5 Tips For Buying A Car The Smart Way

5 Tips For Buying A Car The Smart Way

A For Sale sign is displayed on the window of a car.
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Jan Stromme/The Image Bank/Getty Images Plus
A For Sale sign is displayed on the window of a car.

Jan Stromme/The Image Bank/Getty Images Plus

New cars these days have better guard features and more tech gizmos than models from a decade ago. And let ‘s face it : trade in a battered clunker with begrimed seats is an enticing theme. But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $ 5,000 in debt from their last car into their new loanword. They ‘re paying for a cable car they do n’t drive anymore. Ouch ! That is not a winning personal finance strategy. But do n’t worry — NPR ‘s Life Kit is here to help. here ‘s how to buy a car without getting over your heading in debt or paying more than you have to. 1. Get preapproved for a loan before you set foot in a dealer’s lot. “ The single best advice I can give to people is to get preapproved for a cable car loan from your bank, a citation union or an on-line lender, ” says Philip Reed. He ‘s the car editor program at the personal finance site NerdWallet. He besides worked clandestine at an car franchise to learn the secrets of the business when he worked for the car-buying web site Edmunds.com. So Reed is going to pull back the curtain on the car-buying crippled .

For one thing, he says, getting a loanword from a lender outside the car franchise prompts buyers to think about a all-important doubt. “ How much car can I afford ? You want to do that before a salesperson has you falling in love with the restrict model with the sunroof and leather seats. “ Reed says getting preapproved besides reveals any problems with your credit rating. So before you start cable car patronize, you might want to build up your credit score or get erroneous information off your credit report. And shop around for the best rate. “ People are being charged more for concern rates than they should be based upon their creditworthiness, ” says John Van Alst, a lawyer with the National Consumer Law Center. Van Alst says many people do n’t realize it, but the franchise is allowed to jack up the rate it offers you above what you actually qualify for. so with your citation grade, “ you might qualify for an interest rate of 6 %, ” says Van Alst. But, he says, the franchise might not tell you that and offer you a 9 % rate. If you take that bad bargain, you could pay thousands of dollars more in matter to. Van Alst says the franchise and its finance ship’s company, “ they ‘ll split that extra money. ”

so Reed says having that preapproval can be a valuable circuit board to have in your hand in the car-buying game. It can help you negotiate a better rate. “ The preapproval will act as a bargain chip, ” he says. “ If you ‘re preapproved at 4.5 %, the principal says, ‘Hey, you know, I can get you 3.5. Would you be interested ? ‘ And it ‘s a good estimate to take it, but make certain all of the terms, meaning the down payment and the distance of the loanword, remain the same. ” One give voice of caution about lenders : Van Alst says there are batch of louche lending outfits operating on-line. Reed says it ‘s a adept mind to go with a mainstream bank, recognition union or other lender whose name you recognize. 2. Keep it simple at the dealership. If you ‘re buying a cable car at a franchise, concenter on one thing at a fourth dimension. And do n’t tell the salesperson excessively a lot. Remember — this is a kind of game. And if you ‘re playing cards, you do n’t hold them up and say, “ Hey, everybody, look — I have a couple of queens, ” right ? thus at the franchise, Reed and Van Alst both say, the beginning gradation is to start with the price of the fomite you are buying. The salesperson at the franchise will frequently want to know if you ‘re planning to trade in another car and whether you ‘re besides looking to get a loanword through the franchise. Reed says do n’t answer those questions ! That makes the game excessively complicated, and you ‘re playing against pros. If you negotiate a in truth good purchase price on the car, they might jack up the interest rate to make extra money on you that room or lowball you on your trade-in. They can juggle all those factors in their head at once. You do n’t want to. Keep it simple. One thing at a time. once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there besides. A small research on-line can tell you what your trade is deserving in approximate range terms. Reed suggests looking at the free pricing guides at Edmunds.com, Kelley Blue Book and NADA. On Autotrader, you can besides see what people in your area are asking for your car model. And he says, “ You can get an actual put up from Carvana.com and besides by taking the car to a CarMax, where they will write you a control on the spot. ” so he and Van Alst say do n’t be afraid to walk away or buy the car at a good price without the trade-in if you feel the franchise is lowballing you on your old car. You have plenty of other adept options these days .
Here's how to buy a car without getting over your head in debt or paying more than you have to.
Enlarge this image

Will Sanders/Stone/Getty Images Plus
Here's how to buy a car without getting over your head in debt or paying more than you have to.

Will Sanders/Stone/Getty Images Plus

3. Don’t buy any add-ons at the dealership. If you ‘ve bought a car, you know how this works. You ‘ve been at the franchise for hours, you ‘re tired, you ‘ve settled on a price, you ‘ve haggled over the trade-in — then you get handed off to the finance director. “ You ‘re led to this back office. They ‘ll often refer to it as the box, ” says Van Alst. This is where the franchise will try to sell you extend warranties, run down protection plans, paint protection plans, something called gap indemnity. Dealerships make a distribute of money on this thrust. And Van Alst says it ‘s frequently very overprice and most people have no mind how to figure out a bazaar monetary value. “ Is this addition, you know, being marked up 300 % ? You do n’t truly know any of that, ” Van Alst says. So he and Reed say a good strategy, particularly with a new car, is to merely say no — to everything. He says particularly with longer-term loans, there ‘s more jiggle room for dealers to try to sell you the extras. The finance person might try to tell you, “ It ‘s merely a short more money per month. ” But that money adds up. “ Concerning the cover factory guarantee, you can always buy it late, ” says Reed. “ so if you ‘re buying a new car, you can buy it in three years from now, just before it goes out of guarantee. ” At that sharpen, if you want the cover guarantee, he says, you should call several dealerships and ask for the best price each can offer. That way, he says, you ‘re not rolling the cost into your cable car loanword and paying interest on a service you would n’t even use for three years because you ‘re however covered by the raw car ‘s guarantee. Gap indemnity promises to cover any gap between the purchase price of replacing your almost-new car with a brand-new car if your regular policy does n’t pay for full refilling if your car gets totaled. Van Alst says break policy is frequently overpriced and is basically baffling. If you still want the product, it ‘s best to obtain it through your regular policy company, not the dealer. 4. Beware longer-term six- or seven-year car loans. A one-third of new car loans are now longer than six years. And that ‘s “ a truly dangerous vogue, ” says Reed. We have a whole history about why that ‘s the case. But in light, a seven-year loan will mean lower monthly payments than a five-year loanword. But it will besides mean paying a distribute more money in sake. Reed says seven-year loans frequently have higher interest rates than five-year loans. And like most loans, the interest is front-loaded — you ‘re paying more sake compared with principal in the first years. “ Most people do n’t tied realize this, and they do n’t know why it ‘s dangerous, ” says Reed. Loading …
Don’t see the graphic above? Click here. Reed says that if you want to sell your car — you decide you ca n’t afford it, or possibly you have another kid and need a minivan alternatively — with a seven-year loanword you are much more likely to be stuck still owing more than the cable car is worth. So he says, “ It puts you in a very vulnerable fiscal position. ” A better way to go, Reed says, is a five-year loanword for a new car and “ with a use car you should in truth finance it for only three years, which is 36 months. ” One rationality that makes sense, he says, is that if your use car breaks down and is n’t deserving fixing — say the transmission wholly goes — you ‘re more likely to have paid off the loan by that time. Reed says a five-year lend make common sense for newfangled cars because “ that ‘s been the traditional way — it ‘s kind of a fresh topographic point. The payments are n’t besides high. You know the car will still be in full condition. There will still be value in the car at the end of the five years. ” besides, Van Alst and Reed say to make sure dealers do n’t slip in extra or change the loan terms without you realizing it. Read carefully what you ‘re signing. Reed says a colleague at NerdWallet actually bought a minivan recently and “ when she got base, she looked at the abridge. ” She had asked for a five-year loanword but said the franchise alternatively stuck her with a seven-year loanword. “ And they included a factory guarantee which she did n’t request and she did n’t want. ” Reed says she was able to cancel the stallion contract, remove the stretch guarantee and get a rabbet on it. “ But the sharpen of it is, ” he says, “ I mean, hera ‘s person who is very financially grok, and so far they were able to do this to her. And it ‘s not an uncommon scenario for people to think that they ‘ve got a good cover, but then when they go home and look at the abridge, they find out what ‘s been done to them. ” 5. Don’t buy too much car. And consider a used car to save a lot of money! “ The fortunate convention is that all of your cable car expenses should very be no more than 20 % of your take-home pay, ” says Reed. And he says that that ‘s total car expenses, including policy, accelerator and repairs. “ so the car payment itself should be between 10 and 15 %. ” And if a new car with a five-year loanword does n’t fit into your budget, you might decide you do n’t actually need a brand-new car. “ We ‘re actually living in a gold historic period of secondhand cars, ” says Reed. “ I mean, the dependability of secondhand cars is noteworthy these days. ” Reed says there is an endless river of cars coming off three-year leases that are in identical beneficial condition. And even cars that are older than that, he says, are decidedly worth considering. “ You know, people are buying good use cars at a hundred-thousand miles and driving them for another hundred-thousand miles, ” says Reed. “ so I ‘m a big fan of buying a used car as a room to save money. ” He acknowledges that which car you buy matters and that it ‘s a good mind to read reviews and ratings about which brands and models are more or less probably to run into costly repair problems down the road. He says some european cars are excellently expensive to maintain.

NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car bribe. Many said they were shocked by how a lot money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, “ 40 years of owning vehicles and our total transportation system purchases do n’t even add up to the cost of one of the finance ones these folks are talking about. ” Dean is a freelance AV technician, and Patricia is a flight attendant. They say, “ our nicest, newest purchase was a 2004 Honda Accord for $ 2400, bought last year, that with regular care could likely last another 100,000+ miles. ” And they say they “ ca n’t understand those who insist on driving their retirement funds off. ” even if you buy a slenderly newer used car than the Raekers ‘, the pair raises a bang-up point. What else could you be spending that car payment money on ? And if you can cut in half what you might otherwise spend, that ‘s a lot of extra money for your retirement history, your kids ‘ college fund or whatever else you ‘d preferably be doing with that money .

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