you’re getting a “great deal” when you add a $2,500 extended warranty onto your purchase, “but Mary, it only increases your monthly payment a few bucks each month.”

The reality is, extended warranty sales, GAP insurance, tire and wheel protection, and any other insurance product you can buy after you purchase your vehicle are all negotiable. These products are generally marked up 200-300%. Yes, you read that right, 200-300%. That means the $2,500 extended warranty you are “tacking on” to your loan might only cost the dealer $700-$800.

Not only are insurance products negotiable at a one-price car dealership, you should also consider buying them from a different provider. Shopping extended warranties at other dealers or directly from providers is a wise move. But at a minimum, be sure to negotiate at CarMax, Carvana, etc, when you think about purchasing an extended warranty or other insurance product.

Negotiate the sale of your vehicle

Last but not least, you can always negotiate the selling price of your trade-in (if you’re in a position to sell your current vehicle). One price dealers are constantly looking to secure new inventory so that they can sell more cars (to ultimately sell more loans and more extended warranties), and nine times out of ten, they’d prefer to buy a car directly from you rather than from an auction.

Buying vehicles from the auction entail many other expenses, so generally speaking, it’s more profitable to purchase vehicles directly from consumers. Keep this in mind if you’re purchasing from a CarMax, Carvana, or somewhere similar. You can and should negotiate the best selling price for your car before agreeing to what you are initially offered.

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10 Comments

  1. Jim Stalnaker

    EXCELLENT!

    Reply
    • Nicki

      What is your advice if you are NOT financing the car but still want to buy from CarMax/ Carvana? Meaning, paying cash.

      Reply
  2. Sylvia

    Excellent and informative article. Thanks!

    Reply
  3. Margo Richardson

    If I buy from Carmax with cash (check), how does it work for the extended warranty? Would I pay a one time fee or would it be prorated?

    Reply
  4. Len

    Great, assistance I’m looking to buy a SUV before the end of the year. I was looking to get the extended warranty from the dealer, but now know I can shop around and most likely find a better rate. In regards to the car loan, my credit union says once I locate a car call them and and they will do the loan, thus I plan on going through them and get a lower rate hopefully.

    Reply
  5. joseph m mclaughlin

    Zach… hello.. I am about to pay cash for a New car.. the dealership constantly asks ‘how are you going to pay. lease or cash’?
    What so I say?
    I thank you and Happy Holidays to you and your Dad!
    Joe
    NYC

    Reply
    • KJ

      You cannot negotiate price, loan interest rates, or any other costs with Carvana…your APR is based off of the soft pull of your credit score and then your terms are based off your soft credit + the car you are looking to purchase. As for delivery costs, those are in place because most vehicles have to be moved from one state to another but you don’t get charged lot fees or extra fees like some in person dealerships. If you want to haggle numbers you can do that with a local bank or credit union for your loan. Also, Carvana does not lease vehicles and makes sure that you can afford the vehicle you are wanting to finance if you apply for a loan with Carvana. I work in underwriting and evaluate these income calculations daily.

      Reply
  6. Oliver

    Carmax & carvana anger me. This not saving these tips are how to get half way ripped off not full ripped off. Thanks for tips. I see a carmax car which is already marked high. Plus a delivery fee. Plus I know to use my bank and say no to warranties. The truth hurts. Im angered. This is America and im never buying from Carmax &Carvana. Negotiation is what makes a good deal. Everyone likes a good deal.

    Reply
    • Ken

      Well, a lot of people either are bad at negotiating or don’t like to negotiate. Carmax and Carvana sell a HUGE amount of vehicles. I think it’s safe to assume that many people are happy to pay a little more for a vehicle if they don’t have to worry about negotiating and can also have a very pleasant experience. Why does this anger you?

      Reply

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