You’ve been dreaming of trading-in your old car for that new, spiffy car model that you’ve had your eye on. You know just the color and what specs to include. While car commercials and newspaper ads are filled with enticing deals and specials, every potential car buyer needs to be fully informed of the facts before arriving at the dealership and signing on the dotted line. Part of getting the best deal is more than just the sticker price of the vehicle— it’s in minimizing your overall financial burden long-term.
Here are 5 facts that the dealership won’t tell you:
1) It’s Easy to get you in the door
Every time you see that car commercial, introducing a new model and all of its bells and whistles, it’s easy to fall in love. That’s the job of any good commercial. Look or listen for the long legal disclaimer at the bottom of the screen or newspaper. More times than not, the offer is for the basic model— most likely for a manual transmission. To make cars look more affordable than they genially are, dealerships create an estimated monthly payment, which includes a hypothetical $2,500 to $3,000 in the down payment. Less or no money down will impact the monthly payments. So now, the featured vehicle, the one you now have your heart set on, is not the one described in the small print. To get it, you are no longer looking at that great $199/month offer; instead it could be $350/month; and the loan duration can span 48, 60 or 72 months. Be objective: you are looking for a car to suit your needs. Know how a vehicle is rating— don’t buy blindly.
Research a car’s:
• Crash Tests (www.safercar.gov by the U.S. Department of Transportation) • Vehicle Test Score (www.iihs.org/ratings by the Insurance Institute for Highway Safety)
• Performance Reviews (by Consumer Reports on consumerreports.org)
2) Assessing the Trade-In/Sale Value of your Old Car & Worth of the New One
A good way to get money to go towards the money down will be in the trade-in value of your car. Kelly Blue Book is a valuable resource in finding the fair purchase price of both used and new vehicles. This means Kelly Blue Book can help find the value of your current vehicle and the worth of ones you might be interested in buying. Updated weekly, KBB is a thorough and popular reference for car selling/buying.
3) To Buy New or Used
A good car can last 300,000+/- miles, which makes the novelty of a new car even that more great. Before purchasing a vehicle, always consider your financial situation and your car budget. Whether to buy new or used is ultimately a personal decision; however, first consider the rate that a car depreciates.
The facts:
• The new car price average in June, 2012 (according to TrueCar.com.): $30,508 • New cars depreciate by about 20% the moment they are driven off the lot. The second and third years, the vehicle will depreciate about 15% a year. • A new car is purchased at full retail price; the 20% instant depreciation brings it down at its wholesale price.
• Not all vehicles depreciate at the same rate. For this, a depreciation rate calculator is a valuable resource.
4) Financing
Find your APR rate by contacting your bank and what your auto insurance coverage will cost. For those switching or buying their first insurance policy, there are many agencies that have free online rate quotes. Popular auto insurance companies include: Nationwide, Geiko, State Bureau, Progressive, etc. Coverage will depend on the type of car to be insured, the driver’s age, gender, accident/traffic violation history, number of people included in the policy, etc. Auto insurance companies will offer a variety of discounts too, including: multi-family discounts, safe-drivers discounts, affiliate program discounts, student discounts, etc.—each depending on the individual agency and eligibility of the applicant.
Things to keep in mind:
• Online car sites will have projected monthly payments for car models—these are only a representation. Actual numbers will depend on credit history, money down and how much haggle room the dealership is willing to do • Auto Insurance can run as high as 12% and be as low 5% of the purchase price. • A new or used car will need a new state registration (the fee can range from $50 to $125). Try to get these tags included within your “out the door” purchase cost.
• See if there are any car incentives or rebates, Edmunds.com is a reputable site that provides this information. They also have a “True Cost to Own” calculator to show the real cost of real car ownership (shows depreciation, interest on the loan, taxes/fees, insurance premiums, fuel costs, etc.)
5) Signing on the dotted line
By this point, you’ve found the model that you want to officially get. You sit down with your sales person and half way through the process you are asked to go to the finance manager’s office. The sales person has done their job; now it’s another round of sales pitches you have to cypher and analyze your way through. The finance manager will try to sell optional additional items into your monthly payment— mainly extended warranties and insurance options. Adding Gap insurance, (cover the difference between the actual value of a car and the financing balance still owed) is inexpensive and a huge beneficial in the event of a total loss; it is worth considering. Many new cars have a free 25,000 mile warranty. Additional warranties can be purchased—normally taking effect after the 25,000 mile one expires. Independent insurance companies can add similar options in their plans when it’s actually needed. Keep in mind that many of the add-ons can later be purchased through your insurance company. Don’t lock your monthly payment with features you don’t need quite yet. Finance smart. Be able to enjoy and appreciate your new vehicle for many years by making the right investment now. Know what you need; what your budget can afford and be prepared to scope out the message hidden between the lines. At the end of the day, be free to drive the lot without all the doubt.
Guest contributor Andrea Fisher