Buying a car

Buying a car is a big decision and I strongly advise you to spend adequate time researching all your options.  You do not want to end up making an impulsive buy on a car because it is a decision you will need to live with for the next 45, or maybe even 6 years.

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Determine current situation

Prior to looking at new or used cars, you will want to understand your current situation.  What is the reason you are searching for a new or used car?  Is your current car unreliable or not functional?  Do you not have a car today and need one for your daily commute?  How much money are you able to confidently spend on a car payment (if you are not planning on paying cash)?  Is your credit score in good standing?  Your credit score is going to impact the interest rate you receive when you apply for financing.  If you can justify that you really do need a new car, then you should proceed to the next steps.  I will say this- if you have a reliable car that only requires small amounts of money to fix it every now and then, you might be better off keeping your current car.  If you are planning on incurring a $300 car payment per month, you are going to spend $3,600 per year.  Are your maintenance bills on your current car less than this?  If so, you might be better off not purchasing a new car.  Just an idea!

Identify your goal and research on the internet

Before going out to purchase a car or even look at the dealership, start by identifying your goal.  This goal should include what you are looking for in a car and the type of payment and maximum payment you want.  For example, I want to finance a new Jeep Wrangler for under $500 per month.  You will also want to be cognizant of monthly payment versus total cost after the car is paid off.  For example, you might think $500 per month is good, but without knowing the length of time you need to pay, it is meaningless.  If you are paying $500 for 48 months and paying $500 for 60 months, there is a a $6,000 difference in price tag for the same vehicle.  Most salespeople will try to rope you in with the monthly payment and will tell you not to worry about the length of time you are paying.

In researching on the internet, you will want to review the car you are looking at.  A few examples of sites to visit are Kelley Blue Book, JD Power, and Edmunds.  Make sure you understand what you are purchasing and if it fits your needs.  If you would like to haul a boat, you will probably want a truck or SUV with pulling power.  You will not want to purchase a Toyota Yaris.  You should also determine if it is the best bang for your buck.  You can use truecar.com to determine what others are paying for.  We are fortunate today that there are so many resources to compare car performances and prices.

Understand your budget

You need to make sure you understand your budget and you are not stretching your money too thin.  If you visit a car manufacturer website (i.e., http://www.chevrolet.com, http://www.jeep.com, http://www.bmwusa.com) you will find tools to calculate your financing and leasing options.  Most major car manufacturers will help you with financing, but you should also check your personal bank rates for a car loan.  You will also want to call your auto insurance company and get a quote for the new car you are thinking about buying.  The insurance on a new car may be higher than your current older car.  Also, keep in mind gas mileage.  Even though most new cars are getting better gas mileage than older cars, if you are currently driving a Toyota Prius and opt to purchase a Ford F250, you are not going to get the same great gas mileage.  Obviously, the Ford truck is going to cost you significantly more in gas per year than a Toyota Prius that gets excellent gas mileage.

Visit several dealerships

If you do not want to be bothered while looking at cars, you may want to visit the car lot on Sunday when it is closed.  You will be able to freely walk around the lot, assuming they do not charge you with trespassing.  The downside of this is, you will not be able to test drive the car.  Typically, when you go to a car dealership when they are open, you will have salespeople greeting you very quickly.  You may like or dislike this.  I personally do not like dealing with salespeople and wish I could move through the progress without them.  You will want to test drive the car and you will most likely fall in love with it.  You may not want to show too much interest because you don’t want the sales team knowing you are hooked.

It is important to visit several dealerships because you will want to understand the various prices for the same vehicle.  Some dealerships will want the business more than others, which is good for us.  The downside is spending the time visiting several dealerships and having to deal with multiple sales teams.

Negotiations

Once you select your car and sit down at the salesperson’s desk, you are now in the negotiation phase.  They are going to walk back and forth to their managers desk.  You are probably going to spend a few minutes by yourself while they are “asking their manager for a better deal”.  It is at this phase when your pre-work will pay off.  This means you already visited several dealerships and looked up data from truecar.com.  You may have even built the car you are looking for on the manufacturers website and have an accurate price of what it is supposed to cost.  The more information you have, the better you will be in the negotiation.  You will also need to understand what additional discounts they give for loyalty programs, US military programs, AA program, and so on.

You will not want to reveal the discount programs until you receive a price you are comfortable with.  If you start discussing discount programs too soon, sales will include that too soon and put you at the price you want you at anyway.  You also need to be able to walk away at any point.  You have nothing to lose.  The dealership does have something to lose.  They can lose your sale.

Final paper signing

Once you close on the deal and are in another office signing all the papers, you will need to really think about what you need and what you don’t.  One big example that sticks out for me is the extended warranty.  Unfortunately, when I purchased my Jeep I paid for an extended warranty not understanding it completely.  It extended my warranty to 100,000 miles and was transferable if I sold my Jeep before it ran out.  If you read the small print on some of these extended warranties you will find deductibles and in my opinion, what it covers is not really great.  The chance of you actually needing it is very slim.  In my opinion, I would not recommend anyone paying an extra $2,000 or $3,000 on an extended warranty.  They may tell you it is only $34 extra per month, but in 60 months that is an extra $2,040.  You need to keep your eye out for some of these extra unnecessary fees that increase your payment.

Key points

  • Define your current situation and understand what you are really looking for
  • Identify your goals and make sure they are aligned with your budget
  • Do not jump into a car payment that will make you sweat
  • Gather as much information before sitting down in your final negotiation
  • Do not add unnecessary extras when signing your final papers

 

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