Until relatively recent times, it was standard for car dealers and finance companies to require at least 20% down payment on the purchase of a car. It was for a good reason.
Because cars depreciate in value from the moment they are driven off a dealer’s lot, a down payment helps offset that rapid decrease in value, which may keep the loan from becoming “upside down.” It also protects the loan company or bank because, if they have to repossess the vehicle, they have a smaller risk of losing money.
Things are different now Auto manufacturers and dealers are now very competitive and business must be fought for. They are willing to take risks that were unheard of just a few years ago. In many cases, down payment requirements have been reduced or eliminated altogether, primarily for customers with good credit.
If you still owe more on your loan than your car is worth, you are upside down.
You may still be able to buy another car if you are upside down on your previous loan.
There are two ways to go about it.
One way to buy with an upside down loan You could sell your old car but you will have to add extra cash to fully pay off your old loan. You’ll need to pay off your loan so that you can give a clear title to your buyer. However, coming up with extra cash might be a problem, especially if you are upside down by a large amount. For many people, this solution is not possible.
Car leasing is extremely popular because it offers a more affordable method of auto financing. It allows you to have lower monthly payments than with traditional auto loans. About one out of every five vehicles driven by automotive consumers in the United States are leased.
But car leasing is not for everyone. Is leasing good for a teen’s first car? What are the pros and cons of leasing?
Leasing is a little more complicated than buying with a loan, so you should take the time to learn about leasing, and be sure it’s right for you before making a decision.
What is a Lease?
Both leasing and buying a car with a loan are simply two different methods of financing. Where a purchase loan is a method of financing the ownership of a vehicle, leasing is financing the use of a vehicle for a specified number of months, similar to renting but not quite the same thing.
Buying a car for the first time, or even the second or third time, can be a perplexing and stressful experience. There’s so much to know and understand.
What is the best first car? Which car is cheapest? Which is safest? What should I pay? How much can I afford? Where can I find cheap cars? How do I get a car loan? Can I qualify? What if I have no credit, or bad credit? What is the car buying process? How will I know if I’m being cheated? How about car scams?
What about auto insurance? Which company has the best rates? Should I buy a new car, or used? Buy from dealer or individual seller? Can I sell/trade my car if I still owe money? How about leasing?
These are all common questions asked by first car buyers — or any car buyer.
We understand the questions and we know the answers — which we will share with you here.
This web site is designed especially for first-time or inexperienced car buyers, particularly teens buying a first car. In fact we spend a lot of space on this site helping teenagers find and buy the best car for them. But you don’t have to be a teenager to learn from this site.
We give you the all the answers you need, the expert advice, and the specific knowledge you need so that you can go into your first car buying experience with confidence that you’ll make the right decisions, get the best deals, and not get cheated.
When you use a Lease vs Buy Calculator such as the one at LeaseGuide.com, you should understand how it works and how to get the results you want.
Car leasing is a little different than buying a car with a loan. The language is different, the process is different, and the way that payments are calculated is different. Let’s take a look at how you would use an online lease vs buy calculator to better understand the differences.
Do you need an extended car warranty — car repair insurance?
All new cars come with a new-car warranty from the car manufacturer. There is typcially a general “bumper-to-bumper” warranty that covers just about everything that is not a wear-and-tear item, and a powertrain warranty that covers the engine, transmission, and drivetrain components.
For most new cars, the general warranty is good for 36 month or 36,000 miles, and the powertrain warranty for 60 months or 60,000 miles. Some car brands have higher mileage warranties, as high as 10 years and 100,000 miles.
There are also separate warranties on tires, batteries, and a few other components.
That’s about warranties on brand new cars. What about used car warranties? Do used cars come with warranties?
Buy-here-pay-here car dealers provide auto loans to people with bad credit.
Most car dealers do not directly finance loans on cars they sell. They work with outside banks and finance companies to provide loans for their customers. It’s up to those banks and finance companies, not the dealer, to approve and provide customers car loans.
However, a different breed of used car dealer, called ”buy-here-pay-here” dealers, doprovide their own financing without an outside bank or loan company. They primarily function to sell used cars to people who have bad credit and cannot get approved for loans from conventional sources.
Buy-here-pay-here (BHPH) dealers can be recognized by their promotional ads or storefront signs. They use the terms “easy finance” or “no credit checks” or “we finance anybody” or “in-house financing” or “fast loan approval” or “we approve you regardless of your credit.” They are sometimes called “tote the note” dealers.
All new cars have a window sticker that displays the manufacturer’s suggested retail price (MSRP). It may also include destination charges, dealer-installed option prices, and other miscellaneous charges. The total of these charges is the price you would pay for that vehicle, less sales tax, without any discounts or rebates.
All but the manufacturer-specified destination charge can be negotiated. Manaufacturers charge dealers this fee for vehicle delivery, and dealers simply pass it along to customers without markup.
Price can be negotiated for most vehicles. Unless the vehicle is a hot seller and in short demand, it’s usually possible to get dealers to discount the MSRP. But, how much? What’s the best price I can expect?
Are certified used cars good deals or not for first car buyers?
Many car dealers sell “certified” pre-owned cars. How are these cars different from other used cars? Are they more expensive? Are they worth considering as a first car?
Most major automobile manufacturer’s dealers now offer “certified” used cars. A certified car has been inspected and repaired according to detailed manufacturer specifications before being placed on a dealer’s used car lot. Although manufacturer’s programs vary in details, all are fundamentally the same in concept.
Why is it important? Certified cars can significantly reduce one of the largest worries of used car buyers: that used cars can have hidden problems that cause problems and expensive repairs after the sale.
Many people choose to trade in a car when buying or leasing another car. But how does the trade-in process work?
Here is how. Car dealers buy your old car from you and give you credit toward the price of a new car. The trade-in credit is like a down payment and reduces the price of your new car, making your monthly payments smaller. The dealer then puts your old car on his used-car lot to sell, or he sends it to a dealer car auction where another dealer will buy it to put on his own used-car lot.
Dealers make a lot of profit on selling used cars they’ve taken as trade-in. They pay the trading customer a low wholesale price, and sell the car for a higher retail price. That’s how they make their money and stay in business.
It is to a dealer’s advantage to pay as little as possible to the trading customer. Therefore, smart customers will have already done research to determine the fair wholesale value of their trade-in vehicle.
Since dealers only pay wholesale value for trade vehicles, customers can make more money by selling the vehicle themselves, rather than trading it, although it’s more work. The money from the sale can then be used as a down payment on a new vehicle, reducing payments even more than if they had traded. Smart sellers will have done their research to know the fair retail value of their car.
Where to find trade-in values and retail values? Online, you can use Kelley Blue Book as a good source of average car values. Just keep in mind that used car trade-in values are not absolute and can vary widely between dealers, different parts of the country, and a dealer’s interest in the vehicle. The values of used cars changes often, usually faster than any value guide can keep up.
What if you still owe money on your trade vehicle? Can you still trade it?
Yes, but watch out. If your loan payoff is less than your car is worth as a trade-in, the dealer will take your car, pay off your loan balance, and apply the remainder as a credit toward your new car. This remainder is your positive trade equity.
However, if you still owe more money than your car is worth as a trade-in, you are “upside down” and have negative trade equity. Although some dealers may not explain it to you, he’ll take your car, pay off your loan, and will add the negative equity back into the price of your new car, making it more expensive and making for higher payments, not lower payments. It’s called “rolling” part of your old loan into your new loan. It’s like you’ll be paying off two loans at once. Rolling over negative equity from an old car loan is almost guaranteed to put you into an immediate upside down situation with your new car.
Sometimes, if you have too much negative equity in an old loan, you may find it difficult to get a new loan. Banks and loan companies don’t like to loan you more money than a car is worth. The only solution is to make a cash down payment to offset some or all of the negative equity.
The other part of getting a good deal with a trade-in is getting a discounted price on the new car you are buying. Do your homework and get some online price quotes from services such as Yahoo! Autos. The quotes are easy and quick to get, so it pays to get multiple quotes and compare them for the best deals.
Don’t let a dealer tell you he’s giving you more than your old car is worth in a trade because you’re probably paying too much for your new car. The best deals come from getting a fair trade-in price on your old car along with a fair price on your new car.
The car trade-in process is usually simple and uncomplicated, but it can get tricky when you still owe money on your old car — especially if you owe more than the car is worth.
If you’ve decided that your first car will be a brand new car, there are things you need to know about the buying and financing process that makes it different from buying a used car.
New cars – only from dealers All new cars must be purchased from state-licensed and manufacturer-authorized new-car dealers. It’s the law. It’s the only way you can buy a new car.
If a car has never been titled or registered, it’s considered to be a new car. Even if you initiate your purchase through an Internet car buying service, or through a buying service at warehouse stores such as Sam’s Club, the car actually comes from a local new-car dealer.
Assuming you’ll buy with a loan, you will want to have a monthly car payment that will fit within your current income, after considering all your other expenses. Don’t make the mistake of buying based on future expectations — a forthcoming raise, a new job, or other potential improvements in your finances. Your expectations might not come to reality and you’ll be stuck with a car you can’t afford. Base your purchase only on current, stable finances.
Online car buyers exposed to common car scam by criminal sellers
Users of online car buying sites such as eBay, Craigslist, and other non-dealer car sites often find unbelieveable good deals, only to find it was no deal at all, but a common car sales scam.
We often hear the question, “Is this a scam?” from car buyers who have found a “great deal” online. Buyers become suspicious because the price is “too good” and the payment and pickup arrangements seem a little fishy.
Cheap cars advertised on Internet sites can be scams, and it is relatively easy to spot them after the seller has been contacted, but not before. A car-for-sale ad placed by a scammer looks like any other ad — except the price is much lower than normal. They even provide pictures and VIN numbers of real cars (snagged somewhere on the Internet) to make the ads seem more believeable.
Let’s say you see a nice used car that you like on a dealer’s lot that is priced at $14,000. Is it a good price? Can I talk the dealer down to, say, $12,000? How much discount can I expect to get?
These are all common questions when shopping for used cars, especially if it’s your first car.
Let’s look at the answers.
Used car prices can vary greatly – even for the same make, model, year, and condition. Prices tend to follow the laws of supply and demand. Large gas-guzzling SUVs are cheaper in times of high gas prices. Convertibles are more expensive in sunny Florida than in cold North Dakota. Used car prices are cheaper when dealers have too many on their lots.
Dealers are experts at knowing local car-buying customers, what they want, and what they are willing to pay. They set their used car prices accordingly. However, dealers make more profit on used cars than on brand new cars. This means there is a lot of “wiggle room” in used car prices – a relatively large difference between what the dealer has invested in his cars and the prices he sets for those cars. Unfortunately, there is no way for us as consumers to know what a dealer has paid for his used cars.
Check prices to know what is fair
The first step to getting a fair price on a used car is to find out how much the car is worth. Is the dealer’s asking price fair or not? If not, then it is time for some negotiation.
Some newcomers to car buying assume that there is some kind of “standard” price for used cars. It is not true. However, there are used-car pricing guides, such as Kelley Blue Book and NADA Guides, that compile data from a variety of sources to publish their version of suggested prices, based on make, model, year, equipment, mileage, condition, and region of the country.
These guides often differ significantly in prices for the same vehicle, same mileage, same everything. Confused car buyers often ask, “Which is right?” or “Which is more accurate?” Neither is more right or more accurate. However, the guides serve as a good benchmark for determining a fair price for a car you may be considering to buy. For example, if a dealer is asking $14,000 for a car that the guides show as only being worth $10,000, he’s asking too much and it’s time to negotiate a fairer price.
If you don’t check prices
We’ve seen questions from car buyers who ask something like, “How much can I talk a dealer down on this $14,000 car?” The answer to the question is really another question. It is not so much how much you can talk him down, as it is how much is the car worth?
For example, a dealer may put a $14,000 price on a car that is worth only $10,000. He hopes that he’ll get a customer who hasn’t done her price research and who will “talk him down” to $12,000. The customer is happy because she thinks she got a $2000 price discount, and the dealer is happy because he sold the car for $2000 more than it was worth.
Asking prices are not selling prices
Nearly all used cars are sold for a price that is less than the original “asking” price. Dealers post asking prices on used car window stickers. Individuals selling used cars advertise them with asking prices. Dealer asking prices may be 20% or more higher than selling prices. Individuals usually price their cars about 10% higher than the price they are willing to accept.
Negotiate based on car’s condition
If you find a car you like and the price seems fair for a car in good to excellent condition, make sure you get a mechanic’s inspection and have the mechanic document any problems he finds. Assuming the problems are not serious enough to stop you from buying the car, use the mechanic’s report to negotiate for a lower price.
Also get a Carfax vehicle history report and do the same thing. If the car has been in an accident, even if the repairs have been done expertly, use the information to try to get a better price.
Where to buy
Used-car dealers are an obvious source of used cars but it takes time to visit and find out which ones have cars you might be interested in. One way to save time is use an online site such as UsedCars.com that lets you search for discounted cars from dealers in your area.
If you prefer to buy from a private seller individual instead of a dealer, we suggest you look at the eBay Motors web site for a list of .
If you have less-than-perfect credit, your car buying choices may be limited to dealers, such as Drivetime.com, who specialize is dealing with people with credit problems. They have dealerships around the country.
How do I buy a car from an individual private seller — not a dealer?
When you buy a car from an individual, you pay with cash, a money order, or a bank cashiers check. The money can come from savings, a checking account, a family loan, or a loan from a bank or financial company. Most sellers do not like personal checks.
Buyers sometimes expect a private seller to “take payments” but any smart seller will not agree to such a plan. It is too risky. As a buyer, it’s better to get your own loan.
