“I would rather have a root canal than go buy a car!” Have you ever thought that way? Buying a car does not have to be torture. In the case of car buying, knowledge is power. Here are 5 steps you can take to put you back into the driver’s seat.
Buy A Car Step 1 – Budget
Deciding the budget is the most important part of the car buying process. Having a budget will keep you from falling victim to a salesman who tells you that you can afford that extra $150 per month if you cut out your daily $5 Starbucks habit. Of course if you are living within your budget you have already determined your maximum monthly payment for the car. Consider the following when building your car budget:
- Car Insurance – If you are going to finance the car, you will be required to purchase full coverage. Once you decide on the year, make and model of the vehicle you are planning to buy, call your insurance agent to get the cost of your premium.
- Gas – If you stay with the same type of vehicle, chances are the numbers won’t change too much. However, if you are transitioning from a compact car to an SUV the difference can be astonishing. You don’t want is to be eating ramen noodles for the next five years because you didn’t realize that you now pay $350 in gas each month compared to the $100 per month. (Note: Make sure your new car does not require premium gasoline).
- Annual License Fee – Every year you will need to pay a fee to renew your car tags. In some states, these renew on your birthday and in others the tags renew on the yearly anniversary of your purchase. Some states also have additional taxes you need to pay each year.
[box type=”info”]Knowing how much you want to spend each month on your car is great, but don’t forget that you need to know how long you have to make those payments. Go into negotiations knowing how much in total you want to spend to buy a car. This will help you understand what your monthly payment will and for how long. I like the auto loan calculator over at bankrate.[/box]
Buy A Car Step 2 – Comparing vehicles
Now that you have a budget in place There are several great websites that allow you to research vehicles by comparing different makes and models online. This research will give you the black and white facts. My favorite is Kelly Blue Book.
- Kelly Bluebook – This site allows you to compare up to 4 vehicles at a time. It will also give you a list of comparable vehicles. You can compare different trims available for each make and model (i.e. LX, EX, LE).
- Edmunds.com – Edmunds is another great research tool as it gives you lots of reviews.
- Consumer Reports – This is a subscription based site and a great source to check out the car’s reliability. Alternatively, you can talk to your mechanic. Ask someone you know who has the same make a model a few years old if he/she has had any mechanical issues with the vehicle.
- Test Driving – Before you buy, you need to test drive. When you go to the dealership, don’t buy that same day. You may be told that they have someone else interested in your dream car and it won’t be there if you wait. Rest assured that if the car is not there when you come back to buy it, the dealer can locate one for you. Take someone with you who will help keep you on track to only test drive and not buy today.
[box type=”warning”]Many websites have banner ads that promise to get you the best deal on a vehicle. This is nothing more than a lead generator for the dealer. Clubs such as Costco or Sam’s Club may offer car buying incentives. Look into these programs. Many offer tremendous benefits, nevertheless it is still up to you to do the research.[/box]
Buy A Car Step 3 – Incentives
Many new vehicles have rebates or incentives. These incentives can range from $500 on up depending on the manufacturer. You may also have the option to choose special financing such as 0% for 36 months or 1.9% for 60 months. Edmunds is a good source. The manufacture’s website is also a good source. Make sure that you enter your zip code so that you are receiving the current incentives for your area since many times these incentives are regional. When negotiating your deal, make sure that you get the incentives, not the dealer. You can do this by letting the sales person know that you’ll take the incentive amounts off the final price once you reach a deal.
Buy A Car Step 4 – Financing
Before you ever go to the dealership, call your local bank or credit union to get pre-qualified. This will give you an interest rate to plug into your auto payment calculator to determine the total price of the loan you can afford. Also look at alternative financing. I know that my insurance company, State Farm, offers auto loans at very competitive rates. Capital One also offers great rates. Keep in mind that each time you apply for a loan this causes a credit inquiry on your credit report and it could potentially lower your credit score. Learn more about how applying for loans will affect your credit. Research rates first then apply for the best.
Once you know the interest rate for which you qualify you will be able to take or leave the dealer’s finance option. Let the dealer run your credit to see what type of rate they can get. Dealers can often get you a lower rate than what you can get at your own bank. I had my rate from my credit union and the dealer was actually able to get me a rate that was 1.5% lower. I was pretty excited.
[box type=”warning”]Never let the dealer know what you want your monthly payment to be. Always negotiate on final price. By letting the dealer know what you want your monthly payment to be, he can manipulate the length of the loan term or the interest rate in order to earn more money from the deal. These are called buy rates. Let’s say the dealer can get 3.5% for 60 months for you. You told the finance guy that you can afford $500 per month. He can increase the rate to 5% because it fits in your payment schedule and he just made the interest difference as profit. Lesson learned![/box]
Buy a Car Step 5 – Purchasing the Vehicle
Call a few dealers and ask for an invoice on the car that you want. The dealer should have no problem faxing or emailing you the invoice. If they do, go somewhere else. Pay attention to the options on the vehicle. Make sure that it includes everything on your list. Next, get quotes in writing including the purchase price, rebates (if applicable), sales tax, and license fees. You should have a bottom line number. Whoever comes in the cheapest wins.
When you go to pick up the car you may be ushered into the finance office to sign the paperwork. The goal of the finance office is to make money on the car deal. Beware of increased sales price or monthly payments. By this point you should know your bottom line purchase price and what you monthly payment is by using a loan calculator online. Make sure that the purchase agreement and the finance agreement matches. Don’t be afraid to walk away. If you have to walk away after sitting at the dealership for hours and start over, it’s OK. It’s better than paying an additional $50 per month more over 60 months which would ultimately cost you $3000! All dealerships want to sell cars. If one will not work with you there are several others who will.
[box type=”info”]What should you do when offered extra’s at the dealership? Say No! No matter what it is, you don’t need it. You don’t need the extended warranty, the insurance gap coverage, the undercoating. If you do need it, you can find it cheaper somewhere else. [/box]
What has your experience been like buying a car? Let us know in the comments below.
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