Topics
Buying a New or Used Car
Thinking of buying a car? You'll save money, avoid headaches, and get the car you want if you pay attention to buying advice from auto industry insiders and consumer credit experts.
First, decide what kind of vehicle you need. What you choose is entirely up to you, but a little red sports car is probably unwise if you drive clients around or ferry four kids to soccer games. Similarly, think hard before you pay extra for a four-wheel drive sports utility vehicle if it seldom snows where you live and your only off-road driving is in shopping mall parking lots.
Consider, too, whether a late-model used car, costing thousands of dollars less than a new vehicle, would meet your needs. The biggest cost in owning a new car is depreciation, with some new cars dropping in value by as much as 20% in the first year on the road.
You've probably decided that auto leasing is not
for you. There can be pluses to leasing, most notably low down payments, convenience,
and accounting advantages for businesses. But it is almost impossible, over
the long run, to lease a car for less than it costs to buy. By buying, you'll
also avoid charges for extra wear or for mileage over the usual 12,000- to 15,000-mile
yearly limit.
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Insurance Considerations
Regardless of where you live, certain types of auto insurance are required. The following is a list of some required and optional coverages.
Bodily Injury Liability -- pays for medical or death expenses resulting from an accident in which you are at fault.
Property Damage Liability -- pays for repair or replacement and legal expenses for property damaged in an accident in which you are at fault.
Personal Injury Protection -- pays for expenses resulting from injury or death to you or your passengers, regardless of who is at fault. This coverage will also pay a death benefit to the deceased's survivors.
Uninsured/Underinsured Motorist Protection -- pays personal injury or death benefits if you are in an accident caused by an uninsured, underinsured, or hit-and-run driver.
Collision -- optional in most states, this pays for damage caused to your car in a collision or rollover, minus a deductible set by the insured. Higher deductibles typically result in lower premiums.
Comprehensive -- pays for damage caused by theft, vandalism, fire, and most natural disasters. Though optional in most states, banks will typically require you to purchase this insurance if the vehicle you are buying is being used as collateral for a loan. Equipping your vehicle with certain antitheft devices can reduce your premium.
Helpful Resources
Auto-Buying Ammunition
You'll need ammunition
in your search for the best buy. Knowledge -- especially here
-- is power, so learn everything you can about the vehicles
you're considering.
- Do your research before you even talk to a salesperson.
- Check Consumer Reports for the lowdown on a model's value (or lack of value) and the auto magazines for technical and performance data. Consumer Reports publishes a maintenance guide each spring that shows the repair history on cars. Edmund's New Car Prices is an accurate and up-to-date listing of new vehicles.
- Talk to people who own the cars you're thinking about so you'll get a ground-level view of the good and bad points.
- If you are on the Internet, use a search engine like Alta Vista or Yahoo! to find what information is available on the Web. See whether there's a Usenet news group dedicated to discussions of the vehicles you're considering.
Helpful Resources
The following magazines regularly report on new cars
and can be found at most bookstores and newsstands.
Road & Track
For the more mechanically inclined, Road & Track offers
reports on high-performance cars and trucks.
Car & Driver
Reports on a variety of new cars and trucks, with a slant toward
high-performance models. Periodically ranks new vehicles according
to class.
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Vehicle Value
Determine how much money your car of choice --
with the options you want -- is fetching on the local market. When you get
to the auto showroom, you'll probably find good deals and, perhaps, rebates
on slow sellers. But expect high prices and little bargaining room on fast-sellers
like pickups and sport utility vehicles.
That means you have to know the real value of the car
or truck if you want to get the best deal.
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Making the Deal
The first step to getting a good deal on a new car is to be informed. New car cost guides are available in bookstores, libraries and on the Web. These will help you find the factory invoice price and the cost of various options.
When you are negotiating price with the dealer, remember the invoice price does not represent the actual cost of the car. The dealer may receive a rebate from the manufacturer for each car he or she sells, usually 2% to 3% of the sticker price. Depending on the time of year and the demand for the car, that rebate may be enough profit for the dealer to sell the car "at invoice."
At other times, the dealer may add additional profit
to the price of the car. With some domestic cars, you can expect to pay $200
to $600 over invoice. For more popular models you may pay two to three times
that much.
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Trade-In?
If you want convenience, trade in the car you own now. But you'll usually get more cash if you clean it up and sell it yourself.
Look at newspaper classified and dealer ads and go to
used car lots and ask how much they'd offer you to get a firm idea of how much
your trade-in is worth. The figure printed in a blue book or black book doesn't
matter. You have to know the real street price. If the dealer can match that,
or come close, snap it up.
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The Deal, No-Haggle and Otherwise
There are one-price car dealers who won't haggle
over price because they have already put a realistic sticker on their vehicles.
This is an attractive way to buy if you are not comfortable negotiating a price
or if you find haggling with a salesperson not to your taste. But keep in mind
that 90% of the dealers are ready, if pressed, to give a little to get
your business. By knowing the real value of the vehicle, you're at a decided
advantage.
A good salesperson will attempt to be your friend. It
is an effective selling technique. This is a business deal, with you paying
a lot of money for a purchase. Courtesy, firmness, and awareness of the target
car's real value should be your concerns.
You'll want to visit a few dealers -- once to look
and another, separate time, to negotiate. A convenient location should be a
consideration. The cost of many adjustments to your car must be absorbed by
the dealer who sells you the car, so find one nearby. In those first months
of your warranty, another dealer can legally refuse to do the special-adjustment
service.
Financing
Most people use financing to pay for a new car. If
you are thinking about financing your new car, you may do so through an auto
loan or home equity loan.
Be sure to get the shortest payback time you can comfortably
handle. A shorter-term loan with larger payment amounts will save money in the
long run. A $15,000 loan at 8% for five years, for example, will cost $3,240
in interest. By paying an extra $62 a month for the same loan over four years,
your interest cost would drop to $2,568.
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Summary
- Decide on the kind of car you want -- and research the car's current price -- before you negotiate with a dealer.
- The sticker price may not represent the actual price of the car.
- You can get more for a car by selling it than using it as a trade-in.
- One-price car dealers offer realistic sticker prices and no haggling.
- If financing a new car, a shorter-term loan with larger payment amounts will save money in the long run.
Checklist
- Justify your old car's trade-in or resale value by researching its "blue book" value and also its "street" value, which you can estimate by checking local classified ads.
- Find out which dealerships have the best warranties and special offers. Promises aren't good enough -- get written copies.
- Before buying, pay a third-party mechanic to conduct a thorough inspection of the vehicle.
