We Americans love our cars. And it’s a good thing we do, since we spend more time commuting than the rest of the world.
But buying a 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 doesn’t help when a few sleazy car salesman ruin the reputation of the good ones, making it nearly impossible to know whose advice to trust. That’s why we’ve 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 don’t 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: we’re so eager to buy cars, we often don’t 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 you’d like, whether it be a truck, a minivan or a sedan, and browse reviews on reputable sites like US News.
Once you’ve 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:
- Expected cost of maintenance down the road
- The vehicle’s average lifespan
- Safety ratings
- The wholesale cost of your chosen car. Knowing how much the dealer paid to purchase the car ahead of time will help you bargain.
- Available rebates
- Your credit rating, budget and how much you can really spend
- The detailed CarFax report for any vehicle you may have pre-selected online
Know the jargon.
Okay, after shopping around, you’ve found the car of your dreams. Congrats! But don’t get too excited yet. There’s still a lot to know about the sales process. First, let’s break down the most common terms you’re 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 you’ll 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 month’s lease payment.
There are a lot of important terms to know when you’ll 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, it’s time to… Combat the sales tactics. As we mentioned earlier, make sure you know the wholesale price before you start bargaining – that’s how much the dealer paid for the car.
Never tell the salesman how much you’re looking to spend, and don’t tell them you’re 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. You’ll also want to avoid negotiating a trade-in for your old car until after the deal for your new one has closed. If you’ve brought a companion or spouse along, show a united front during this entire process so the salesman can’t play you off one another.
Once you’ve 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 “consultant” in the back room who will try anything from scare tactics to a wealth of statistics to get you to buy more once you’ve relaxed having assumed the deal was already done. Don’t buy the limited-time-only hype. Take as much time to consider these extra offers as you do buying the car itself. There’s a lot to think about when you’re purchasing a car. But armed with a little knowledge and sharp bargaining skills, you’re 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.