Due to a car accident totaling one of our vehicles, my husband and I were forced to go on the hunt for a new car. Using many of the same strategies from past experiences, we found the perfect truck. I have compiled our strategies and tips to form the Ultimate Car Buying Guide. Happy Hunting!
Know your budget
The first step in the Ultimate Car Buying Guide starts well before you actually see a car in person. So let’s begin!
Before going out to a dealership, it’s important to decide on your budget. This is the first and most important step to make sure a smooth car-buying experience.
You need to have a good idea of the total amount of money you can spend (the vehicle cost) and what it will equal monthly (monthly payment).
Consider the following questions:
- How long do you want to pay for the car? Finance terms range from 3-8 years
- How much money will you put down? Remember, whatever you can put down upfront will cut your monthly payment.
- How much can you afford monthly? Review monthly expenses to determine the amount of money that remains after paying all bills, and necessary purchases such as groceries. If you don’t have a budget, then it’s time to create one!
- Have you looked up rates for auto loans? Online resources such as bankrate.com provide current interest rates from various lenders.
Use a Loan Calculator
Loan calculators are great resources to better understand how much you can afford to spend.
Do Your Research
The goal in this step of the Ultimate Car Buying Guide is to narrow down your choices to one make and model. Also, it will be critical to figuring out must-have features versus nice-to-haves.
Not sure how to get started?
Think about cars you have admired in the past – make, model and body style.
Use available online resources (such as AutoTrader) to gain a better understanding of different models. Also, you will learn which features are standard for certain vehicles.
The awesome part is you can do all your research at home without the pressure of a salesperson.
When you think about features, consider your lifestyle. Will your vehicle be used primarily for daily commutes? Do you need something rugged for off-road adventures? Is this a work vehicle requiring high fuel efficiency? The key takeaway here is that you want a vehicle that fits your lifestyle or it may not serve its purpose.
Here are some common things to consider:
What’s Better – New or Used?
There are pros and cons to purchasing any car – whether it’s new or used. Ultimately, the decision will be a compromise between what you like and what you can afford.
- Low miles
- Reduced risk of breakdowns and repairs
- Eligibility for zero-interest loan or manufacturer rebates
- New car smell
- Higher price tags
- Depreciates once driven off the lot
- Increased insurance coverage, if financed
- Lower price
- Little or no insurance requirements
- More mileage
- Wear and tear
- Previous owners
- Limited to no warranty protection
*Don’t forget to get a free CarFax report when considering a used car.
What about certified pre-owned (CPO) vehicles?
CPO vehicles are a great option to give you peace of mind when purchasing a used car. Most are late models that have undergone inspections, repairs and certification by the dealership. CPO also retains some benefits of a new car, such as having an extended warranty and special financing.
Finalize the Finances
Reassess the Budget
Now with your research completed, you should have a more realistic idea of how much your vehicle costs. This is an excellent time to pull out the loan calculator to confirm the car price still aligns with your monthly budget.
Let’s input some information in the loan calculator and see what we find out.
- Down payment: $10,000
- Interest rate: 1.99%
- Monthly payment goal: $470 approximately
- Term: 60 months/ 5 years*
To keep payments around $470 per month, the vehicle cost cannot exceed $37,000 (with 10,000 down).
What is an Out-the-Door (OTD) price?
The OTD price represents the most you are willing to pay including all fees and taxes. This approach prevents surprises for all parties involved. In the example above, the OTD price is $37,000.
Be a little bit flexible with your OTD as you don’t want to lose a deal over a few hundred dollars. With that note, it might be a good idea to calculate your OTD and subtract $500-1000. Then, share the adjusted figure with the salesperson.
This one is pretty simple. You arrive at the dealership with no plans to borrow any money to buy your vehicle. Instead, you have the funds available. No lienholder for you!
Think about the following when paying cash:
- Complete ownership. You will own your vehicle outright as you drive off the lot.
- No monthly payments and no interest. Remember, you are paying the principal (cost of the car less any down payments) and the interest when you undertake financing.
- Depleted savings. In the event of an emergency, paying cash can leave you vulnerable.
- There is an opportunity cost. You can lose the chance to earn a higher return from an alternative source because you used available cash to buy a car.
- Know your situation. The bottom line is there are good reasons for and against paying cash. The key to this decision is to know your situation – including savings, credit history, and investment options.
Need a Lien Holder to Finance the Loan?
If you are not purchasing your car with cash, then you are borrowing from a lender. You can finance using a dealer or bank/credit unions. Make sure to shop around before committing to any creditor. Also, don’t have anyone run your credit unless you are certain you will use that lender.
- No extra discounts. Unfortunately, saying you are paying cash will not bring any added discounts. Boo!
- Credit score matters. The higher your credit score, the lower your interest rate. By sharing your score with the bank or dealer finance department, you can get a ballpark interest rate.
TIP: If you don’t know your credit score, you can use resources such as Credit Karma.
Want Some Info on Down Payments?
Your down payment is a lump sum paid to the dealership reducing the amount financed.
The most common way to make a down payment is via check. However, many dealerships will allow you to use a credit card up to a certain amount. All dealerships are not the same when it comes to credit card limits, so be sure to ask directly.
Many buyers today are using credit cards for down payments as a way to maximize benefits offered by cards. It is more common than you think.
CAUTION: Don’t use a credit card if you don’t have the money to pay it off in your next billing cycle. Your down payment should cut the amount being financed. If you put your down payment on a card and cannot pay it off soon, then you are still borrowing – and most likely at a higher rate.
Seal the Deal
As a result of doing your homework, you can now hit the road and get the perfect car for the right price!
You have arrived at the last section in the Ultimate Car Buying Guide. Check out these final tips to help with planning and visiting dealerships:
1. Keep Your Search in a Tight Time Frame
Too much time between searches might result in changes in rebates or interest rates.
2. Let Them Compete for Your Business
Sales reps will fight for a deal. So don’t hesitate to contact a previously visited dealership to see if they will beat the offer.
3. Express Your Options and OTD Upfront
You should be able to recite your list of features without hesitation and end with your OTD price. BOOM!
4. Your Needs and Wants May Change
You might get a new perspective on your ideal car while talking with a salesperson. They are, after all, the experts. We left the dealership without the leather seats, and larger engine we thought were must-haves.
5. Don’t Phone a Friend – Bring a Friend (or Relative)
It’s a good idea bring someone with you who can reel you in if the salesperson is leading you down a different path. And, of course, make sure this person is financially responsible. You might need some backup with negotiations.
6. Feeling Pressured?
If you feel pressured, it’s because you probably are. Remember there is nothing wrong with leaving if you are uncomfortable. Also, you don’t want a costly case of buyer’s’ remorse.
Yay!! Finally, you have made it to the end of the Ultimate Car-Buying Guide, which means you are more than equipped to seal the deal.
I hope this Ultimate Car Buying Guide helps you to have a great purchasing experience. The key is being prepared so no one can take advantage of you. Good Luck and Enjoy your New Ride!