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We Americans love our cars. And itís a good thing we do, since we spend more time commuting than the rest of the world.
But purchasing a new car can be a tricky endeavor. There are enough financing deals out there to fill an in-ground pool, not to mention the range of car models and features there are to sort through. It doesnít help when a few sleazy car salesman ruin the reputation of the good ones, making it nearly impossible to know whose advice to trust. Thatís why weíve put together this guide for new purchasers to help you through the process from beginning to end. But first, a few stats to set the stage. Facts. Our cars are a part of our identities, and we donít hesitate to keep them updated. While the average car is kept for about 9.2 years, there are many people who stretch their wallets to lease or replace new cars every few years.
And yet, cars lose 15 to 20% of their value in their first year, and we still go into massive debt to buy them. This is disturbing, given that 45% of auto loans now reach into 6 year terms, which lower monthly payments but increase cost in the long run.
The take-away: weíre so eager to buy cars, we often donít take the time to think the financials through. How do I find the right car for me? The answer, of course, is to research, research, research. Determine what style of car youíd like, whether it be a truck, a minivan or a sedan, and browse reviews on reputable sites like US News.
Once youíve made a list of your top makes and models, start looking for reputable dealers either through word of mouth or through a third party site like GoAuto. Browse the selection on offer at the dealerships ahead of time so you can prepare specific questions or notes regarding:
Know the jargon.Okay, after shopping around, youíve found the car of your dreams. Congrats! But donít get too excited yet. Thereís still a lot to know about the sales process. First, letís break down the most common terms youíre going to hear. Leasing: When you lease a car, you pay monthly rather than buying outright. Leased cars are returned in several years, normally for an upgrade. Buying at the point of trade-in is also a possibility, but youíll have paid a lot more overall than buying initially.
Residual Value: The expected value of the car at the end of the lease. This is used to calculate monthly payments. Higher residuals mean lower lease payments.
Realized Value: What a car is actually worth at the end of a lease.
Lease Factor: The interest rate of a lease contract, used to calculate monthly payments.
Security Deposit: Some leases will require an upfront security deposit generally amounting to one monthís lease payment.
Buying.There are a lot of important terms to know when youíll be buying a vehicle.
FICO Score: This is what lenders use to determine how likely you are to repay your debts.
APR (Annual Percentage Rate): The APR is the sum of the interest rate and other charges, representing the total cost the borrower can expect to pay on the loan. Many dealerships use Variable-Rate Financing, which starts an APR at a lower rate and increases after a fixed period. Better to go for Fixed-Rate from the get go.
Down Payment: Cash paid up front to reduce the total amount financed.
There are many more terms than we have time for here, so be sure to check out this comprehensive guide. Once you brush up on these, itís time to... Combat the sales tactics. As we mentioned earlier, make sure you know the wholesale price before you start bargaining Ė thatís how much the dealer paid for the car.
Never tell the salesman how much youíre looking to spend, and donít tell them youíre looking to keep your monthly payments down. Salesman will bend over backwards getting you a low monthly rate with a high interest rate that will cost you thousands more over the long term. Youíll also want to avoid negotiating a trade-in for your old car until after the deal for your new one has closed. If youíve brought a companion or spouse along, show a united front during this entire process so the salesman canít play you off one another.
Once youíve settled on a price, beware of any back end upsells. These are things like warranties, extra insurance, security systems and other features you may not need. Most often, your original salesman will take you to some kind of ďconsultantĒ in the back room who will try anything from scare tactics to a wealth of statistics to get you to buy more once youíve relaxed having assumed the deal was already done. Donít buy the limited-time-only hype. Take as much time to consider these extra offers as you do buying the car itself. Thereís a lot to think about when youíre purchasing a car. But armed with a little knowledge and sharp bargaining skills, youíre sure to get the deal for you.
Adria Saracino is a marketer and blogger. When not consulting on business strategy, you can find her writing about style on her fashion blog, The Emerald Closet.
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