How to Buy a New Car - How to Buy a Used Car

Buy a new car or a used car? How to Buy a New Car? How to Buy a Used Car?

How to Buy a New Car - How to Buy a Used Car

How to Buy a New Car

Let's say you've decided to invest in the new car or truck. Sure, you can probably get a better deal with a used car, but you've probably decided that the risks of driving a second-hand car or even third-hand are not worth saving some extra cash. You're willing to shell out the extra bucks to get a car fresh off the lot, so you'll want to make sure you get what you want without getting ripped off.

Part 1: Taking Control from the Start

1. Do your homework. Being in control from the start is all about knowing what you want and knowing how to get it. Car salespeople can seize control from people who don't know what they want by trying to sell them a car that's not right for them. Don't let that happen to you: Be prepared. Know what you want. Take ownership of your car search!
  • Get the most recent annual auto issue by Consumer Reports magazine, which is usually put out in April. Consumer Reports will give you a wide range of reports- everything from the best cars priced under $25,000 to the worst cars of the year.
2. Talk to people. Nothing beats a good old-fashioned conversation with a human being. Why is that? Because reports made by "industry experts," while valuable in their own right, might not hit home with Mr. and Mrs. Smith. Solicit feedback from people you trust about the cars they love.

3. Figure out your priorities. What's most important to you in a new car? Do you have a small but growing family you need to accommodate? Look for roomy sedans and/or minivans with stellar safety ratings. Do you have a job in sales and want to project an image? A sports vehicle or coupe might fit the lifestyle. Do you plan on hauling or towing cargo on a regular basis? A truck is probably what you're looking for. Try to match the vehicles you're interested in with the lifestyle you want or have. You won't be as happy if your needs and your car are at crosscurrents.

Part 2: Getting Serious about Price

1. Narrow down your search by drawing up a budget. You've done the initial research, and maybe you have half a dozen cars you're interested in. Now comes the hard part- making a budget. Because financing is so ubiquitous these days, it can be tempting to overestimate what you can actually afford in monthly payments, as well as the type of interest rate you'll get. Making a reasonable budget based on your financial facts will further winnow down the cars that you can afford.
  • How much of a down payment can you make? The larger the down payment, the less you'll have to pay over the life of your loan. It's likely you'll pay lower monthly payments as well.
  • Decide what to do with your current car, if you have one. Usually, you'll be able to get more for your current car if you sell it yourself than if you trade it in.
  • On the other hand, it may take significantly longer, and include much more hassle, selling it on the open market.
  • Figure paying about 10% in fees, taxes, etc. when you determine how much you can truly afford. For example, if you set a budget of $25,000, that doesn't necessarily mean that you can afford a $25,000 car; that's because a total of $2,500 will probably be added on to the MSRP, making it $27,500.
2. Determine the invoice price. The invoice price is the price that the dealership paid for the car. This price will probably be one of the most important bargaining tools in your arsenal. Still, it doesn't tell the full story. For one, the invoice price doesn't factor in advertising, promotion, display, and sales costs that dealers pay for the vehicle. And dealers traditionally only mark up new cars 10% more than the invoice price. It's possible that asking for a vehicle at or just above the invoice price will cost the dealership money. So use the invoice price, but don't abuse it.

3. Find out other important price points. The MSRP is the "manufacturer's suggested retail price," and it's exactly what the name implies. The manufacturer usually sets the MSRP so that dealers can still make a profit while offering customers a discount on the MSRP.
  • The fair purchase price is a weekly-updated report on what actual buyers are paying for specific cars in current market conditions. This average transaction price is good to look at as you decide what you feel comfortable paying for a new car.
  • Be prepared for the market to fluctuate. Like any other market, the market for new cars fluctuates. A popular car in short supply will most likely command a price above the MSRP and even above the fair purchase price.
4. Get an insurance quote on the models that you're looking at. Insurance is a necessity in many states, and the truth is that certain cars - sports cars, or super- or turbocharged cars - can add a hefty amount to your premium. You'll probably find it helpful to talk with your insurance dealer about possible cars before you pull the trigger. You could end up exceeding your budget if you have to tack on an additional $150 per month in insurance costs.

5. Decide how you'll get financing, if you need it. If you don't have enough cash to pay for the entire sticker price of the car, you're going to have to finance. Financing means that you make an initial down payment, and pay for the rest of the car with monthly payments, which are influenced by an interest rate the lender is willing to give you. In general, the higher your credit score, the less you'll pay in interest rates. The higher your monthly payments, the less you'll pay for the car over the life of the loan.
  • Sometimes, the car dealer will offer you very attractive financing options, such as 0% financing deals, which means you pay 0% interest on the money the dealer gives you. These offers, however, are usually only extended to the buyers with the best credit. The dealers lure you in the door with an attractive teaser rate, and then when you fall in love with a car, say that you're not eligible.
  • For the most part, getting financing from a dealer isn't going to get you the best deal. Getting financing from you local lender or credit union will usually give you a more attractive rate. Unless you have perfect or near-perfect credit, if a dealer asks you how you intend to pay, tell them you're paying cash. (You don't actually have to pay cash, but you can use the money from outside financing to bankroll your car purchase.)
Part 3: Making the Deal

1. Set your sights on three models that you'd be happy driving off the lot. If you've got your dream car, that's fine too, but it doesn't give you as much flexibility if you're bargain-hunting. Go to the manufacturer websites and configure your vehicle(s) with the options you want. Get the invoice prices and MSRPs for each of these cars, and print them out (along with the details of the configuration you want). Finally, look to see if there are any manufacturer incentives available for the car you want, such as $1500 cash back or a $500 rebate for recent college grads and/or those in the military.

2. Test drive your cars. Take them for a drive. So far, your search has been pretty theoretical and very methodical. It's time to have fun and experience what it's actually like to test drive the models you've been fantasizing about. Here are some tips for making sure you get the best of the test drive and not let the test drive get the better of you:
  • Take note of how everything feels to you when you test drive, especially your gut reactions. Small problems during the test drive can be magnified later if you do buy the car, so it's best to listen to your instincts.
  • Try not to show any outward emotion when test driving. Your adrenaline may be pumping, and you're probably excited, but experienced salespeople will pick up on this and exploit it.
3. Call up several local dealers and start to get quotes. When you call the dealership, ask to speak to the internet sales manager or the fleet sales manager. Don't speak with the "traditional" car sales worker, as they typically won't discount as much as a internet sales or fleet sales manager. Here's what you say:
Say:"I'm looking for a [year/make/model] with [state your options]. Do you have any of these in stock and if so, how much are you selling it for?" Tell them you've already test-driven the car. Emphasize that you need a quote over the phone.
  • Start your bidding at the invoice price minus rebates, plus 1%. You can do this by multiplying the invoice number by 1.01. For example, if a car has an invoice cost of $15,000, and a cash back rebate of $2,000, then $15,000 - $2,000 = $13000 x 1.01 = $13,130.
  • If possible get the quote in writing (fax or e-mail), along with any options, taxes, and DMV fees, so that you can show other dealers. Confirm the price before visiting the dealership.
4. Call other internet managers and ask them to beat their competitors' prices. After calling five to seven dealerships and getting prices, you're probably around $200 from the lowest price you can get. Call back the dealerships you spoke with and ask them if they want to beat their competitor's price. Resist any invitation to go to the dealer. Do this with as many dealerships you feel comfortable haggling with, or until the price drops below the fair purchase price or close to the invoice price.
  • When you've finalized a deal over the phone, ask the internet sales manager to print out and fax over a worksheet detailing the final price, along with any options, taxes, and fees. If you don't get a worksheet from an internet manager, it's safe to assume they're not ready to sell you the car for the agreed-upon price.
5. Drive to the dealership you negotiated the lowest price with and show them the worksheet. In most cases, because the brunt of the legwork is done and any feints now will be easily detectable, the dealer will sell you the car right then and there. If they don't sell you the car at the rate they promised, simply walk away. It's a powerful statement that says "I'm not here to play around." Most salespeople would rather close a sale than let you walk out the door.

Part 4: Avoiding Common Mistakes

1. Never sign a contract without double-checking. If you don't understand a part of the contract you're signing, don't sign it. Ask the dealer to explain. If they consciously mislead you about a part of the contract, they could be subject to major fines and even jail time. Take your time to go through any contract or worksheet the dealer sends you and double-check that it doesn't contain any funny stuff.
  • Unscrupulous dealers will sometimes increase an agreed-upon interest or add a warranty to your car without telling you. This is illegal, and it's called "packing payments." It's easy for the dealer to change your monthly payment from $347 to $357 because it's difficult to spot and it's "only" $10. But that $10, over the life of a 48-month loan, becomes almost $500 for the dealer. Don't get scammed by packed payments.
2. Don't buy unnecessary extras. Like soda at a fast-food chain, extras are where the car dealerships make a lot of extra money. Ask yourself what is truly necessary and what is merely satisfactory. At the end of the day, do you really need rustproofing on your brand new car, or are you just too tired to put up a fight?

3. Don't get cajoled by four-square worksheets. If you see your salesperson brandishing a four-square worksheet, tell him you'll walk away unless he puts it away. Four-square worksheets are pieces of paper that salespeople whip out in desperate attempts to fool the buyer. Essentially, here's how they work:
The sheet in divided up into four quadrants: Trade-in value; purchase price; down payment; and monthly payment. The salesperson keys in on what you're most concerned about (maybe it's lowering your monthly payment), and reduces the payment in one square while increasing the payment in another. The worksheet looks logical, but it's more like a three-card monte trick. The dealer uses this piece of paper principally to confuse you.

4. Don't focus solely on the monthly payment. Shrewd salespeople will come up to you and ask you how much you want to pay a month for a car. Agreeing to a monthly payment before you've agreed on a final price of the car is a certain recipe for paying way more than you need to. Think about it. If a salesperson gets you locked into a monthly payment first, he can massage the final price of the vehicle depending on how many months he uses. That's not good. Always agree on a final price before talking monthly payments.

5. Don't let a car salesperson make you feel bad. People who sell cars are a different breed of salespeople. They can be very adept at manipulating emotion in order to close a sale. It's a good idea to try not to let emotion get in the way of making a huge financial purchase, especially when that emotion is being staged by a salesperson.
  • For example, don't let them harass with something like: "You don't haggle with the cashier at the supermarket for a gallon of milk do you?" They are simply trying to guilt you into doing things their way. Respond by saying that in the grocery store, you don't have to worry about paying more for milk than the person before you did. Tell them that no-one has ever financed a gallon of milk.

How to Buy a Used Car

Buying a used car is like walking through a mine field. There are so many things to look out for, it is hard to know where to begin being wary. Here are some things to look out for.

1. Decide on the right car for you. This may mean not getting what you want, but more what you require. Research the Consumers Reports Buying Guide or their online used car buying kit; also check out their free guide to used car buying. Remember that highly rated cars command premium prices. A lower rated car can be a gold mine if you can put up with a design flaw or two.
  • Consider a model with fewer options or a different brand and model name. For instance, Lincoln is a luxury version of Mercury vehicle models. The Lincoln model will have more features and luxury items included. Various models have a deluxe trim package, which may include leather seats and an enhanced stereo system, among other additional features. If you are trying to save money, stay away from these items that have a higher price tag.
2. Read up on the make and model you are considering. Peruse consumer reviews, compare Kelley Blue Book values, research resale values and conduct vehicle history reports with VIN numbers. If there are any particular issues or recalls with the model you're looking at, you may avoid serious issues by doing your research ahead of time.

3. Use an online calculator to figure out payments. Don't dwell on price just yet; consider how long you will keep the car, what an affordable payment is for your budget and how much you can put down. Consider a brand new car, particularly if it has subvention financing (a manufacturer's reduced financing rate). And strongly consider, if possible, buying outright. The absence of monthly payments can have a wonderful effect on your finances.

4. Determine what you can pay. When you attempt to buy a used car, you need to consider what (if any) down payment you can make, how much you can afford for monthly payments, and how much insurance premiums are going to cost you on your used car purchase. If your insurance is likely to double, you need to budget this in so you're not extending yourself by agreeing to a monthly payment that is too high. Take into account fuel economy and maintenance costs. These expenses can vary greatly depending on the vehicle.

5. Establish financing options. Banks are typically willing to offer financing on a used car. However, some banks refuse to finance a used car that is six years old or older. If your bank will work with you on financing, this may be the wisest decision. Banks typically offer lower interest rates than dealerships. But, don't rule out the dealership just because your bank is willing to finance your used car purchase. By letting the dealership know the interest rate you have negotiated with the bank, you may get a lower offer from the dealership.

6. Look for a used car for sale at dealerships, independent car lots, in the classified ads and online. Craigslist and Kijiji (Canada) are excellent places to find used vehicles.

7. Ask a lot of questions. Get as much history as possible of the vehicle. Try to get the previous owners name and call them. Run your own CarFax and Autocheck reports; dealers have been known to "lose" the last sheet. Make sure to obtain the vehicle identification number ("VIN") off of the car you are inclined to check out with CarFax, Autocheck, or any other third-party car history company; the VIN is usually found on the lower level end of the windshield, right above the dashboard on the driver's side. Watch for flood damage, frame damage, unknown mileage or salvage history, and excessive wear and tear.

8. Test Drive the car. Always. Try the car on different roads, and drive for at least 15 minutes. Remember you will be driving this car for a while.
  • Drive it to listen for engine noise, test acceleration levels and check the brakes. Listen for rattles or squeaks.
  • Notice if the suspension seems even and provides an easy, comfortable ride. Look at the tires.
  • Take a look at the engine underneath the hood. If it looks like it hasn't been taken care of or lots of extraneous wiring exists, ask for detailed service records.
  • See if it pulls to one side or the other. It's an alignment issue (or bad tires) if it pulls all the time; it's a brake problem if it pulls when stopping. #*Check for brake shudder when stopping; (that's front rotors and probably pads). It should not wander; (tires or steering components).
  • If you have time, sit in the car for an hour... seats often feel comfortable until you've sat in them a while.
9. Get a professional check. Get the car checked professionally. If the dealer won't let you have it checked by your own mechanic, run, don't walk from that store. Pay the mechanic to check it. He should put it up in the air and check for frame/under-body damage.

10. Research pricing - Use an independent source to determine the wholesale and retail values of your target vehicle. The most frequently used sources for this are, DriverSide, Edmunds, Latest Cars and Kelly Blue Book Is the seller's price very similar, or is there an unexplained difference in price?

11. Negotiate. Always have an idea of what you want to pay for the vehicle before you start. Go in lower, and try to compromise at the point that is good for you. Remember a "win win" situation is always required for a sale to occur. Never negotiate if you are not ready to say yes there and then. It will lose you power/credibility over the dealer, when you are ready to buy.

12. Always get all the paperwork. V5, MOT, and service history. Insist on 2 sets of keys minimum.

13. Get a vehicle history report. You don't want to end up with a car that has been flooded and since Katrina many used cars have been brought on the lot with just that problem. Ordering a CARFAX Vehicle History Report is worth your time and money and empowers consumers in knowing exactly what they are purchasing. Autocheck, a similar product, reports far more accidents than CARFAX due to the data collection methods used. It is wise to use both.

14. Know the financial vehicle history of the used car. To make sure a car is not stolen, police agencies have records of stolen vehicles reported to them. Consult with the police if you are not satisfied with the amount of detail you are getting from the vehicle can save you time and worry down the line.

15. Mechanically inspect the car. Not every person has the technical capacity of a mechanic. That being said there is absolutely no reason the average consumer can not understand enough about cars and how they operate to be able to perform an initial inspection to determine the approximate condition of the car. It is highly recommended to have a used car inspected by a mechanic before purchasing but it would be costly and not practical to have every car you are interested in inspected. Most used cars are in poor condition and are overpriced since people tend to place emotional and sentimental value on cars which will artificially inflate the asking price. By learning how to inspect the basic mechanical components of a used car you can drastically reduce the amount of time and money you spend pursuing "lemon" vehicles.

16. Major vehicle components. As part of any used car inspection you must be able to accurately inspect the engine, transmission, drivetrain, brakes & tires, electrical system, exhaust & emissions, glass & mirrors as well as being able to spot potential problems with the car.