Guide To Buying Your New Car the Smart Way
Buying a new car can be a scary experience. It’s a large financial investment that requires recurring monthly payments over a period of years. Money isn’t all that you’re investing either. Buying a new car also costs a lot of time—weeks, even months in some cases, as you cope with pushy salespeople on dealership lots and intimidating financial institutions.
When it’s time to make this purchase, you need to know what you’re getting yourself into and how best to handle things. But don’t let the intricacies stress you out. In this post, we will explain how to buy a car the smart way.
Important Tips for Buying a Car
On average, Canadians hold onto their vehicles for about nine years. When buying a product that will be such an important part of your life for so long, make sure you take the right steps to avoid making the wrong decisions.
Step 1: Do Your Research
Even if you’re not an aficionado of cars, you need to know something about them—especially the average retail or resale prices for specific models—before plunging into purchasing one. What size and style of vehicle do you prefer? Sedan? Coupe? Hatchback? SUV? Over the past few decades, car makers have introduced plenty of variations of the main body types, everything from compact SUVs to four-door coupes. You probably have many more options now than you did the last time you bought a vehicle.
Many online resources enable you to research car makes and models and obtain information about their prices, reliability, maintenance costs, and estimated insurance costs. Kelley Blue Book and Consumer Reports are great places to start. When researching a new car, find the invoice price as well as the commonly listed MSRP. The invoice price is what the dealer paid the manufacturer for the car, whereas the manufacturer’s suggested retail price (MSRP) is what the dealer typically lists as the final sale price. The factory sets the MSRP on the basis of costs and a judgment about what the buyer is willing to spend. Keep these numbers in mind when visiting dealerships. The knowledge will help you negotiate.
Step 2: Think About Financing
Financing the purchase of a new car is the best option for most people. But don’t secure financing at a dealership. Dealership interest rates are much higher than the rates offered by banks or credit unions. Moreover, the financial institution you use for your personal transactions will probably offer you a discount given your long-standing relationship—one of financial trust developed over years, perhaps decades.
Although the financial institution with which you regularly do business will often give you a good interest rate, survey other options as well. Aggregators like AutoGravity and LendingTree provide you with a variety of quotes so that you can compare financing terms in real time. Once you’ve found the best rate, you can apply for prefinancing. Contact the financial institution and get the quote in writing so that you have it in hand as leverage when visiting a dealership.
Check Your Credit Score
The quotes you receive are based on your current income and credit score. If you aren’t receiving quotes you like, you may want to take a loot at your credit score. Several free credit-checking options like Credit Sesame and Credit Karma allow you to review your score and determine what may be bringing it down. Paying off debt and keeping your credit utilization ratio low is likely to improve your credit score within a month or two. Car buyers with credit scores of 660 or better have access to loans with the best interest rates. Loans are also available, albeit at less favorable rates, to buyers with lower scores.
Step 3: Decide How Much You Can Afford
There is no hard-and-fast rule specifying how much car you can readily afford. In general, though, your monthly car payment should be no more than 10 percent to 15 percent of your monthly take-home pay. You should also take into account the costs of maintenance and repairs, gas, and insurance when considering what you can pay for a vehicle. The standard manufacturer’s warranty that comes with all new cars will probably be sufficient. But if you decide that an extended warranty is worth getting, this too will increase the total purchase price.
Buy on the Basis of Purchase Price, Not Monthly Payments
At the dealership, a salesperson may urge you to purchase a vehicle solely on the basis of the monthly payments you will be making. Although this may be a smart sales tactic, allowing it to succeed may result in a bad purchase for you, the buyer.
Car dealerships generally don’t make much money on the sale of a vehicle. Most of their profit comes from financing, trade-ins, and optional add-ons. When buyers mention that they want a vehicle at a specific monthly rate, the salesperson may manipulate the terms of the deal in such a way as to maximize the dealership’s profit as you get that monthly rate.
Naturally, you’re inclined to think a lower monthly payment automatically means a lower total price on the vehicle. But as it gives you that modest monthly payment, a dealership may stretch out the term of the loan by one to three years, give you significantly less money than you might have gotten for your trade-in, and pull several other tricks to boost the total price you pay. Over the course of the loan, you could end up paying hundreds and even thousands more than you would have paid if you had bargained solely on the basis of total purchase price.
Step 4: Research Vehicles and Features
Once you’ve got an idea of financing terms and what you can afford, research the models that have the features you want and that are in your price range. If it’s been a while since you have been in the market for a car, you will probably discover a plethora of advanced new systems designed to enhance safety and convenience. Remote start, blind-spot monitoring, and heated seats are just a few of the features now common in the latest automobiles. Look at the option packages on your preferred car model to compare the features that are available at different prices. What’s missing in a base model may be available in higher trims of that model.
Step 5: Take a Few Test Drives
Taking a few test drives will allow you to get up close and personal with a vehicle to see how you like it and make sure it suits your lifestyle. Doing your research narrows down your options, but there’s no substitute for getting behind the wheel and seeing how a vehicle drives and how comfortable it is to drive in. All dealerships will let you take a test drive for thirty minutes or an hour in order to get a feeling for a car. Few will let you keep it overnight, though. If you need more time, consider renting the model you prefer from a rental company or from a car-share service like Turo. These options cost a little money, but they enable you to drive the car for an extended period of time in various weather conditions and on different roads and highways.
If you’re checking out a vehicle at a dealership, do so during the day so that you can see that everything is in good condition and all its functions are working correctly. Inspect the body of the vehicle for any damage that originated in the factory, and adjust the mirrors, seats, and other vehicle controls to ensure that they are all in full working order.
Step 6: Negotiate Terms
How you negotiate terms can make a huge difference in how much you end up spending for a new car. The price you see at a dealership is not necessarily the price you have to pay. Knowing the difference between invoice price and retail price will give you negotiating leverage when making this purchase. You should also have an idea of the prices that comparable vehicles are selling for in your area and how long they sit on dealer lots before being sold. If you have clearly done your homework, the dealer will take you more seriously and you will be able to negotiate more confidently.
Don’t Mention Your Trade-In or Special Discounts Right Away
When visiting a dealership, it’s best not to disclose any trade-ins or special discounts right up front; the dealer might not offer as low a price for a vehicle as he would have if you had not mentioned these. For example, if you have a $5,000 trade-in and the dealer won’t go lower than $20,000 for the vehicle you prefer, he may be adding all of the expected payment for the trade-in to the sticker price for the new car in order to get as much profit as possible. If you don’t mention the fact that you have a trade-in, the dealer will be more inclined to give you a price closer to the minimum he can offer. In our example, this could be the difference between a price of $20,000 and a price of $15,000 after your trade-in is taken into account.
Step 7: Close the Deal
You’re almost there. If you can afford the vehicle, and it has the features you want, and the terms of financing look right . . . it’s time to buy.
The dealership will confirm your financing and give you documents to sign: a written agreement about the purchase price, including a breakdown of fees, and other paperwork confirming your purchase. If you notice anything in the paperwork that differs from what you and the dealer have agreed upon, be prepared to walk away. Dealerships sometimes tack on various pesky fees at the last minute on the assumption that costumers won’t peruse every provision of the contract.
The last step is taking delivery of your brand-new automobile. No matter where you take the delivery, your vehicle should be in pristine condition and have a full tank of gas. Be sure to inspect the vehicle to ensure that no damage has occurred during transport. A salesperson should be there with you to give you a tour of the vehicle and explain how to use important safety and convenience features. Don’t hesitate to ask questions. New car technology is highly sophisticated and may take some time to learn on your own.
Buying a new car doesn’t have to be nerve-racking. If you have done your research, are prepared with the information you need, and are prequalified for financing, you are on a glide path towards getting the perfect vehicle for you.