Tuesday, 16 July 2019

Seven Steps for Getting a Great First Car

Seven Steps for Getting a Great First Car
15 Jun
3:08
First car
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When it’s finally time to buy your first car, you’re likely going to be excited about being behind the wheel of your new ride, but also a bit uneasy. After all, buying a car can be complicated. How do you know which car to get? Will it fit into your budget? Should it be new or used? How do you make sure you’re not paying too much?

Here are seven steps to follow to ensure that you’re getting the best vehicle you can without going broke, whether you’re buying a new or used car or from a dealership or individual.

The most important thing to remember is to take your time, says Brian Moody, executive editor of the car buying and selling website Autotrader. “This isn’t something you should do in one day,” he said. Remember, if a dealer or individual pressures you to make a decision, you can always go elsewhere.

1) Figure out how much car you can afford.

When purchasing your first car (or any car for that matter) it’s always smart to follow the 20/4/10 rule. That means you should put at least 20% down, finance it for no more than four years, and keep your monthly vehicle expenses, including the monthly payment and insurance, at just 10% of your net income, advises Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC). Ronald Montoya, senior consumer advice editor for the automotive website Edmunds.com, says it’s still reasonable if you put down as little as 10% and go for a five-year loan, although he calls the 20/4/10 rule “ideal.”

Beyond that, examine your monthly net income and expenses to figure how much you’re comfortable paying on a loan while still having something left over to put into savings.

Next you need to figure out what your credit report and FICO score looks like. You can pull one free credit report every 12 months by going to annualcreditreport.com. Once you have an idea of what kind of information lenders will see on your credit report and you’re sure it’s accurate, check your credit score with the major credit bureaus like Experian, TransUnion and Equifax. Unfortunately, getting your credit score is not free so you will need to pay to access it.

One thing to note, auto lenders use more than just your FICO credit score to determine whether or not you are worthy of a loan. You want to pull your FICO Auto score to see exactly what lenders will use when you apply for an auto loan. Doing this work ahead of time will give you more leverage when it comes down to the negotiating process and make you a more informed consumer.

Once you have a good understanding of your credit report and credit score, examine current new and used-car loan rates for loans of up to four or five years. Longer term loans, while popular for their lower monthly payments, generally have higher finance charges. When coupled with little or no down payment, they increase the risk that you could be upside down on the loan at the end of the term. This means that you could owe more to the lender than your car will be worth on the market. One additional factor to consider when you are upside down on a car loan, is that if the car is stolen or severely damaged, your insurer may not cover what you owe to the bank.

To get an accurate interest rate estimate, you’ll need to know your credit score. If you don’t, there are many ways to get it for free, though you will need to pay to access your auto credit score. Once you have compared rates and know how much you can afford to pay monthly, you can use a specialized online loan calculator like this one to figure out how much you can borrow. Just enter the interest rate, number of months and monthly payment.

You also can explore your loan options with local and online lenders. Montoya from Edmunds recommends getting preapproved for an auto loan, which can save you time and money once you’re ready to buy. McClary from the NFCC recommends that you don’t overextend yourself financially. “There’s this tendency to go for the max and to get the most out of what you can qualify for in the financing. You have to resist that temptation,” he said.

2) Research a vehicle.

There are lots of online resources to assist you in choosing a car, among them Autotrader, Cars.com, Consumer Reports, Edmunds.com and TrueCar. Depending on the site, you’ll find car reviews by professionals and owners, road test results and prices for both new and used vehicles. Many car sites also show you actual new and used vehicles for sale. All of this will help you find a reliable, top-rated new or used vehicle that fits into your price range.

To find the right vehicle for you it’s important to be practical about your needs. “You want to think about how you will be using the car most of the time,” Montoya said. He says that you shouldn’t pay extra for a vehicle that’s too big or has features you don’t need. Remember to look at gas mileage, reliability and safety. Also examine the duration and scope any warranty coverage, which, in the case of a used car, you should verify is transferable to a new owner.

When deciding whether you should buy a new or used car, consider that used cars can save you a lot. The average used car transaction price is just over $20,000, compared to $36,000 for new vehicles, according to Edmunds.com. But with a used car, you’ll likely spend more on maintenance and repairs, especially if there’s no warranty.

Once you’ve settled on a few models, you can research them more carefully and compare them. If you’re buying new, check the manufacturer’s website for the various trims and equipment options. While there, look at the latest incentives, including rebates and low-interest financing.

3) Locate a car.

Now that you’ve narrowed your choices, you can locate a vehicle to test drive by visiting local dealers and checking websites such as Autotrader, Edmunds.com, and TrueCar. These sites show you vehicles in your area and can help you narrow your search. You’ll also find used cars being advertised by individuals on Craigslist and elsewhere. For first-time buyers it’s easiest to purchase through a dealer, who likely will have inspected the vehicle and done some reconditioning, say Montoya. Consider shopping first at a franchised dealer, one that sells the same model new since they will be experts in keeping their model of used cars in tip-top shape.

One caveat to keep in mind about buying a used car from a dealership is that you could end up costing you a bit more than it would if you bought a used car from an individual. That’s especially true if you opt for a certified used vehicle, also known as a CPO, or certified pre-owned vehicle. These usually come with a service contract and an extended warranty that covers the cost of some repairs. Car pricing websites such as Kelley Blue Book can show you how prices differ among private sale, dealer and dealer-certified used vehicles.

4) Check out the car.

The best way to assess a vehicle is to take it for a test-drive, preferably on roads you know, advises Moody. How does it feel? Is it quiet? Are the seats comfortable? What about the visibility? How easy is it to use the car’s infotainment system, a common feature in today’s vehicles. There’s a lot to consider, so take your time. “You can’t make a $30,000 decision in 15 minutes,” Moody said.

If you are looking at buying a used car, you also should inspect the vehicle carefully inside and out. There are many online resources, including at Consumer Reports and YourMechanic and our own checklist, that explain what to look for. It’s a good idea to bring someone (who knows about cars and car buying) and ask about the car’s history, including whether it’s ever been in an accident and, in the case of a dealer, whether it was a trade-in, auction purchase, returned lease or anything else.

Once you have narrowed your choice down to one or two specific vehicles, you should run a VIN check and vehicle history report on the chosen cars, to check if there are any hidden issues.

Ask for a Carfax or Experian AutoCheck vehicle history report, which can tell you if the car has been in an accident, stolen, repurchased under a state lemon law program and more. Some dealers post history reports with their car ads.

If you are buying a car from a private party, ask the seller for a history report, or get the VIN number of the vehicle and order one yourself. If the seller supplies a report, consider contacting Carfax or Experian by chat or email to verify it hasn’t been altered.

As an extra precaution, there are two other types of history reports you can request on your own, the free VINCheck report from the National Insurance Crime Bureau and another from the federal National Motor Vehicle Title Information System, which is available at no charge from yet another buying website, Carsforsale.com.

Be warned, history reports can miss a lot, so you’ll need to have the vehicle inspected by an independent mechanic who should check not only for mechanical issues but for body work and other signs the car has been an accident, flood or other mishap, says Rosemary Shahan, president of the California-based Consumers for Auto Reliability and Safety. She recommends it for certified used cars that supposedly have gone through a multi-point check, too. Expect to pay $100 or more for a thorough inspection, and ask for a written inspection report.

Before moving forward with a final decision on which car to buy, call several insurance companies to find out how much it will cost to insure the vehicle, including collision and comprehensive coverage if you’re buying a new car or if it is being financed.

5) Negotiate the deal.

Once you’ve settled on a particular new or used car and taken a test drive, it’s time to negotiate the price. If you’re buying from a dealer, he’ll likely ask you how much you want to spend each month. “I like to tell them zero,” said McClary. He says the dealer’s goal is to divert your attention from vehicle price so you’ll end up paying more than you otherwise would. One common mistake, especially among first-time car buyers, he says, is assuming that because a payment fits into their budget, it’s a good deal. For a new car, the negotiations will include the cost of any added options.

To negotiate like a pro, you should be well-informed. First, visit several car pricing sites, such as TrueCar, Edmunds, Kelley Blue Book, and NADAGuides, to find a good price based on the exact model, trim line, add-on options and, in the case of a used vehicle, the condition and number of miles on the odometer.

When negotiating a new car, contact several dealers and get “out-the-door” cost quotes for the vehicle you want. This means that you get a total cost including any extras, add-on options and warranties. Once you have a few numbers, you can play the dealers against each other to get the price lower. Fortunately, you can do that by phone, text or email, so you won’t have to do a lot of running around.

Comparing prices for a used car is more difficult because there likely aren’t others that are exactly the same as the one you’re considering. “You want to find other cars that are close to it,” said Montoya. If you can’t get a price that you think is fair, it may be time to consider another model, make or a different used car.

This is also the time to get the car checked out by a mechanic of your choosing. For a used car, make sure any agreement is contingent on a thorough inspection by your own mechanic, which should be completed before you sign.

If you’re buying from a dealership, you’ll likely be offered add-ons such as paint protection, rustproofing and undercoating for a new car, or an extended warranty for a used one. Many add-ons aren’t necessary. Some add-ons you can buy for much less outside the dealership, and you won’t have to pay finance charges on them as you would if you included them in the deal, says Montoya. Extended warranties can be a bad value and unnecessary, especially if you’re buying a reliable car and take care of it as the manufacturer recommends. Along with carmaker plans, many dealers sell expensive coverage from independent companies. Those plans often have many fine-print exclusions and may be difficult to use, so be wary.

6) Decide on financing.

Unless you can pay cash, you need to decide how you’ll finance the vehicle. For a private sale, you’ll be using the loan you’ve already researched with a lender. With a dealership, you’ll have an additional option to choose dealer financing or, in the case of a new car and some certified-used vehicles, special low-interest financing from the manufacturer.

Remember that dealers often mark up their best rates, so be prepared to negotiate the rate as well as the car price. Since you did your homework prior to shopping you will be well-equipped to make a good financing decision.

If you’re considering manufacturer financing, find out whether it’s in lieu of a cash rebate. If it is, figure out whether you’d come out ahead by opting for the rebate and then financing at a competitive rate elsewhere. Compare the total costs both ways. You can use an online low-APR versus cash back calculator to help you do the math.

Another financing option is leasing. You can lease a new or used car (in limited cases). A lease is attractive because you can get the same vehicle for a much lower monthly payment than with an equivalent loan, though you don’t own the vehicle at the end of the lease. “You can get in a cycle of just throwing money away,” said McClary. Leases also have fees, restrictions on the number of miles you can drive and finance charges that are higher than those of an equivalent loan, among other drawbacks. Be sure to check for any unresolved safety recalls on the vehicle, new or used. A dealer that sells that make of car can address them for free.

7) Verify the deal.

Get everything in writing, including anything that a dealer has promised to do after the purchase. Be sure that any agreed-to-recall repairs are included in the paperwork before you sign. When leaving a deposit with a dealer, use a credit card. That way, if the deal sale doesn’t go through as promised, you can contest the charge with your card issuer.

For a used vehicle, insist on seeing the title and ensure that all the information listed checks out. With a private sale, you’ll need it to register the car once you take possession of it. Your lender can advise you. A dealer will typically register the car for you.

When it’s time to pick up your car, do a final walk-around inspection before accepting delivery. If it’s a new car that has been ordered for you or that you otherwise haven’t driven, says Moody, consider taking a test drive just to make sure everything is okay.

By following these seven steps, you can be sure you will find a great deal on a great first car.

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Anthony Giorgianni

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