By David Bakke
From Money Crashers
I loathe the process of having to buy a new car. Dealing with pushy, overbearing car salesmen can be extremely frustrating.
As a result, I do whatever I can to avoid buying a car. I perform all recommended DIY car maintenance checks, I keep my vehicle for as long as I can, and I consolidate my trips both to save on gas and decrease wear and tear on my car.
However, buying a car at some point in time is a reality that we all have to face. I’ve compiled a list of several important car buying steps that you should follow. Heeding the advice in this article will help you save money, get the best deal, and hopefully, reduce the amount of stress involved with purchasing a vehicle.
Here are important tips for buying a car:
1. Do your research
The most important thing to know before you buy a car is that knowledge is power. It’s a mistake to arrive at a car lot without first researching the car you want to buy.
Also, if you are considering buying a new car, your goal is to find the “invoice” price of the car, not the MSRP. The “invoice” price is what the dealer paid the manufacturer for the car. This research will come in handy once the price negotiations begin.
On the other hand, if you are thinking about buying a used car, research the recent resale prices for that specific car model. This data will give you major bargaining power. If you plan to trade in your current car, research market values for your vehicle, too. Knowing the value of your trade-in can also be a powerful bargaining tool.
2. Look into pre-financing options
Many people obtain financing from the car dealership, but this isn’t fiscally responsible. Dealership interest rates are typically much higher than loan rates obtained from banks and credit unions. Your bank or credit union is one of the best places to start researching car loan rates, and you can obtain “relationship discounts” that you won’t find anywhere else.
Although you may not find the best deals online, you can also use the Internet to review current interest rates.
Once you obtain a quote from any financial institution, get the quote in writing. You can then present this quote to the dealership and use it as leverage to negotiate a lower interest rate.
3. Shop around
Unless there is an emergency situation, shop around before you buy a car. I have an established rule in place whenever I shop for a car: I always make sure that I walk out of at least one dealership. This way, I always know their rock-bottom price, often given to me just before I leave. It might also make sense to explore out-of-town car dealerships. Dealerships price their vehicles differently depending upon their location.
4. Negotiate terms
To me, buying a car is either a chess match, or it’s a war. Next to buying a house, purchasing a new car is one of the most important investments you will make in life. In fact, you may be paying off this car for the next four, five, or six years.
Let the salespeople know up front that you’re not going to be taken for a ride. Do everything you can do to negotiate the car loan and knock the purchase price down. Start with a ridiculous number, and work backwards. If the salesperson gives you an offer that includes a monthly payment of a certain amount based on a 60-month loan, tell them you want the same payment with a 48-month loan.
Walk into the dealership with confidence, stick to your guns, and don’t feel bad about walking away from any offers. It might also be helpful to practice your negotiation strategies and tactics to prepare.
5. Look at both new and used cars
In the past, buying a gently used car was the best way to save money when purchasing a vehicle. A big reason behind this logic is that new cars depreciate considerably the moment they are taken home from the dealership.
Unfortunately, the supply of used cars has decreased dramatically after many were removed as part of the “Cash for Clunkers” program. In addition, more people are holding onto their cars for longer periods of time before looking for a replacement. As a result, prices for used cars have increased significantly, making new cars a more realistic option.
Ultimately, make sure to go into the buying process with an open mind, considering both new and used cars and running the numbers before making your final decision.
6. Buy based on purchase price, not on monthly payments
Car dealers are notorious for offering a very attractive monthly payment to potential buyers. Do not be misled. If this “wonderful” payment is attached to a 72-month loan, then it’s really not that attractive at all.
Be sure to always negotiate based on the purchase price of the car, and not the monthly payment. Also make sure that you know the “full” purchase price of any car that you buy. There could be many extra, hidden costs factored into the price including various taxes, car preparation and delivery fees, and dealership costs that you won’t know about unless you ask.
7. Utilize the Internet
Purchasing a car online is definitely an option to consider. First, you completely avoid the hassle of dealing with annoying car salesmen. And second, you could end up with a much better price. Consider this: A salesman on the showroom floor is trying to negotiate the highest price possible, since his commissions are based on a percentage of the sale price. On the other hand, an Internet sales manager typically makes a fixed salary and gets paid a bonus, based on volume.
Additionally, purchasing a car online is more convenient than visiting multiple dealerships. After all, many large dealerships put up their cars for sale online. eBay Motors is a great place to look for a car, and you can also find cars for sale on Craigslist (just be careful of common Craigslist scams).
If you do decide to buy a car online, you’ll still want to test drive the car and have it checked by a mechanic to make sure there are no issues or problems.
8. Don’t mention your trade-in
You should play your cards close to you in all aspects of the car-buying process, especially when it comes to mentioning your trade-in. Do not mention your trade-in until the end of the buying process. Why? The dealer will likely use this information against you.
For example, let’s say you’re looking at a $22,000 car and the dealer’s rock-bottom price for the car you’re considering is $18,000 (although he won’t share this information with you). If you have a trade-in worth $2,000, the dealer might offer to give you the car for $20,000 plus the additional $2,000 for the trade-in, for a total purchase price of $18,000.
If you hadn’t mentioned your trade-in, you could have negotiated the price down to $18,000 and then told the dealer about the trade-in, resulting in a final purchase price of $16,000. Negotiate these two aspects of the car-buying process separately. First, negotiate the best possible deal you can get for the car you want to buy, then go to work on getting the most for your trade-in.
9. Factor in insurance costs
Factor costs for car insurance premiums into the purchase price of your car. The cost of insuring a car is a major factor in the overall cost of the vehicle. Get insurance premium quotes online by providing information about the car’s make and model and personal information including age, marital status, and driving record.
Sports cars have higher premiums than conventional cars, but some cars have higher insurance rates for other reasons as well. For example, the Honda Accord, Honda Civic, and the Toyota Camry are favorites among car thieves because of their higher resale values, and the insurance premiums for these cars can thus be more expensive.
10. Avoid impulse buying
Prevent impulse buying by conducting extensive research before you buy a vehicle. Buying a car on a whim is a risky endeavor. You might realize after it’s too late that you can’t afford the car, or you may find that the performance of the car just doesn’t meet your expectations.
By researching the make, model, and style of the car, and reviewing insurance rates and financing, you should be able to put yourself in a car that you will enjoy for many years to come.
11. Don’t purchase the add-ons
Buying a new car is a major purchase, and you may be paying it off over the next several years. If you finance the car, the overall costs for accessories will skyrocket, so keep the add-ons to a minimum. You don’t really need heated seats, and you can buy a portable GPS navigation unit online for much less than expensive built-in systems.
Rust-proofing is another add-on you don’t need despite what the salesperson might tell you. VIN etching, a rear camera, and a dealership maintenance plan are more add-ons that you don’t really need.
12. Don’t buy the extended warranty
The extended car warranties offered by dealerships are expensive, and, even worse, the coverage is often very limited and doesn’t cover the costs of many types of mechanical failure in new or used cars.
If you’re buying a new car, the car should come with a manufacturer’s warranty that provides ample coverage for your vehicle. If you’re looking at a used car, keep in mind that many of them will still have valid manufacturer’s warranties.
You especially want to avoid the extended warranty if it will be financed as part of your car loan. Why? The total cost of the warranty, including interest, will be exorbitant. Your best option is to simply deposit that money in a savings account that’s earmarked for potential vehicle repairs and maintenance.
13. Always test drive the car
90 percent of people who buy a new car test drive it first. Do not be among the other 10 percent. You want to test drive the car for many reasons, but comfort should be foremost in your mind. There are some cars that you just won’t feel comfortable driving. If this is the case, move on.
If you have children, bring them along on the test drive. Their comfort level is important too, and trust me, they will give you their honest assessment of the car. In addition to comfort, look for the following:
Idle: The car should be smooth and quiet.
View: Make sure the view from each of the mirrors is acceptable, and you have a straight line view of all dashboard gauges.
Controls: Flip on the air, locate the turn signals, and turn on the windshield wipers. Ensure that everything is easy to use. Some people find that their fingers are too big to handle certain switches, buttons, or levers in some cars.
Handling and Brakes: Make sure the car responds when you push the accelerator or brakes. Cars vary significantly in terms of sensitivity, and you want to choose a car that best fits your preferences.
14. Visit the mechanic when buying used
If you’re planning to buy a used vehicle, it’s important to have the car thoroughly checked out by a mechanic before you finalize the purchase. The mechanic will inspect the car and look for unusual signs of wear and tear as well as items of potential concern.
Mechanical problems or maintenance issues that the mechanic finds may determine whether or not you buy the car, and the mechanic’s report may provide you with the necessary leverage to negotiate a lower purchase price.
15. Buy a car you can afford
If you are considering buying another car before your current vehicle is paid off, you need to seriously reassess whether or not you can really afford to buy another car. You don’t want to be saddled with an upside down car loan.
A much better option is to wait until your current vehicle is paid off. Then set aside the money that used to pay for your monthly car payment in an interest-bearing account for one year, while continuing to drive your old car.
For example, if your previous car payment was $300 a month and you follow this strategy for just one year, you will then have more than $3,600 to use as a down payment on your next car. Just make sure that you’re not digging into your savings or your emergency fund to buy a top-of-the-line car. Buy within your means.
In the end, buying a car is a major purchase, and it’s important to research each and every aspect of the process. Educate yourself so you can go into negotiations well-prepared to get the best deal possible on a new or used car. By following the tips outlined in this article, you’ll get the best price possible on your next car.
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