You’ve decided to buy a car. Whether this will be your first car, or your current car is not filling your needs, this is your guide to help you through the car-buying process.
How Much Can And Do I Want To Afford?
Step 1: Start with what you spend now on your car on a monthly basis, including monthly payments, repairs, and insurance. If this will be your first car, consider how much extra cash you will have available to spend for your car.
If your car currently costs more than you can afford or, alternatively, if you can and would like to afford more, subtract or add that amount accordingly. This number might be in the range of $200-$400 per month.
Step 2: Consider whether you will be making a down payment. This payment might be a chunk of savings, the trade-in amount a dealer will give you for your existing car, or the amount you could get selling your car outright to a private party. (See sections below for discussions on trade-ins and private party sales.) You also should take into account any money still owed on the car.
Step 3: Use one of the free, online finance calculators to translate your desired monthly payment, along with down payment and any remaining loans on the car, into a total car price. www.edmunds.com has an “affordability calculator” that will give you an “estimated sticker price range”.
Note about interest rates: finance calculators will often assume an interest rate. With old cars, you may be able to get a very low or even zero percent interest rate. With new cars, the rates will generally be higher. Check the local newspaper for dealer ads which often list new car financing rates. Check out aggregation sites, such as this car loan calculator to get a good estimate of used car loan rates.
Identify your criteria for the car
With a sticker price range, you can begin your search. Here are some key questions to help you narrow your search:
- Is a new or used car better for you? New cars have many advantages over used cars:
- You can get better financing deals on a new car, especially on particular makes.
- A new car is covered under warranty typically for at least three years or 36,000 miles, whichever comes first, making the cost of repairs a non-issue.
- A new car will be more reliable, taking less of your time for breakdowns and repairs.
- You don’t need to worry about getting a clear title.
The downside to a new car is that a late model is pricier than an older model, and both sales tax and insurance premiums will be more expensive. On the other hand, if you can handle the inconvenience of repairs, and the cost of repairs is not expected to exceed the amount you save by buying a used car, a used car might be a better choice. If you have less than $10,000, a new car is likely out of reach.
- What type and size of vehicle do you want? Car classes include sedans (4-door), coupes (2-door), wagons and hatchbacks (5-door), sporty cars, performance sports cars, luxury sports cars, roadsters, convertibles, minivans, small SUVs, SUVs, compact pickups, full-sized pickups, and heavy duty turbo-diesel pickups.
- How important is fuel economy? With high and uncertain gas prices, as well as environmental concerns, fuel economy is an important consideration. If you will put more than average mileage on your car (12,000-15,000 miles per year), fuel economy becomes even more important.
To identify a list of cars that meet your criteria, go to the Perfect Car Finder on Kelley Blue Book at www.kbb.com. Choose new or used, desired price range, miles per gallon desired, and whether rebates or incentives are important. The Perfect Car Finder will return a list of cars by car class. Choose your car class and you will have a list of cars from which to start.
Educate Yourself
Before you jump in to what can be an emotional and high-pressure dealership experience, educate yourself on the ratings and reviews of the makes and models you are considering. Also, become knowledgeable about the negotiation process so you can feel confident when you do decide to make an offer.
Car Ratings
You can consult one or more very good sources to educate yourself about your future car:
- The Annual Consumer Reports Buying Guide covers new car models with ratings on: road tests, predicted reliability, owner satisfaction, safety and fuel economy along with “Recommended” and “Top Recommended” picks. There are detailed ratings on the reliability of a car’s components over time and a handy section on the Best and Worst Used Cars. Included is a one-paragraph write-up on each new car and reference to more details in specific issues of CR.
- If you consider yourself a “car enthusiast” and want to buy a car based on such factors as how the car takes corners or on its trim line (appearance), you will find more detailed information, including actual observations and insights of owners, at www.edmunds.com. Edmund’s has three types of recommendations:
- “Consumers’ Top Rated”
- The unique “Lowest True Cost to Own” recommendation based on its proprietary formula for computing the five-year cost of owning each new vehicle currently in the market.
- The recently launched “Consumers’ Favorites” Opinion Poll, a monthly survey focused on one segment of the car market.
- The most scientific car studies, using randomly selected and targeted surveys of vehicle owners, are conducted by JD Power and Associates. Their PowerSteering Reviews, found at www.JDPower.com, are based on vehicle manufacturer information and a compilation of three JD Power studies:
- Initial Quality Study (IQS) – a measure of problems experienced within the first 90 days of ownership.
- Automotive Performance, Execution and Layout Study (APEAL) – a report on consumer attitudes toward a vehicle’s attributes, dealership service surveys, and customer purchasing experience surveys.
- Vehicle Dependability Study (VDS) – a measure of problems experienced after three years of ownership.
- For value-seekers, www.IntelliChoice.com offers the Best Overall Value of the Year (BOVY) Awards. The BOVY Awards evaluate every facet of what it costs to own and operate a vehicle over time, and identify best-in-class vehicles that deliver outstanding value and lower than expected costs.
Negotiation
Beyond education about potential cars, education on how to negotiate with the dealer or private party is important. A lack of knowledge in this area can cost you hundreds, even thousands of dollars. You need to understand the true value of the car you want to purchase as well as the seller’s motivation level, to make the lowest offer the seller will accept. You should also learn some key negotiation tips and strategies.
True value for a new car
The definitive source for determining a car’s value, new or used, is Kelley Blue Book at www.kbb.com. Within your zip code, you can search by make, model and trim line. KBB will give you MSRP, Invoice Price, and a well-supported New Car Blue Book Value, which is what consumers are really paying for the vehicle. The New Car Pricing Report includes regularly updated current market conditions for the vehicle, a feature unique to KBB. This information is your best source for determining what price to offer.
True value for a used car
To determine what to offer for a used car, use KBB to look up the year, make and model and either Suggested Retail Value (if purchasing from a dealer) or Private Party Value. You will need to input the mileage and make sure the Equipment listed is accurate. You also need to select the condition of the car as Excellent, Good, Fair or Poor.
Seller’s motivation
When buying from a dealer, consider the following:
- Does supply exceed demand for this car? Rebates and incentives are a sign that dealers are eager to move cars off their lots.
- Is it the last day of the month or the last day of the year? Dealerships and salespeople have sales targets to meet and commissions to make at the end of the month. This is a good time to buy.
- As the new models come out at the end of Summer and early Fall, dealers are eager to clear the older models from their inventory. This could mean a good deal for you on an older model.
- Shopping when sales are slow, such as before Christmas or on slow days of the week, including Tuesday, Wednesday and Thursday, can yield a good deal.
When buying from a private party, consider the following:
- How long has the car been on the market? The longer it has, the more likely the seller will lower his price.
- Consider paying with cash. Some sellers will lower the price if they don’t have to worry about your check clearing.
- Has the seller purchased a new car already? If so, the seller may be eager to get the cash in order to pay sales tax or to make monthly payments that will soon begin.
- Focus on what’s wrong with the car to suggest a lower price to the seller. Be careful not to insult the seller, as they may have an emotional attachment to the car.
Dealer Trade-in Or Sell Outright?
The easiest thing to do with your old car is to give it to the dealer as a trade-in. However, unless your car has very little value, you are almost certainly guaranteed to lose money. Ask yourself whether you have the time and desire to place an ad, field phone calls, take visitors, negotiate, and complete the necessary paperwork. Also, you must be able to handle a short-term cash shortage as well as higher monthly payments on your new car as a result of no trade-in. The higher the resale value of your car, the more this process will be worth your time, effort, and expense.
Tips And Strategies For Negotiating With A Dealer:
- Focus on the price you pay, not your monthly payment. Many salespeople will try to distract you away from price. What you pay on a monthly basis is your business, not the salesperson’s.
- Omit any rebates from the sales price discussion. You are entitled to the manufacturer’s rebate regardless of final sales price.
- Don’t be afraid to leave the negotiation table or room if the salesperson takes too long with the sales manager. They want the sale more than you do. You can even threaten to walk out if the dealer is playing games. If the salesperson returns with a counter-offer, you can consider it, but you can also counter with your original offer. You can always tell them you need to think about it and leave. You can bet they will call you within 24 hours.
- If you plan to trade in your car, keep the negotiations on the price of your car separate from the negotiation of the selling price of the new car. The more numbers flying around at one time, the more opportunity the dealer has to confuse and take advantage of you.
Visit the dealer(s) for a test drive
Armed with information, go out and enjoy the test-driving process. Choose a reputable dealer closer to home or work so that maintenance and repairs will be more convenient. If the salesperson accompanies you on the drive, ask lots of questions, but be sure to tell them about other dealerships you plan to visit.
Where To Find Used Cars
To find a used car, check the following sources:
- www.Autotrader.com
- www.Carsoup.com
- www.craigslist.org
- Classified ads in major newspapers
Questions to ask private party sellers about used cars
- Why are you selling the car?
- Has the car ever been in an accident? Had any major repairs?
- Is there anything currently wrong with the car?
- What recent repairs has the car had?
- What condition is the car in?
- Mileage?
- How many owners has the car had?
- Has the car been garaged?
- Has the car received schedule maintenance, including oil changes? Have maintenance records been kept?
- Does the seller own the car outright? (No loans outstanding on the car.)
- What are the cars features and options?
Private Party Paperwork
- Ask to review the maintenance records before you deal. If you buy the car, take the records with you.
- Be sure to get the owner’s manual, MSRP sticker and any other documentation the owner has on the car.
- The seller should provide you with a Bill of Sale, showing the transfer of ownership from them to you.
- The seller should sign over the car’s title to you. If the title states that a bank is a lienholder, be sure to get a copy of the letter from the bank stating they have released the lien. The seller may have recently paid off the car and not yet obtained a clean title. You will need this paperwork to transfer the title to your name.
- Many sellers prefer a cashier’s check. You may need to leave and come back with the check. Alternatively, you can set up a closing meeting at your bank to include you and the seller.
Financing
- Make sure any financing deals that were promised to you during negotiations are upheld during closing. If not, be prepared to walk out.
- Make sure you get a rate comparable to the one you used in your assumptions; otherwise, your monthly payment may be beyond your budget.
- You will typically pay a higher rate for a longer term loan. If cash flow is a concern, it may be beneficial to take on a longer term loan, such as a 48-month or 60-month loan. Be sure you plan to hold on to the car for that long.
- Consider a home equity loan to make your down payment or to finance the entire purchase. Interest on home equity loans is tax-deductible whereas interest on auto loans is not. You will need to arrange this financing with your bank before closing.
- Lease options may be offered. A lease can get you into a more expensive car, but is unlikely to be a good deal. Do your research before entering into a lease.
After The Sale
- Remember to pay your sales tax at your local Department of Motor Vehicles. In many states, sales tax is due within 30 days of purchase. Go to your local Department of Motor Vehicles website for your specific sales tax rate. The sales tax rate is based on where you register your vehicle, rather than where you buy it.
- Go to your DMV’s website for information about how to obtain title, license and registration. Generally, you need to do this within 30 days of purchase.
- Call your insurance agent right away to get additional coverage and pay any additional insurance premiums.
- Relax and enjoy your new car!
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