If you're in the market for a new car, here are my tips for making a smart purchase.
Here's how to buy a new car
- First, go to your credit union, online bank or traditional bank and prequalify for a car loan (or apply online.) That tells you how much car you can afford and what type of monthly payment you will have to budget.
- Start your research with at least two different vehicles in mind. Then check out the price, reliability, and cost to insure each of the cars you're considering. Check out the annual April auto issue from Consumer Reports for their list of recommended new car buys.
- Next, use the Internet to find out the dealer cost of the vehicle and the options you want. Websites like Edmunds.com, KBB.com (Kelley Blue Book) and NADA.com offer great tools that will help you determine the value.
- When you've narrowed the search to one or two vehicles and have the actual dealer cost for each, shop online for instant price quotes. Websites such as CarsDirect.com, TrueCar.com, Overstock.com, USAA and Zag.com are great for this purpose. Costco has a car-buying program that moved 400,000 vehicles last year alone!
- If you prefer not to buy online, use the online price quotes as a guideline and call the dealers to see if they'll match the price quote.
- Another relatively easy way to buy a car involves emailing the Internet department at a dealership and negotiating by email. Make sure you always ask for a quote that includes all the junk fees a dealer may have.
- Some dealers are charging "packs," which are phony charges for documents, vehicle etching, fabric treatments, etc. It may sound silly, but it can amount to $300 or more just for doing the paperwork or spraying some stuff on your car seats! Not every dealer tries to do this, so that's why it's important to shop around.
- Look at cars when a dealership is closed, so there's no salesperson to pressure you. The best way to test-drive a car is to rent it for a day or two. It's the ultimate test drive.
- You can also buy your new car from a no-haggle dealership, such as through a warehouse club that has a car-buying program with pricing that has already been negotiated. In most cases, you'll save money and the process of buying will be faster and easier.
- If you do choose to negotiate with a traditional car dealer, be prepared for a difficult process. When you go into the dealer to sign the paperwork, make sure what is on the purchase agreement is what you've agreed to previously by phone or fax. If it's not the same, do not go through with the deal. The best way to protect yourself in a dealership is to be willing to walk out.
- Dealers will typically mark up a loan by about 2% on the average car purchase. That's why I so strongly recommend you secure financing on your own as a first step. And remember, never take out an auto loan for longer than 42 months!
- Finally, what if the manufacturer offers zero percent financing? Before you make any decision, consult with Edmunds.com's Low APR vs. cash back calculator.