Car-buying is an exciting yet stressful journey. Luckily, there are a few things you can do as a prospective buyer to prepare yourself for the car-buying process, ensuring things go as smoothly as possible, and that you get a good deal on a car you love. Before you head to the dealership or take a vehicle out for a test drive, consider doing some research to arm yourself with the important information you need to be a savvy and informed car shopper.
Here are 10 things to know when buying a car:
1. Know What's on Your Credit Report
A car purchase is a major expenditure, so financing should be at the top of your to-do list before you even start looking at potential vehicles. Knowing your credit score, for starters, can be a huge help. The higher the credit score, the better chance you have of negotiating a lower interest rate on an auto loan.
If your credit score is less than satisfactory, review your credit report to find out what might be affecting your number in a negative way, and do your best to correct it if possible, since the better your score, the lower your interest rate, as a rule of thumb.
Determine if there are any immediate actions you can take to raise your credit score quickly. For example, if you discover that you have accounts in collection, negotiate a payoff with the original creditor in exchange for removing the derogatory item from your credit report.
If you have a recent late payment that's creating a blemish, simply ask the creditor if it can be removed as a courtesy. And if there are errors on your credit report, then dispute them with the credit bureau that published the erroneous information.
Remember, there are three separate credit bureaus that lenders turn to for credit history reports when pulling credit scores, including Equifax, Experian, and Trans Union. Each has similar but different scoring methods, so be sure to check your report with all three bureaus to get the most accurate overview of the health of your credit.
2. Know Your Loan Options
Now that you have your credit in great shape, it's time to think about how to finance your car purchase. You can certainly apply for an auto loan at the car dealership, but it helps to know all your options before you even step foot on the showroom floor.
If you have an existing relationship with a bank, credit union, or another lender, check out their auto loan interest rates. If you're approved for a loan before visiting a dealership, it can save you time at the car dealership and also give you an advantage when negotiating the final sale price of the car you choose. Moreover, having financing in place can help you set a budget for your purchase, so you know how much you have to spend and how much you can afford.
When you do choose a car and are ready to talk numbers with a car salesman, you can still find out what finance deals and loan terms they have to offer. Some manufacturers authorize promotional rates that may beat out any loan rates offered by your lending institution.
Depending on what the dealership can offer, you have the option of forgoing the bank loan in favor of financing through the dealership.
3. Know Your Car's Trade-In Value
If you currently own a car that you plan to trade toward the purchase price of your new car, don't wait for the salesman to tell you what it's worth. And don't ever discuss your trade-in before discussing pricing on the car you like.
Do research on your own to get a good sense of its value. Use Kelley Blue Book online to input the specific details of your vehicle, including the year, make, model, mileage, and condition.
If there are minor cosmetic repairs needed, consider making them; this can dramatically increase your old car's net value.
Once you obtain an estimated trade-in value for your vehicle, you can go into the car dealership equipped with the information you need to negotiate with the salesperson and accept an offer that gets you the most money for your old car.
4. Know How Much You Can Afford to Spend
It's imperative that you understand the factors that impact your auto loan so that you can arrive at a monthly car payment that you're comfortable with working into your personal finances.
The key pieces of information you need to calculate your monthly payment are the loan amount, the annual percentage rate (APR), and the term. Using an online auto loan calculator can help you experiment with different numbers to find out what works best for you.
First, enter the APR offered by your lending institution. Next, decide on the term you want; this might be 4 years, 5 years, or some other loan length. Last, estimate a purchase price. Be sure to deduct the trade-in value if you have a current vehicle.
You may also want to consider putting a down payment on your new car to arrive at a smaller loan amount. Once you calculate monthly payment, decide whether it works with your personal budget. If you're not comfortable with the number, tweak the loan factors until you reach a payment you can handle.
Perhaps you could lower your targeted purchase price, stretch the car loan out for another year or put a larger down payment on the new vehicle.
5. Know Whether You Want to Buy or Lease
When you arrive at the auto dealership, the car salesman is likely to ask you whether you're interested in buying or leasing a car. This is a decision that you can research and make before you even start car shopping.
Think of buying and leasing as owning versus renting. If you buy, you're financing the entire cost of the vehicle (minus any trade-in or down payment). If you choose to lease a car, you pay the cost for the length of time that you have it, calculated by subtracting the car's value at the end of your lease from its value when you first took possession of the vehicle.
When making the lease or buy decision, ask yourself some questions. First, how much do you drive? There's a limit to how many miles you can put on a leased vehicle before you have to pay additional fees. If you travel a great deal, leasing may not be the best choice for you.
Next, do you keep your car in good shape? With a lease, you may have to pay a penalty for returning a car that's not in good condition. Finally, is there a possibility of major life changes occurring during the term of your lease? There's often a fee involved in terminating a lease agreement early.
If you planning to expand your family in the next year and think you may find yourself looking for a bigger car, it might be best to opt for buying rather than leasing.
6. Know Whether You Want a New or Used Vehicle
Buying and leasing isn't the only decision you have to make during the car buying process. The next choice you face is whether to get a new car or a used car (or a certified pre-owned vehicle). There are advantages and disadvantages to each, so take the time to weigh your options carefully.
A new car has zero miles on the odometer, and it's true that it depreciates in value as soon as you drive it off the sales lot.
On the plus side, new cars typically come with lower auto loan interest rates. While the purchase price of a new car is certainly higher than that of a used vehicle, the maintenance bills and repair costs are likely to be lower.
If you decide on a used car, you can enjoy the lower purchase price and the potential for lower insurance premiums. Registration and license fees may also be less, as some are based on the value of the vehicle you purchase.
One downside to purchasing a used car is that you're left with a reduced, or even no, manufacturer's warranty. Further, you'll have to do some additional investigation into the history of each used car you consider to make sure you're not buying a lemon.
7. Know Which Models You Like Most
Now comes the time to narrow your car choices down to the perfect vehicle for you. It's really all about assessing your needs.
To determine what factors are most important to you in a car, make a list of what you really want in a car. Is safety a top concern for you? Do you need something with great gas mileage? Do you really need all-wheel-drive? Does the model offer the add-ons that you're looking for?
You already know a price range that you're comfortable with, so that can help focus your search. Next, decide on a body style that fits your priorities. If you need lots of seating, a minivan may be the way to go.
Looking for something that will haul a boat or camper? Narrow your search to sport-utility vehicles and pick-up trucks.
If a sleek look is your priority, consider looking at coupes and sports cars.
Those who desire storage space should focus on hatchbacks and station wagons.
Hybrid and electric vehicles appeal to those who rank eco-friendliness as a top priority.
Once you find the body style that suits you, research the car makes and models available. Decide on other factors such as transmission, drivetrain, and engine size to zero in on the perfect new car for you.
Read car reviews on specific models and years to get all the inside information, and consult sources such as Consumer Reports for unbiased ratings that can help you arrive at a final decision. Browse available models on Autolist to get a feel for both new and used inventory.
8. Know Which Dealerships Interest You
Now that you've narrowed your car search down to one or a few specific models, it's time for the fun part: test driving. You can shop at one particular dealership or visit several car lots to check out all your options.
Finding a fair and reputable dealership can help you get the best deal possible and avoid headaches. Do some research online to get to know more about the car dealerships in your area.
Read reviews from other customers to find out what experiences they've had. Ask your family, friends, and neighbors for recommendations. They should be able to direct you to a dealership or even a salesman that provides an excellent customer experience.
Don't feel pressured to buy a vehicle on your first visit to the car dealership. Take your time and shop around to be sure you don't end up with regrets.
9. Know How To Obtain a Vehicle History Report
After you take a few models for a spin around the block on a test drive, you'll probably settle on one particular car. Still, don't feel like you have to start discussing the numbers right away. While the particular model might have excellent reviews, you want to make sure this specific car is living up to its name.
Looking at the car's history can give you a lot of information, including the number of past owners and any accidents that have been reported.
You can use services like CARFAX to look up a particular can by its VIN number and view the history of that particular vehicle.
Check out the car's repair history to make sure that it's been serviced and maintained properly, such as receiving regular oil changes.
As a car buyer, it's also your right to have a mechanic look over the car before you make a purchase. While you will have to pay for the car inspection, a trusted mechanic can point out potential issues that might cost you thousands of dollars down the road, which can make a fabulous deal look like a bad idea.
10. Know How to Negotiate
Once you're sure of the car you want to buy, it's time to start the negotiations. Do your research ahead of time so you can arrive at the car dealership armed with information and walk away with the best price.
Check out other cars of the same year, make, model, and similar mileage, and compare the sticker price of the car you like most at other dealerships.
Consult market analysis reports to get a fair value, and consider the demand for the vehicle. If demand is low, it's likely that you can get a better deal on the car.
If you already have your own financing lined up, you can still ask the dealer about any low-interest finance options they may be offering. It's also a good idea to inquire about rebates or cash-back incentives.
When you're ready to haggle, put your emotions aside and remember that you're conducting a business transaction. Focus on the price you want to pay for the car.
If the salesman asks for your top dollar, quote a number that's lower so you eventually settle somewhere near your target price. Have a calculator or app ready to crunch the numbers and ensure the price works out to a monthly payment that you're comfortable carrying, which gives you a better chance of successfully paying for your vehicle.
While the thought of car buying may leave you feeling stressed, there's plenty you can do to ease the pressure that comes along with a vehicle purchase.
When buying a car, a little careful research and prep work can go a long way towards ensuring you make the right decision and get your new ride at a fair price.