Smart car shopping

For many consumers, a new car is second only to a home as their most expensive purchase. It pays to get the most value possible for the money you spend. Review these tips before you begin the process of buying a car or other vehicle:

Shop for your car loan

  • Consider how much you’re willing to spend. Will you pay cash for the vehicle, or make a down payment and finance the rest? If you plan to finance the purchase, shop for your loan before you shop for your car.
  • Research a number of financing sources including banks, credit unions, and online lenders. Some car dealers also offer financing. Compare the Annual Percentage Rates (APR), interest rates, terms, and fees of the loans they offer. Find out what your monthly payment would be for different loan amounts and the total cost of each loan.
  • Consider asking for pre-approval of your loan. If you’re pre-approved, it means you can shop for a car in your price range with the confidence that you’ll get the loan you need.
  • Know your credit history and credit score before you negotiate an auto loan. At the Web site www.annualcreditreport.com, you can receive one free copy of your credit report once a year from each of the three largest credit bureaus in the United States. You can also purchase a credit score through this Web site.

Do some advance research

  • By doing some advance research, you’ll be less likely make an impulsive or expensive purchase decision and more likely to be a satisfied buyer.
  • Consider the kind of vehicle that will meet your transportation needs. Will the car you want now be the car you’ll still want in a couple of years?
  • Use the Web, consumer and auto magazines, and other publications to research the possibilities. Look at ratings and evaluations by automotive professionals and road tests, especially those performed over thousands of miles to evaluate a car’s gas mileage, durability, and maintenance issues. Research safety records.
  • Before heading out to the dealerships, go online to sites like Kelly Bluebook (www.kbb.com) and NADA (www.nada.com) to learn more about the car(s) you’re interested in and what they cost.
  • Remember, almost all cars depreciate (go down in value) due to wear and tear over time. The value of a new car can drop hundreds or even thousands of dollars the day you drive it off the car dealer’s lot. You may be able to save a substantial amount by finding a used car in good mechanical condition.
  • Narrow your choices to a few specific cars. Compare models and prices in ads and dealer showrooms. Consider contacting car-buying services and broker-buying services to make comparisons.
  • Check with your insurance agent to compare the cost of insuring each car. Remember that insurance will be part of your cost of ownership.
  • Based on your research, compare the total costs of each car you’re considering. Does the amount fit your budget?

Choose where, when, and how to shop

  • Nowadays, an increasing number of people are buying cars over the Web. Even if you consider this option, it makes sense to visit local dealerships if you can. This will give you the opportunity to see the cars first-hand, take test drives, and ask questions. It will also give you the opportunity to evaluate the service quality of dealerships you may use for parts and service.
  • Some dealers have adopted a “one-price” policy on new cars, meaning that every car is offered at a fixed price with no negotiating between the dealership and the customer. While this system may make your transaction faster and easier, keep in mind that the price you pay might be higher than what you might pay by negotiating.
  • You may be able to get the best price on a car in the last two weeks of December, because business is often slow at the end of the year.
  • From July through October, some dealers may offer good deals on current year cars because they’re eager to make space for next year’s models.
  • Go car shopping with an objective friend who can point out possible concerns and stop you from making a hasty decision.

Make your choice

  • As you shop, retain some flexibility about make, model, year and color. As you comparison shop, you may find a car you like better and/or a better deal.
  • Narrow your choice. Decide on specifics such as the color and options you want. Remember to take resale value into account. If it comes time to sell the car, you will want a color and options that appeal to prospective buyers.
  • If the dealer doesn’t have the car you want, consider ordering a new car. Although you’ll have to wait for delivery, you could avoid paying more for options you don’t want.
  • Cars that need to be ordered should not cost more than the cars on the lot. On the other hand, a dealer may be willing to make a deal for a car on their lot if they’re eager to sell current inventory.
  • Be careful about extra options the dealer may offer you, such as undercoating, fabric protection, and paint sealant. These are often unnecessary add-ons that are significantly overpriced.
  • If you’re buying a used car, point out any flaws or problems with the car to the seller. Before you agree to buy it, be sure to have it inspected by a certified mechanic.
  • Don’t feel pressured to make a decision. Take your time and evaluate your options.

Plan your buying strategy

  • Consider whether you want to buy the car or lease it. Buying it means paying for it with cash and/or a loan. After you finish making the payments, you own the vehicle and can sell or trade it. With leasing, you sign a contract and make monthly payments to have use of the car for a specific length of time. After making all your lease payments, you return the car to the dealer. You own nothing and may even owe the dealer more money for any excess mileage or damage. However, monthly lease payments are often lower than loan payments.
  • Don’t leave your drivers license or social security number with a dealer. Dealers cannot run a credit check or an application for credit without your permission.
  • Be prepared to cancel the deal. If something doesn’t feel right, or you have a “gut feeling” that your purchase will be a mistake: walk away! Remember, you can always find another car.

Tips for negotiating

  • Negotiating can be challenging. To minimize the potential stress, make up your mind to be pleasant, friendly and non-combative throughout the process. This attitude will show the seller that you’re a person who cannot be intimidated, rushed, pushed, or panicked into a decision.
  • Be patient and persistent. The key to finding a good deal is being in the right place at the right time. If you’re more anxious to buy than the seller is to sell, you’ll reduce your chances of getting the best price you can.
  • Plan to negotiate on price. Some dealers may be willing to bargain on their profit margin, which is often between 10 and 20 percent.
  • Decide on your top price, a number you feel is fair for the vehicle, with monthly payments you can afford. Keep in mind that the dealer needs to make some profit. Then begin your negotiation at least 20% below what you’re willing to pay. Remember, the dealer is likely to make a high counteroffer.
  • Know your amount of “cash on hand.” If you have the resources to write a check for a significant amount on the spot it will probably get the seller’s attention and may strengthen your ability to negotiate the price.
  • To increase your control of the negotiation, don’t let the seller know exactly what you’re thinking. Don’t divulge the top amount you’re willing to pay or the monthly payment you can afford. These are none of the seller’s business.
  • If the seller pressures you, simply smile politely and say something such as: “You have my offer. I appreciate your time and effort, but this is my budget limit.”
  • Beware of dealers who may bring another salesperson or manager into the negotiation in an effort to wear you down. Reach a deal with the original salesperson or walk out.
  • Always be ready to walk away — but walk slowly. Chances are the seller will make one last attempt to find a price you can agree on.
  • Leave on good terms. Even if you don’t buy today, you might be back again later.

Trading in your old car

The Federal Trade Commission (FTC) recommends that you discuss the possibility of a trade-in only after you’ve negotiated the best possible price for your new car and researched the value of your old car — online, in reference books, or magazines. Having this information may help you get a better price from the dealer. Selling your old car yourself may take more time, but generally you’ll get more money for it than trading-in.

Carefully consider add-ons

  • If your dealer or lender asks you to buy credit insurance (to pay off your loan if you should die or become disabled), consider whether it’s worth the cost. Check to see if you have an existing policy that offers this benefit. Credit insurance is not required by federal law. Check with your state Insurance Commissioner or consumer protection agency to find out about possible credit insurance requirements in your state.
  • If you’re offered a service contract by the dealer, manufacturer, or an independent company, review it carefully, and consider these questions:
    • What does the service contract cover compared to what’s already covered by the manufacturer’s warranty?
    • What repairs are covered? Is routine maintenance covered?
    • Who pays for parts and labor?
    • Who is authorized to make repairs?
    • What’s the length of the contract?
    • What are the cancellation and refund policies?
  • An extended warranty is a way to protect yourself from costly repairs that may be required after the manufacturer’s warranty expires. Typically, neither manufacturer warranties nor extended warranties cover everything. Normal wear and tear (such as brake pads and batteries) and vehicle interior items (such as fabric and lights) are usually not covered. However, if you plan to keep the vehicle a long time, an extended warranty might be worth the cost. It can give you greater peace of mind and might also increase your vehicle’s resale value. Before you buy, be sure you know exactly what’s covered.
  • If you purchase an extended warranty from the dealer when you buy your car, you may be able to add the cost of the warranty into your vehicle financing rather than paying for it in cash. If you don’t purchase an extended warranty when you purchase the car, you may be able to purchase one later. However the closer you get to the expiration date of your manufacturer’s warranty, the more the extended warranty is likely to cost.

Before you sign

  • Review the contract carefully. Make sure it reflects everything that was agreed on.
  • Beware of any unnecessary or overpriced extras the dealer may attempt to tack on.
  • Don’t pay for “dealer prep!” It’s already been paid for by the manufacturer.
  • Examine extended warranties carefully. You may not need one, or may be able to get a better deal later.
  • Never sign a contract with any blank spaces.
  • Immediately get a copy of the contract that both you and the dealer have signed.