What To Know When Buying A Car
But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.
what to know when buying a car
"The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
So Reed says having that preapproval can be a valuable card to have in your hand in the car-buying game. It can help you negotiate a better rate. "The preapproval will act as a bargaining chip," he says. "If you're preapproved at 4.5%, the dealer says, 'Hey, you know, I can get you 3.5. Would you be interested?' And it's a good idea to take it, but make sure all of the terms, meaning the down payment and the length of the loan, remain the same."
So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't want to. Keep it simple. One thing at a time.
"Concerning the extended factory warranty, you can always buy it later," says Reed. "So if you're buying a new car, you can buy it in three years from now, just before it goes out of warranty." At that point, if you want the extended warranty, he says, you should call several dealerships and ask for the best price each can offer. That way, he says, you're not rolling the cost into your car loan and paying interest on a service you wouldn't even use for three years because you're still covered by the new car's warranty.
Reed says a colleague at NerdWallet actually bought a minivan recently and "when she got home, she looked at the contract." She had asked for a five-year loan but said the dealership instead stuck her with a seven-year loan. "And they included a factory warranty which she didn't request and she didn't want." Reed says she was able to cancel the entire contract, remove the extended warranty and get a rebate on it.
"But the point of it is," he says, "I mean, here's somebody who is very financially savvy, and yet they were able to do this to her. And it's not an uncommon scenario for people to think that they've got a good deal, but then when they go home and look at the contract, they find out what's been done to them."
"We're actually living in a golden age of used cars," says Reed. "I mean, the reliability of used cars is remarkable these days." Reed says there is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that, he says, are definitely worth considering. "You know, people are buying good used cars at a hundred-thousand miles and driving them for another hundred-thousand miles," says Reed. "So I'm a big fan of buying a used car as a way to save money."
He acknowledges that which car you buy matters and that it's a good idea to read reviews and ratings about which brands and models are more or less likely to run into costly repair problems down the road. He says some European cars are famously expensive to maintain.
NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car buying. Many said they were shocked by how much money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, "40 years of owning vehicles and our total transportation purchases don't even add up to the cost of one of the financed ones these folks are talking about."
The number one thing you can do to smooth out the car buying process is to apply for a loan preapproval. There are many ways to do this, whether you want to visit a local bank or credit union, apply at a national bank, or even go through an online lender.
Also, if you opt out of online behavioral advertising, you may still see ads when you log in to your account, for example through Online Banking or MyMerrill. These ads are based on your specific account relationships with us.
Buying a new car is one of the most important decisions you will likely ever make, mainly because a car purchase is such a costly decision. The car-buying process can also be lengthy and unpleasant if you are not prepared. Fortunately for you, there are several things you can do and several things you should know before and during the car-buying process.
Things like knowing the trade-in value of your old car, knowing how much you can afford for a new or pre-owned car, knowing your finance options, knowing the total cost of the specific car you want rather than just the sticker price, and knowing what you need are all important in getting you the best price on any vehicle.
One of the most underestimated aspects of buying a car is understanding your needs. Most people know what they need to some extent, but often, understanding and knowing turn into two separate things. And many people only consider what they need right now instead of considering long-term implications.
If you want to get the most out of your money, you need to ask yourself a few questions and answer them honestly. Do you really need a new car or will a used car work? Do you need a midsize SUV when a compact SUV will suffice? Do I need all-wheel-drive or will front-wheel-drive work, especially since I live in Phoenix, Arizona?
Remember, there is a difference between a want and a need. Many people can get what they want rather than what they need. Some people choose a combination of wants and needs. Whatever your particular situation may be, you should always answer the wants versus needs questions honestly so that you do not end up with a sports car when you really needed a pickup truck.
Everybody knows how much they afford, right? The answer is no. When car shopping, it is easy to look at the MSRP, sticker price, or the most optimum advertised financing deals available and assume that is the total cost of the vehicle purchase.
One of the best and easiest things to do as a prospective car buyer is to know what other vehicles are available on the market. Once you know how much you can afford and what exactly you need, you can start to shop around. The biggest mistake that any car buyer can make is to get set on one vehicle without looking to see what other car dealers have.
Comparing vehicles could save you thousands if a car dealership down the road has a similar vehicle to the dealership into which you are currently looking at a better price. Additionally, do not underestimate the value of working with a dealership that has good reviews. Working with a salesperson who values you as a customer as opposed to one who just wants to sell new cars can change your entire car-buying experience.
This tip is not so much about how you know, but rather, what you know. However, knowing that you are pre-approved for an auto loan before you start the car-buying process will make everything a tone easier. It works much the same as getting a pre-approved house loan. If you are pre-approved, you do not have to sit at the dealership wondering how long it will take to find a good lender or if you will get a good interest rate.
Getting pre-approved for a car loan does a few more things than just making buying a car easier, though. First, it can allow you to potentially get a car loan from your home bank. This may not mean getting the best loan terms or annual percentage rate, but it does mean getting a loan from people you know and trust rather than from a credit union or bank of whom you have never heard.
It can also help you determine where you stand with your credit score, and therefore, with potential offered incentives and rebates. It is always helpful to know your credit score, but if you do not, a pre-approval will help you find out what it is.
YouTube is also a great tool to use. Of course, there is a myriad of channels and mechanics that claim to know what they are talking about, but when you find consistencies between sites and channels, you know that there may be something more to a specific car model than meets the eye. You do not have to be a mechanic yourself to know a good car from a bad car, but you do have to be diligent.
Even with car prices at an all-time high because of continuing supply chain issues, people are still buying cars, and the right one for you is out there. Do not be afraid to walk away from a car that is out of your price range, a car that has that strange squeak that sounds a little too ominous, or even a deal that seems too good to be true.
Perhaps the most important thing to know when you are about to buy a new or used car is your game plan. You have done all of the necessary research, you have secured your car loan with your preferred lender, you have compared prices, and you have figured out exactly what you have to spend, and something happens to the one car you had your eyes on. That happens, and you can try again.
Buying a car is not unlike finding a job. It takes a little shopping around, it takes knowing your limits, and it takes knowing what you want versus what you need. It can take a long time, and it can be tiring, but if you put in the effort, you will be rewarded by potentially saving thousands of dollars.
Knowing these ten factors will help you make the best decision possible for yourself, but they will also inevitably bring up other things you may have never considered. Ultimately, they will help you get the best deal when you are car shopping for yourself. 041b061a72