A car dealer is a business, so they need to make a profit on car sales. However, you want to make sure that you are not grossly overpaying for your car, so it pays to do a little negotiating on price. Here are some tips to help you in your quest for savings.

Be willing to walk away

It is best to not go to a car dealer in total desperation. If a dealer knows that you need a car today, they won't offer you much in the way of a discount. If you begin serious negotiations, the salesperson is more willing to offer some form of discount if they feel that you might leave and they lose the sale altogether.

Don't discuss your trade-in at first

One of the first things a car dealer will ask you is if you will be trading in a car. When asked this, don't provide an eager "yes". Just tell the dealer you are undecided about the trade-in (i.e. 'maybe you are going to sell the car to a relative'). A car dealer will often give you a discount on your purchase, but then give you less on your trade-in to make up for the discount -- so you don't really save that much. Focus just on the purchase first - you can always bring up the topic of the trade-in after a purchase price has been agreed upon.

Be interested, but not too interested

Once you have conveyed interest in the car, point out any concerns you may have. If it is a used car, point out any mechanical or physical flaws that you noticed during your examination of the car. If it is a new car let the salesperson know that you are also considering another model from a different car manufacturer. While these issues are not the fault of the dealer, it lets the salesperson know that you are taking an objective approach to buying this car (not an emotional one).

The Negotiating Process

Now that you have let the salesperson know your objectiveness toward this process, start by asking for at least 10% off the price. So, if the car was for $20,000 - offer $18,000. If the car was $50,000 - offer to pay $45,000. If you are feeling really good about your negotiating skills, ask for a bigger discount. The salesperson (or manager) will likely provide a counter-offer, which will be not be the entire discount you asked for. It is reasonable for you to make one more counter offer, where you ask for a discount between what you originally requested, and what the salesperson counter-offered for. The salesperson will then make his 2nd counter-offer. Typically the salesperson's 2nd counter offer will let you know their willingness to offer a discount.

At this point you have 3 options:

1) Keep repeating the counter-offer process until neither of you budge any further.

2) Thank the dealer for their time, and walk away from the deal and go to another dealer.

3) Accept the price that the dealer offered and proceed to the financing process.

If you Proceed, Feel Good About Your Deal

Only the dealer knows exactly how much they stand to profit off of the sale - so don't obsess over learning this amount, and trying to discount it as much as possible. If you feel that you have walked away with a good deal, then you were successful.