How to Buy a New Car

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Categories: Finance | Vehicles | Cars & Transportation | How Tos

  • How to buy a new car offers tips, tricks and advice on how to get the best deal on a new vehicle.

  • Introduction

    • Only the independently wealthy and hardcore negotiators look forward to buying a new car. No one likes being worn down by overzealous salespeople and driving home with a trunk full of buyer's remorse. Fortunately, there are some tricks to cutting the confusion out of your car buying experience. With a little patience, a lot of research and a commitment to getting what you want, you can get the best possible deal on a new set of wheels.

  • Step 1: Decide If You Need a New Car

    • A car is one of the most expensive things a person will buy in his or her lifetime. However, unlike a house, a diamond or a big sack of gold, cars are not an investment. With very few exceptions, cars lose their value as soon as they roll off the lot.
    • Before buying a new car, ask yourself why you need one. And, answer honestly. Would a tune-up and an oil change on your old car suffice, or is your current vehicle just not safe? Is your desire for new wheels driven by vanity or necessity?

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  • Step 2: Determine If You Can Afford a Car

    • When budgeting to buy a car, remember that the cost of the vehicle isn't the only cost you'll encounter. Take the following into consideration when deciding whether or not you can afford to purchase a new car:
    1. Insurance: Different cars. Different cities. Difference insurance premiums. Talk to an insurance agent about how to lower your potential premium. There may be breaks for installing an alarm system or driving only a certain number of miles per month.
    2. Cost of the Car: Use The Motley Fool's "What vehicle can I afford?" online calculator to figure out how much you can spend on a vehicle without breaking the bank. You'll need to know the value of your trade-in, how much you've saved for a down payment and what you anticipate spending per month to pay off your auto loan.
    3. Maintenance and Repairs: Unless you're a bit of a mechanic yourself, expect to spend anywhere from $25-$100 every 3,000 miles for basic maintenance and $400-$1,5000 every other year for more substantial tune-ups.
    4. Fuel: With the rising costs of fuel, you can expect to spend a minimum of $100 per month on gas.
    5. Licensing and Registration: Before you can drive off in your new set of wheels, you'll have to pay for its license and registration. The cost of registering a vehicle varies from state to state, but the cost per year will decline as your car's value depreciates.
    6. Parking: If you live in a crowded, urban area or commute to one, you'll need to take the costs of parking into consideration.

  • Should You Lease?

    1. Cost: Buying a car requires more money upfront. You either have that money saved up, or you take out an auto loan to purchase the car. Once you've paid off the loan, the car is yours. To lease a car, you need much less money upfront for your down payment, but your monthly payments will add up. You will have to sign a lease of 2, 3 or 5 years and adhere to various restrictions including mileage limits.
    2. Mileage Restrictions: Leases limit your "free" mileage to 12,000 - 15,000 miles per year. After that, you pay for each mile.
    3. End-of-Lease Terms: At the end of your lease, you must pay for whatever the dealer deems to be "signs of excessive wear and tear." And, despite how much you've paid over the course of your lease, you won't own the car.

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  • Step 3: Settle on a Type of Car

    • Before you start scoping out the car lots and thumbing through Motor Trend, you need to decide which type of car is best for you. There is so much variety within the auto industry, it helps to narrow down your choices. Car or truck? SUV or sports coupe? Compact or luxury sedan? Ask yourself the following questions before you begin your new car quest:
    1. How much time will you spend in your vehicle every day?
    2. How many miles will you put on your vehicle every year?
    3. Will you be driving primarily on highways, in a city or off-road?
    4. How are you going to use this vehicle? (List everything you might possibly use your car for - grocery shopping, carpooling, vacations, commuting, etc.)
    • After you finish answering these questions, use the process of elimination to figure out what type of car you really need versus the one you might want. Shuttling a family of four around? Sadly, the sports coupe is out.

  • Step 5: Determine a Fair Price

    • Before securing financing to purchase a car, you'll need to figure out what a fair market price is for the vehicles you're interested in purchasing.
    1. Ignore the MSRP: The Manufacturer's Suggested Retail Price (MSRP) or sticker price is meaningless. It is an arbitrary number created by the manufacturer to be "suggested." It has no bearing on the real price of the vehicle.
    2. Research the Invoice Price: The price you actually want to base your eventual offer on is called the "invoice price" or the price paid by the dealer to the manufacturer. You can find a car's invoice price with or without options online at Edmunds.com, MSN Autos, Autosite or CarPrices.com.

  • Step 6: Get Financing from Your Bank

  • Step 7: Sell Your Old Car

    • If you have an old car, you will need to sell it or trade it in at the dealership from which you buy your car. You will always get a better deal by independently selling your car.
    • However, if you don't have the time or would like to avoid the hassle of selling it, you can trade it in to the dealership from which you are purchasing your new car. There are a few rules to follow when securing the best trade-in value for your vehicle:

    1. Consult the Blue Book Value: Consult the online version of the Kelley Blue Book to estimate the trade-in or resale value of your car.
    2. Clean Your Car: Don't give the dealer any reason to not give you the full value of your car. If your car doesn't look like you value it, the dealer will know he or she can get away with low-balling you.
    3. Don't Lie About Your Car's Condition: It's not cool when it happens to you, and most mechanics will be able to see through any half-truths anyway.
    4. Don't Trade In Until You're Ready: Don't actually trade your car in to a dealer until you're ready to buy your new car. You can have its trade-in value assessed without handing it over to the dealer. CarBuyingTips.com recommends negotiating a final price for your new car purchase without including the value of your trade-in.

  • Step 8: Take a Test Drive

    • You should never buy a car without test driving it first, but you should also never buy a car immediately after test driving it. Here's how to approach that all important first visit to the dealership for your test drive:

    1. Make an Appointment: Call the dealerships in your area. Ask for the sales manager. Tell them that you want to come in to test drive whichever car it is you've decided on. If they do not have that vehicle in stock, do not go there. Even if they do not have the car you're asking for, they will try to get you on the lot. Only make appointments a day or two out. You don't want to go to a lot, and have them tell you when you get there that they sold the vehicle you wanted to test drive. If they do this, leave.
    2. Be Informed and Ask Questions: Be informed and ask questions, but do not show any particular interest in the car. The dealer is trained to play on your enthusiasm and make you offers. Don't fall for it.
    3. Take All the Available Literature: This will help you with your selection and research when you get home.
    4. Collect Your Thoughts: Use the Consumer Reports Test Drive Checklist to collect your thoughts on the vehicle.
    5. Don't Buy Anything: This is the number one rule of the test drive. Even if they're willing to cut the price in half and throw-in a year's supply of Turtle Wax, do not buy the car on the same day you test drive it.
    6. Decide on Your Options after the Test Drive: Away from the high pressure dealership, decide on all the options you'd like included in your vehicle. Distinguish between those you need and those you'd like. Remember that certain "extras" can be purchased at half the price from anyone but the dealer.

  • Step 9: Negotiate a Price with Multiple Dealers

    • The trick to negotiating the best price for a new car is to force multiple dealers to bid competitively for your dollar. All that research you did on the fair market price of the vehicle and the fact that you secured financing from a lender other than the dealer makes you one seriously empowered buyer.
    1. Locate 8-10 dealers within a 100 mile radius of you.
    2. Contact the dealerships' House Sales or Internet Sales Manager.
      • Paul Maghielse, writing for The Motley Fool, recommends you do this via fax or email. Car expert Rob Gruhl does this via the phone. No matter which mode of communication you use, don't actually go to the lot to negotiate. Establish control and maintain it.
    3. Tell the dealership that you're interested in buying a car today or within the next few days and that you're getting quotes.
    4. Tell the dealer exactly what you're looking for in terms of options and that you want the "drive it off the lot" price - the final cost of the car with all dealer fees included.
    5. Wait for a response from the dealer or dealers.
    6. Once you have bids from multiple dealers, contact the dealers again telling them what the lowest bid you received was. Can they match it?
    7. Once you've settled on a dealership, confirm the availability of the car you want. Ask for the car's VIN number. Ask them to walk you through the car's options.
      • Paul Maghielse recommends having the dealership put their final offer in writing and send it to you via fax or email before you go down to the dealership.
    8. Go down to the dealership. If the car is not there or something has "come up," LEAVE.
    9. Start the process over again. The original dealer may call you back. Whichever dealer you settle on, don't sign anything until you are sure that you are getting the deal you agreed to.
    How to Buy a Car Without Getting Screwed by Rob Gruhl

  • Additional Tips from CarBuyingTips.com

    1. Use websites like Yahoo! Autos, CarsDirect, Edmunds.com or Car.com to figure out the invoice price for the car you're interested in. Dealers will contact you based on the online forms you fill out. Use these contacts when you're ready to have the dealers bid for your business.
    2. Negotiate the final price without the trade-in value of your old car or financing deals figured into the equation.
    3. Do not negotiate based on monthly payments. Only negotiate the final price of the car with all dealer fees included.

  • Step 10: Sign on the Dotted Line

    • You're almost there. The keys are almost in your hot, little hand, but wait. Be cautious as you get ready to put pen to paper, and heed the following advice:
    1. Do not sign on the dotted line until everything is complete and in writing.
    2. Do not sign an "As Is" agreement. This is basically waiving off your warranty.
    3. Do not buy any extras. Rob Gruhl calls this equivalent of stocking up on candy at the movie theater. Don't buy anything that you can get at the half the price at any after market auto supply store or custom shop.

  • Tips for Buying a Hybrid Car

    • Hybrid cars run on multiple sources of power. The most popular hybrids combine a gasoline engine with an electric motor. Hybrid cars can reduce your fuel costs and release fewer harmful emissions. If you're in the market for a hybrid car, here are a few things to keep in mind:
    1. Hybrid cars don't need to be plugged in. Their batteries recharge while driving.
    2. Find out if the car you're interested in is full hybrid, assist hybrid or stop/start hybrid. Your gasoline savings are directly related to how the electric motor actually works.
    3. Determine the real-world fuel economy versus the fuel economy reported on the sticker. The type of driving you do will affect your fuel savings.
    4. The tax credit received for driving a hybrid vehicle differs depending on the model you're buying.

  • Conclusion

    • Buying a new car doesn't have to be an ordeal. Time, research and a willingness to walk off the lot are all the weapons you really need in your car buying arsenal. So, the next time you need to buy a car, don't be intimidated by the salespeople and the sheer variety of cars available. Take control, and get the best deal possible.

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