JoshIf you’re ready to buy a new car, it’s important to go in with an understanding of where exactly the challenges lie. No new car is a lemon anymore. While lack of research can mean not getting the best possible features and luxury trappings for your money, there can be nothing fundamentally wrong with any choice you make, no matter which way you head. Money is where you can go wrong.
You can either lose out by not doing your pricing research and allowing the dealership to overcharge you, or you can go very wrong in the financing department.
Unfortunately, most car buyers put all their research into the fun part — finding the exact model that tickles them — and none at all into making deals on the dealership floor and in the office, hammering out the finance deal.
If you understand how important it is to get the financial part right, here are tips on how to do it.
Know what the dealer’s cost is
Many buyers who check prices online see figures for the invoice price on each vehicle and assume that it’s the price the dealer pays on the car. They work off that figure, assuming that they do need to give the dealer at least $1,000 over invoice as a profit margin. This isn’t the way dealerships actually work, however.
Invoice prices may be the stock prices set by the manufacturer; there are usually all kinds of discounts and incentives alongside the invoice price, however, that the buyer never hears about. These can make them a profit even when they sell at invoice.
What you need to do, then, is to not agree to pay much more than invoice. You also need to call the manufacturer to learn about any customer rebates going. Dealerships are under no obligation to tell you about them.
Separate your deals
In most cases, it isn’t a good idea to use the dealership for everything that you need to do to buy a new car — trading in your old car, finding financing and buying a new car. These are three different deals, and they are often best done at three separate places. If you do it all at the one outlet, you give them too much opportunity to play with the figures. You have no way of really knowing what you are getting for your old car, what the financing really costs and so on.
Try every financing option possible
You should, at the very least, ask credit unions and banks in your area for quotes on their car loans. There’s more that you can do, however. You should try a comparison loan shopping site and check out different rates. You can use an online auto loan calculator (http://auto.loan/calculator/)to figure out which terms are best.
Taking too long comparison shopping
When you decide that you need a new car, you need to do your loan shopping within a week. Each time you request a quote, the dealership, bank or credit union pulls your credit report, an action that tells the credit reporting agencies that you’re looking for a loan. All such research that you make in a 10-day period is taken to be part of a single search and does not unduly affect your credit rating. When you drag a search on for weeks, however, your searches are taken as discrete searches and do dramatically drop your score.
It’s important to do your best to raise your credit score before shopping for a car and to not drop it while you shop.
Not understanding interest rates
Interest can be a genuinely difficult subject to understand. Even when you do technically understand what an interest rate quote adds up to, it can still be hard to mentally process the difference between a 6% APR and a 7% APR.
There are two basic pointers to keep in mind — you should never compare cars by their monthly payment prices alone. By such a measure, a BMW 3 Series is often not much more expensive than an Accord. You need to compare cars on actual price — including down payment, interest, the length of payment and so on.
Finally, try to avoid borrowing, at all
Borrowing to buy the average sedan ends up sub costing you as much is $4,000 in interest. If you can work to save the money you need first, it could mean $20,000 or more safety over a lifetime. Sometimes, you simply need to think out of the box.