Buy a Car

Buying a New or Used Car | Auto Resource Center

So you’ve decided to buy a car? Well you came to the right place. The cost of a car is more than how much you can afford in payments.  First, do your own calculations to determine how much car you can afford and then learn as much as you can about the car buying process. Lastly, to the fun part, decide on what car you want and also research discounts and deals.

If you decide to go to a dealership without doing your homework, you’ll end up paying more and possibly getting less of car.  Be knowledgeable and come prepared to the dealership.

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Preparing For Car Purchases

Have a Plan

Review your credit and understand how it will affect your financing options. If you learn that your credit score is less than good and buying a car is not an immediate need, consider making the purchase after you’ve worked on improving your credit.  Having better credit will qualify you for lower rates and ultimately paying less for a car.

As you’re working to improve your credit use the time wisely and add to your car purchase savings account.  A larger down payment means less to finance and less finance charges.

Pay in Cash

Buying a car in cash is a viable option for many however some car buyers typically want more car that also comes with a higher price tag.  Paying your car in cash makes it easier to sell the car in the future.  More importantly, it means you aren’t paying more for a car by eliminating financing charges however, buying a car in cash can also mean lost opportunity to invest those funds.

If at all possible, consider saving money for a number of years. For example, saving $100 a month for 3 years into a car specific savings account, we’ll give you $3600.  That’s a good amount for a down payment and also a good amount to buy a car that may last you a year or two. Choosing the latter and with no monthly payments, up your savings to $200 per month for two years that’ll give you $4800 and an opportunity to sell the old car and buy a different one.

Save a Large Downpayment

Make sure you’ve set up a separate savings account for your car purchase.  Don’t touch your emergency fund and retirement accounts to purchase a car.  Similar to the example above, if you’ve saved $100 a month for 3 years, you’ll have $3,600 available for down payment.  After calculating the amount of car you can afford and was approved for $15,000 financing that doesn’t mean you should buy an $18,600 car. Use the $3,600 to lower the amount to finance from $15,000 to $12,400.


What Car Should You Get?

There are so many different cars to choose from so it’s important to know what car you can afford and what you should get.  When you walk into a car dealer the first question typically asked is how much you can pay monthly. That’s not a good sign because how much you can pay monthly has nothing to do with what car you should get and how much car you can actually afford.

Show up to the dealership without doing your own research you’ll end up leaving the dealer with a car you may not even want and can’t afford.

1. Calculate your car budget.  Don’t rely on how much a bank/credit union or dealership financing can approve you for.  Just because a financing company says you can afford a $300 car payment, doesn’t mean it’s worth financing a vehicle for 96 months. A car isn’t an asset and depreciates once you drive off the lot and consider it as an expense.  You can decide on how much of an expense it can be.

2. Determine your needs.  Assess you transportation requirements. How far do you travel for work and how many people do you need the car to carry? Are you living in the country with wide open roads or in the city with tight parking spaces.

3. Decide on what you want.  What you want may not align with what you actually need however many things we assume we want doesn’t warrant the price tag.

4. Research cars.  After realizing your actual car budget, prioritizing your needs and wants it will be easier to narrow your car research. Consider the safety of the car, reviewing car history (for used cars) and any recalls.

The more you know the less likelihood a car salesman will talk you into a car purchase that benefits them not you financially.


How Much Can You Afford

The financing amount is not what you can afford.  Don’t rely on financing companies or the car dealership to determine how much car you can afford.  The amount of financing is not how much you can afford that’s only part of the equation.

• Review your budget and calculate how much is available for car payments.  The cost of buying a car ownership is more than the price tag it includes registration, taxes and other fees.  If you’re not paying in cash, you’ll have to factor total cost into your financing amount.

Additionally, buying a car includes various fixed and variable expenses from the car price to ownership costs. Consider auto insurance payments, fuel costs, maintenance, annual registration requirements, parking and tolls.

• Determine your interest rates based on your credit score. Where do you fall in the credit score range? Is it bad, good or excellent? Depending on your credit, you may get 0% financing, 9% or more.  The higher the interest rate the higher the monthly payment and the more it will cost to buy the car.

Keep in mind that a financing company may not approve you for that amount you need or may approve you for more than what you can afford.

Don’t fall for the “it’s only a $50 more a month.” When times are tough $50 can make or break you financially. Stick with what you can afford and know how much you can afford through a budget and plan.


Just because you’re approved does not mean you can afford it. 


Car Financing

Credit Report and Credit Score

If you’re financing your car purchase it benefits you to have a down payment and excellent credit.

• Pull your credit from www.AnnualCreditReport.com and review the information to ensure it’s correct. Dispute inaccuracies or improve credit as necessary.

• You may want to pay down existing debt and any collection accounts as this will positively impact your score and lead to better financing options.

• To get an idea of your credit score, use Quizzle or Credit Karma both are free services.

Financing

A car loan or note is a legal binding agreement. It’s important to review the information of any documents you’re signing and ask questions until you fully understand.  Never sign into an agreement without reviewing.  Before signing understand the following key areas:

• Amount you are financing (borrowing)

• Annual percentage rate (APR – the interest you are charged annually expressed as a percentage)

• Finance charges (the total amount borrowing will cost you)

• Payment amount and number of payments

• Whether there are any penalties, such as a late-payment or pre-payment penalty

The lender is required to disclose all the above information in the Truth in Lending Disclosure Statement, which must be given to you before the loan is closed (finalized). Read this statement carefully, and don’t be afraid to ask questions.

There are three main options for financing:

• the dealership where your purchase the car.  Dealerships do not finance the car but arrange the financing either through an automaker’s financing company or through a financial institution.

• a credit union or bank

• a finance company


Dealership Promotions

Many dealerships offer promotional interest rates ranging from zero percent to no down payment but usually limited to specific cars and for excellent credit buyers.  If you happen to be approved for financing in one dealership it doesn’t mean you can use that financing in another.

Auto Loan Pre-Approval

Contact your bank or credit union and apply for an auto loan before going to the dealership. You may find your credit union has better interest rates and terms compared to the financing offers of the dealership.

Financing with Less-than-perfect Credit

There are dealers who specialize in selling cars to consumers with credit problems.  Financing is usually through subprime loans (loans offered to people with poor credit). Subprime loans come with higher interest rates and less favorable terms.  In some cases, missing one payment may initiate immediate repossession.

Before purchasing a car, work on improving your credit. That should be your primary goal. With better credit comes lower monthly payments and lower total purchase price.

Phroogal Auto Financing


Zero Percent Financing or Manufacturer’s Rebate

Do your math and determine which option is best for you.  Is having a lower monthly payment and paying a few extra dollars worth the expense or is it better to take the zero-percent financing option?  Taking zero percent option is typically reserved for excellent credit borrowers and shorter repayment period.

Auto Financing Zero Percent or Manufacturer

With this example by choosing to pay 5% interest on a loan you can save $921 compared to the zero percent financing.  There are a few variables to consider that’ll change the results so make your own calculations to determine which option is best for you.


Come prepared and knowledgeable about your financing options and the actual car you want and need.


Negotiation Process

Negotiating the price of a car is part of the car buying process.  To get the best price for the car purchase make sure you’ve done your budget, reviewed your credit and have your pre-approval in place.

Consider these tips when negotiating with the salesman or dealership:

Research. Know what is fair price for the car you want. If buying a new car determine the cost for the dealership, that’s the invoice price minus any holdback.  Negotiate based on the dealership’s cost not the MSRP (manufacturer’s suggested retail price). For used cars look up their Kelly Blue Book or NADA values.

Visit at the right time. Choose to shop for your car at the end of the month or year and during July to October period where dealerships are looking to clear this year’s model for next year.  Going to the dealership on Monday may also help if a salesman is unable to meet any sales goals during the weekend.

Don’t over share. The first question a car salesman will ask is how much can you spend per month.  Don’t supply your financial information unless you’ve decided to finance with them and only after you’ve negotiated and agreed to a price.

Come prepared and knowledgeable about your financing options and the actual car requirements (the in between of what you want and need) and you’ll come out of the dealership making a wiser financial decision.  Not comfy with negotiating, bring a friend to help you in the process. However, even with a team of friends to help you negotiate, if you come unprepared you won’t get the best possible deal.

Car salesmen will try and convince you on extras or state that a slightly higher priced car is the only one available today.  If that is the case, walk away and visit another dealership.  You’ll quickly realize how fast they’ll look to find the perfect car that meets your requirements.

Don’t get talked into buying a car or getting features that doesn’t meet your listed requirements.  If you feel pressured, just walk away.  Keep in mind you’re the one making the purchase and will have to live with that decision.

Negotiating a Lease

If you plan to lease instead of buy, can you still negotiate? Yes. The monthly payment under a lease is based on the difference between its current price and residual value (value of the car at the end of the lease), plus taxes, a rent charge, and other fees. The fees and residual value are typically not negotiable, but the current price is – the lower the price you negotiate, the lower the monthly payment. Many experts recommend that you negotiate a price before you tell the dealership that you are interested in leasing, not buying.

Selling Your Old Car

Are you planning to sell your old car when you get your new one? You can usually get the highest price if you sell the car yourself, but it generally takes more time and effort than if you trade it in to the dealership. If you are going to trade the car in to the dealership, you should negotiate the price of the new car first before discussing the trade-in. However you decide to sell, make sure to put your car’s best foot forward – fix minor dings and scratches and clean it thoroughly inside and out.


6 Tips For a Better Car Purchasing and Financing Experience

Follow these tips to increase the chances of getting the best auto financing option for your car purchase.  As mentioned above, getting the best financing is only part of the equation, you should negotiate for the lowest purchase price.  Doing your research, calculations and negotiating can save you thousands of dollars.

Consider these tips on your next auto purchase

1. Assess your budget.  Review your budget and calculate how much car you can afford.  This will help you set the guidelines for a better informed financial decision.

2. Check your credit report.  Make improvements by fixing incorrect information, disputing inaccuracies and paying off existing debt and settling any collection accounts.  Know your credit score (get your free credit score through Quizzle or Credit Karma to get an idea of where you fall in the credit score range).

3. Get an auto loan pre-approval.  Reach out to your bank and credit union and apply for an approval.  This will hep you determine how much financing is available but not necessarily needed.  A sizable downpayment can help you negotiate a lower interest or better terms.

4. Determine your car requirements.  What do you need and want? Know which car is right for you.

5. Shop for the best deal.  The amount you pay for a car is based on the price you’re paying.  The lower a price the overall lower total cost for the car.

6. Consider new or used, buying or leasing and down payment amount.  Do the math to figure out which option is actually best for your situation.  The goal isn’t to spend money on a car but rather buying the car at the lowest total cost.

7. Know your legal responsibilities and consumer rights.  It’s important you understand the laws around car ownership in your state and consumer rights with regards to your car purchase.

When making a car purchase always think about your long term future.  The satisfaction you feel driving off the dealership lot is powerful but making a poor financial decision will have a long lasting impact.  The cost of the car and financing charges are only part of the true cost of car ownership.  There are ongoing costs such as annual registrations, gas fill ups, maintenance costs such as tune ups and car washes, and insurance payments.


Buy or Lease a Car

You should carefully compare the costs of leasing and buying. Leasing is almost always more expensive in the long term. Usually, it takes longer to get full ownership of a car through a leasing agreement than by getting a loan to buy the car. If you buy a car with a loan, it might take five years to pay off. However, if you decide to purchase a leased car at the end of the lease, it might take seven or eight years to pay for the car.

Purchasing a car

If you tend to be a road warrior and use your car excessively, purchasing a car may be the best deal around. You can drive it as much as you’d like.

The main benefits of purchasing a car is that you own the vehicle after you’ve completed the loan payments. The car may even have considerable amount of equity and value. Once paid for, you now have additional money that can be deposited into a savings account or used to pay down other types of debt.

Some drawbacks from buying a car is the potential for higher downpayment requirement or a larger monthly payment. For tight budgets, large down payments or large monthly payments may make leasing a better option.

Leasing a car

The benefits of leasing is a lower monthly payment. Basically, you’re making monthly payments based on the value of the car minus the residual value after the lease. You’ll notice the residual value of the leased car in the lease agreement.

For instance if the vehicle you’re leasing is worth $40,000 and the residual value is $19,000 after a 2 year lease you’re paying for the difference. In this case, your monthly payments is based on $21,000 plus interests, taxes and fees.

• Leased vehicles often times require larger down payments or perfect credit to qualify for the best lease terms. There are often strict guidelines on mileage usage and wear and tear. Excessive mileage or wear and tear can lead to additional fees at the end of your lease term.
• Most leased vehicles can be purchased for the residual price after the lease terms have ended.
• If you’re the type to want the latest and greatest new car every few years, leasing might be the best option for you. Consider, however, that all the payments you’ve made was for usage not towards ownership. You’re basically renting the car.
• Leased vehicles have mileage restrictions often 12,000 or 15,000 per year. Any mileage over your mileage lease agreement will results in additional fees.

Also, bear in mind that if you make a habit of always turning in your leased car at the end of the lease and then leasing another car, you are putting yourself in the position of paying lease payments into the indefinite future. This will nearly always be more expensive than taking out a loan to buy a car. If you buy a car, you will pay off the loan at the end of the loan term (typically four to five years), and then you will own the car outright.

Today, many new cars last more than 10 years before they need to be replaced.New vehicles are usually the most reliable.

You will be covered by a manufacturer’s warranty, which typically covers certain repairs and parts replacements for several years.

It is easier to customize and get exactly what you want.


Consumer Rights

Truth in Lending Act

The Truth in Lending Act requires lenders to provide a clear written disclosure of the terms of borrowing. As discussed previously, if you are getting a car loan, the lender must give you a Truth in Lending Disclosure Statement, which shows the amount you are financing, annual percentage rate, finance charges, payment amount, number of payments, and whether there are any late-payment or pre-payment penalties.

Consumer Leasing Act

If you are leasing a vehicle, you have a right to know the terms of the lease, including the:

• Total amount due at lease signing
• Monthly payment amount and total number of payments
• Annual mileage allowance and per mileage charge for extra miles
• Rent charge
• Depreciation charge
• Disposition fee (fee charged at end of lease term, typically waived if vehicle is purchased)
• Whether the car can be purchased at the end of lease
• Residual value/price of the car at the end of lease

Lemon Law

Almost every state has a law designed to protect consumers who purchase a “lemon” – a car with significant defects. If your car turns out to be a lemon, you may be entitled to a new one or a refund of the purchase price. The law generally only applies to new cars, not used ones. The defects must significantly impact the car’s safety and/or usability, and you must attempt to have the defects fixed a specific number of times (determined by state statute) before the car can be declared a lemon. Visit your state attorney general’s website for information about your state’s lemon law.

If you purchase a car with defects, you do not necessarily need to resort to the lemon law to obtain a resolution. The dealership and/or manufacturer may be more than willing to work with you. You can also contact the Better Business Bureau’s “BBB Auto Line” (bbb.org, (800) 955-5100), which arbitrates warranty disputes between consumers and participating manufacturers.


Articles

Car Buying Process – Money Essentials. CNN MOney
Autos: 4 Smart Car buying Tips.
Buying a Car? Here’s How to Deal With The Salesman.


Resources

Kelly Blue Book – A car valuation and research website to help you learn more about vehicle specs, features, pricing and more.

NADA – An online guide to help price vehicles.

CarFax – Get used car history reports.