We’ll explain it all in this quick guide to buying a car. Further details can be found in the various articles posted on this web site.
1. Decide on a Car
Choosing a car for the first time can be a bewildering experience because there so many choices — old cars with lots of miles on them, newer cars with better safety and tech equipment, small cars, compact cars, sedans, coupes, large cars and SUVs, sports cars , fast cars, fuel-efficient cars — not to mention all the different makes, models, and styles that are available.
Decide what kind of car you want or need and what’s important to you. Do you want good looks, safety, good gas mileage or high performance, automatic or manual transmission, 2-wheel drive or 4-wheel (for winter weather), sporty 2-door coupe or 4-door sedan or convertible, passenger car or roomy SUV or minivan? Do you want good reliability and dependability, and low insurance cost? What is is your budget and how much can you afford, either as a cash purchase or as monthly loan payments?
2. Find a Car
Brand new cars are always sold by authorized new-car dealers. Even if you use a “car buying service,” the car always comes from a local dealer. Although you can shop on car manufacturer web sites, dealer sites, or other sites such as Edmunds.com, you’ll end up at a dealer to finalize the deal.
You can find used cars everywhere. At new-car dealers, at used-car dealers, at consignment lots, in newspaper classified ads, and online at web sites such as Craigslist, AutoTrader, eBay Motors, UsedCars.com, KBB.com, Carmax.com, and local dealer web sites. If you search online, read the scam warnings on Craigslist and only buy local cars that you can go look at, test-drive, and meet with the seller. Most car web sites allow you to filter your search to display only cars for sale in your area.
Some of the used cars you’ll find will be those being sold by dealers and others by individual private sellers. There’s no significant differences between buying from a dealer or from an individual, so don’t let that be a huge factor in your initial search.
3. Choose a Good Car
In general, the more money you have to spend, the more and better car you get, whether it’s brand new or used.
If you are buying a brand new car, narrow down your choices to about 3-5 vehicles and research them thoroughly. Use car manufacturer web sites, Consumer Reports magazine and web site, Edmunds.com, Cars.com, and car magazines. Visit new-car dealers and test-drive the vehicles (leave your checkbook at home during this early research phase). Compare models, styles, fuel economy, engine sizes and whatever else is important to you. Consumer Reports (annual April issue) tells you which car brands are the most reliable and provide the best values. Also compare prices, with the various options you might want. Use Edmunds.com and TrueCar.com to find what other people are paying for the vehicles you like.
If you are buying a used car, find 3-5 cars that meet your needs and your budget. Use Consumer Reports magazine and web site to research used-car reliability ratings. Go talk to sellers and test-drive the cars (leave your checkbook at home for now). If the cars are no more than about 8 years old, get a Carfax vehicle history report that will tell you if it has been wrecked and how it’s been serviced. Be aware that Carfax and other vehicle history reports are not necessarily complete or totally accurate. And you’ll waste your money for reports on an older car with lots of miles.
If the car you’ve chosen has high mileage — 100,000 miles or more — you should take extra care to make sure it doesn’t have existing problems, or problems that will soon pop up.
The best way to do that is to have a professional mechanic inspect the car and give you a report of the car’s condition, including current problems and potential problems. You can either ask the seller to let you take the car to a mechanic, or call a mobile inspection service such as InspectMyRide.com (used by eBay Motors) or CarChex.com. It’s cost about $120 but is well worth the cost if it prevents you from making a serious, expensive mistake. If the inspection only finds minor problems, use the report to negotiate a lower price from the seller. If major problems, walk away from the car, regardless of price.
You can also do your own inspection using our 50-p0int inspection checklist. It’ll cost you nothing but your time.
4. Pay the Right Price
For new cars, you should never full pay MSRP (“sticker price”). Dealers have a nice built-in profit margin on each car and are generally willing to give up some of it to buying customers. Dealers pay invoice price (their cost) but can easily sell for less than that price if their car company is helping with promotional deals such as rebates, bonuses, or low-interest loans.
Therefore, it’s important to know invoice prices and the prices other people are paying. You can get that information from TrueCar.com and Edmunds.com as previously mentioned. Also search for monthly incentive deals from car companies at Best-Car-Deals.BuyerReports.org. These deals are typically worthwhile and require no further negotiating. Get free price quotes online from dealers in your area. Compare and go with the best deal.
Do not buy new-car “add-on” items such as paint sealant, fabric protection, rust proofing, VIN window etching, extended warranties, and security systems. These are extra profit items for dealers and are usually not worth the cost. If a dealer has already installed the items (a common “trick”), refuse to pay for them if you don’t want them.
Most other fees and taxes associated with a new-car purchase are official (tax, tag, registration, environmental fees), dictated by the car company (destination fee), or are quasi-official (doc fees), and cannot be negotiated.
If buying a used car, prices are always negotiable because sellers set “asking” prices that are usually about 10%-20% higher than “selling” price. Furthermore, prices are based on a car’s make, model, mileage, and condition. Buyers should refer to online used-car value guides, such as KBB.com and NADAGuides.com, in order to know if a seller’s price is fair or not. A seller’s “asking” price may not be a fair price. You can negotiate the price down based on fair value, and on any problems you find with the car. don’t expect a seller to accept an unreasonable price.
Watch out for prices that seem to be too good to be true — they usually are. A cheap car with serious issues or potential problems can turn out to be a very expensive car. Inspect the seller’s title to make sure you aren’t buying a “salvage” car that has been repaired after a wreck in which the car has been “totalled” by an insurance company. Also make sure the seller’s name is the name on the title, not someone else’s. Never buy a used car without getting a “clean” title — no outstanding loans.
5. How to Pay
For a brand-new car from a dealer, you can pay cash (which doesn’t get you a discount), or get a loan through the dealer (from his associated finance company). You can also get an auto loan from your local bank or credit union. Go with the one that offers the best rates. Your ability to get a loan will depend on your age (must be 18 or over), your credit score, and whether you have a steady income sufficient to pay the new loan as well as your existing financial obligations. Always know your current credit score before shopping for a car or car loan. What’s your FICO score? Find out now when you check your credit report for $1 at Experian.com! If you have no credit, or poor credit, you will have to get someone to co-sign with you on a loan.
Leasing is another way to drive a new car (used cars are not leased). It offers much lower monthly payments, often with no down payment, and can make a new car affordable where a cash purchase or loan would not. However, leasing is not for everyone. Don’t lease unless you drive a “normal” number of miles each year (about 12,000 miles or less), take good care of your vehicles, and won’t want to end your lease before the 2-3 year expiration date. You should also know how car leasing works before making a decision.
Paying for a used car is very similar. You can either pay cash or get a used-car loan from a bank or credit union, regardless of whether you buy from a dealer or individual. Some used-car dealers can help you arrange a loan through their associated bank or finance company. Dealers don’t provide direct financing — except for “buy-here-pay-here” dealers who generally sell and finance older, often overpriced, cars at super-high interest rates to customers who have serious credit problems and can’t get loans anywhere else. Car buyers with credit issues should try getting a co-signer before going with a “buy-here-pay-here” dealer.
Some new-car dealers who also sell used cars, have “certified” cars that are a little higher priced but have been thoroughly inspected and come with a 30-day warranty. The extra protection can be worth extra cost.
A used car dealer will provide you with a Purchase Order or Bill of Sale and the car’s title and keys. If you didn’t pay cash, the finance company or bank may want to hold the title until your loan has been paid off. The dealer may also collect sales tax and other official fees at time of signing.
If buying from an individual seller, paying with cash or a check from a bank auto loan are your options. Do not “work out payments” with a seller. These kinds of agreements nearly always have bad results, primarily for the seller. At the time you pay, you receive the car’s title from the seller, signed by him, and the keys to the car. It’s also a good idea (and required in some states) to write up a Bill of Sale which contains both the seller’s and buyer’s names and addresses, the date, a description of the car (including VIN number), the selling price, and signatures of both parties. Some states require these documents to be notarized.
If the seller still has an outstanding loan on the car, extra caution is required. He must pay off his loan first and get the car’s “clean” title from his bank or finance company, to sign over to you. Never buy a car for which the title indicates an outstanding lien (loan). If the seller needs your money to help pay off his loan, you should accompany him to his bank to make sure he completes the transaction and understand how and when the bank will send the title. In most cases, the bank will not be able to provide the title at the time of the loan payoff. It’s not your car until you get the title.
Be aware that used-car sales are considered “as-is” which means the buyer accepts the car as he knows it at the time of the sale, with no warranties, no guarantees, and no return rights. It’s up the buyer to make sure the car is in good condition (inspections, test-drives, Carfax, etc.) before concluding the sale. Do not take the word of a seller that a car “runs good” or “has no problems.” After the sale, you can’t get your money back, even if you find out the buyer has lied to you about the condition of the car.
6. What’s Next
For new cars, after the sale, dealers do a lot of the work that you would otherwise have to do for yourself. They collect and pay sale tax, official fees, and file for tags and registration on your behalf. It saves you a trip to your local DMV office. They may also call your insurance company to get your car insured immediately. After a new-car “training” session where you’re shown all the features of your car, you’re on your way home enjoying that wonderful new-car smell.
With a used car, you have more duties to perform. You must immediately get your car insured with at least the minimum state-required coverage. Then take the seller’s title and your copy of the dealer’s Purchase Order or seller’s Bill of Sale to your local DMV (Dept of Motor Vehicles) office and get a new title, new registration, and possibly new tags (depending on state laws). You’ll pay sales tax and other official fees at that time. You normally have 30 days to get it done.