Whether new or used, buying a car can be a traumatic experience if you are not prepared. Below are ten tips to help take the stress out of purchasing a car.
- Figure Out How Much You Can Spend
Create a budget. The monthly payment should be no more than 20 percent of your monthly gross income. Also, it’s important to know your credit up front-so get a credit report pulled in advance. Don’t let the dealer know more than you do.
- Research Online
Research and select a vehicle before you visit the dealership. Vehicle purchases are usually emotional decisions made at the dealership. Proper planning can turn this purchase into a logical decision that meets all of your needs. Select a vehicle and options based on your lifestyle and how much you can afford.
- Know How Much the Dealer Paid for the Vehicle
Knowing the invoice price on a new vehicle will help you negotiate a better deal. This is the price the dealer paid for the vehicle, not including any costs for advertising, destination charges, or special regional pricing. Only the dealer knows the actual price paid, but the invoice price gives you a starting place for negotiations. On a used vehicle, know the wholesale and retail values.
- Set Your Price
Figure out the cost for options and subtract any rebates or incentives currently offered for a new vehicle. Also consider whether you will be paying cash or financing, and if you have a trade-in, find out how much it is worth. Research trade-in values online and make sure to accurately factor in the condition of your vehicle.
- Call, Email, or Submit for Pricing Online
Some vehicle research websites work with dealers to provide you with pricing before visiting the dealership (either online or by phone). Before requesting a price, make sure to detail all options and descriptions to compare apples to apples with the dealer. Make contact with an individual (preferably in the Fleet Department) at the dealership and work with this person consistently from pricing and negotiating, to test driving and purchasing the vehicle. Contacting the Fleet Manager is one way of circumventing the usual sales process that is run on commissions. Fleet Managers do not make commissions from the sales, and usually manage large orders for companies and Internet sales at franchised dealerships. They also work with credit union members and can usually provide a better deal!
Negotiate up from invoice, not down from Manufacturer’s Suggested Retail Price (MSRP) or “sticker” price on a new vehicle. On a used vehicle, negotiate up from wholesale value, not down from retail value.
- Credit Union Financing is Usually Your Best Bet
Don’t be fooled by zero percent or low interest rate financing. Read the small print. Few people qualify for these rates, they are usually given in lieu of the manufacturer’s rebate, and it may be better to take the rebate and a low rate loan from your credit union. Do the math before making a decision.
- Test Drive
Don’t ever buy a car without taking a test drive-even on a new vehicle! It’s important for you to like how the car drives since you will be spending much of your time in it. On a used vehicle, we highly recommend that you have your own mechanic check it out. Once you’ve negotiated the best price, set an appointment with that person at the dealership, and make sure you do not get handed off to someone else. On a used vehicle, make sure you request a conditioning report. Some dealers now call these conditioning reports “certification.” A certified used vehicle is usually a little more expensive, but includes a warranty and special financing terms. In comparison, a dealer usually spends an additional $600-$800 on a conditioned vehicle vs. $800-$1,000 on a certified vehicle.
- Close the Deal
Don’t forget to use the information you researched on your trade to get the most for it. Have the dealer show you the price for your trade separate from the deal-often dealers disguise the amount offered on your trade into the final figure of your monthly payment. It’s important that you get the best overall price for the car, a reasonable monthly payment, and a good deal on your trade.
- Avoid Too Many Extras
Once you reach the Finance & Insurance (F&I) office, the dealer will try to sell you on all kinds of extras, most of them needless. Of the multitude offered, we suggest considering the following, if it makes sense for you:
- Guaranteed Auto Protection (GAP): Purchasing GAP is crucial if you owed more on your last vehicle than it was worth and you agreed to have the dealer add it to your loan. Even if you put a down payment of 20%, but you drive a lot of miles each year, GAP protection could be a wise choice. The value of your new vehicle at the time of delivery decreases tremendously the minute you drive off the lot (and even more with a used vehicle). GAP will protect you from the difference between what your insurance company says your vehicle is worth and what you actually owe the lender. Be sure to read the fine print, because not all GAP coverage is the same.
- Service Contract/MBI: If you’ve financed or leased for a short term (36 months) you probably don’t need a service contract or Mechanical Breakdown Insurance (MBI). If you are planning to keep the vehicle for 5 years, consider purchasing one of these warranties. Make sure the service contract or MBI covers wear and tear and mechanical breakdown. Also, know the difference between a service contract and MBI. With MBI, a part usually has to break on the car to warrant repair, and often you must pay the bill with the repair shop and submit a claim on your own. Service contracts are accepted almost everywhere and cost more, but usually provide more coverage. The more dependable the car you choose, the cheaper the warranty. Don’t be fooled by manufacturers’ warranties that give you 100,000 miles of protection, because they usually do not cover everything!