How to Buy a Car

Have you ever dreamed of owning your own car? Imagine driving down a tree-lined street with the windows down on a sunny day, a warm rush of air streaming through your hair... OK, snap out of your reverie. Before you start mapping out the route to the nearest beach, you just might want to learn some valuable car-buying tips.

Buying a car, whether it's a first-time purchase or not, can seem like a daunting task. You've probably seen your share of car commercials on TV and recall hearing phrases like "down payment" and "APR." Although some of the terminology may seem confusing, once you break it down, buying a car is pretty straightforward. There is certainly a lot of information you need to understand before you run off to your local dealership. But once you know what the acronyms mean and how car financing works, you'll be ready to get the best possible price on the car you've chosen.

In this article, we will discuss used and new car purchasing, what you need to know before you decide to buy, how to avoid common pitfalls, getting the best price and what to do if you have a problem with your purchase.

The first thing you must decide before you begin your automobile research is whether you want a new car or a used car. Of course, there are benefits and drawbacks on both sides. If you decide to buy a used car, there are several things you need to keep in mind.

First of all, there are more than 2 million car accidents annually and chances are if you are in the market for a used car, you will come in contact with at least one automobile that was in an accident. The most important thing about buying a used car is that you know everything about the history of the car, including:

the number of previous owners
if the car was ever involved in an accident
any previous mechanical problems
the maintenance history of the car

One of the largest benefits of buying a used car is that you can often get a great deal and in many cases, the car you buy may even be relatively new. Successful used car buyers often are just as happy with their used car as new car buyers are with a new vehicle. But remember, the most common car-buying horror stories do involve the purchase of used cars. When you have a good idea of what kind of car best fits your needs and budget, you can begin your research on used cars.

Read on to find out where to look for a used car.

Finding a Used Car

There are several places to locate and buy a used car:

an online car shopping website like CarsGenius
a used car dealership
a superstore dealership that specializes in used cars -- like CarMax or Hertz
many new car dealerships also sell used cars
online and print classifieds

Keep in mind that classified listings are used by both dealers and individuals to sell used cars. Some dealers even post their used cars on used car Web sites. Person-to-person transactions through people you know, or via online and print classifieds can be a good option if you want to avoid a dealership. According to Car Buying Tips.com, no matter what option you go with, if you do decide to purchase a used car, there are four tasks that will increase your odds of success:

Have a mechanic put the car up on a lift for a full inspection and to check for damage -- anything that might indicate a previous accident or possibly flood damage.
Run a Vehicle History Report to get a full history of the car. You can get a Vehicle History Report at CARFAX.com. It will include everything you need to know about the car including: if it was ever salvaged, stolen or recalled the number of previous owners if it ever failed inspection if someone tried to create a fraudulent odometer reading
Never sign an "As Is" statement. Many used car dealers will mix that in with the other paperwork you'll be asked to sign. As with anything that requires a signature, READ BEFORE YOU SIGN. You should have at least 30 days to make sure the car is in good condition. If you sign an "As Is" statement, once you drive the vehicle off the lot, anything that goes wrong is your problem.
Have your own financing and loan approvals ready before you go to buy the car. (This can also be good if you're planning on making a new car purchase.)

If you follow these simple instructions, your used car-buying experience should go smoothly. Remember that buying a used car from a dealership is similar to buying a new car from a dealership. You want to be armed with all the relevant information before you buy any car, new or used.

Buy the Book

If you're in the market for a used car, you might want to check out one of the following guides. These handy handbooks will provide you with valuable pricing information.

N.A.D.A. Official Used Car Guide
Kelley Blue Book Used Car Guide: Consumer Edition
Consumer Reports Used Car Buying Guide
Edmunds.com Used Cars and Trucks Buyer's Guide

Remember these are guides and should be used as such. The listed prices are usually for cars that are in good condition with "reasonable mileage" -- about 12,000 miles per year. If a car has a much higher mileage or if it's in poor condition, the sale price should be lower than what's listed in the guide.

Car Buying and the Internet

Whether you're buying new or used, there's no doubt that the Internet is a great tool for your car quest. If you are buying a new car, you can research the kind of car you want, the options you need, the price of the car and the price of the additional options. If you've done your homework, you'll be able to walk into a dealership armed with loads of valuable information.

When you're just starting out, a good first step is to go to the manufacturers' Web sites to check out the cars and the available options. You can usually find local dealers and request quotes or see the Manufacturer Suggested Retail Price (MSRP). Once you've narrowed your choices, you can check out an array of other Web sites for more pricing information:

Make sure you go to more than one pricing site to get the best idea of the average price.

In addition to using the Internet to research the car you want to buy, you can also use it to figure out your finance options and select a warranty for your car. Sites like E-Loan and Lending Tree offer online auto loans. A warranty is a contract that guarantees maintenance if your car has any mechanical or other problems. Remember that warranties are another way for dealers to get more money out of your bank account, so know what kind of warranty you want and how much you are willing to pay for it.

One of the most useful sites on the Internet is Car Buying Tips.com. This site offers up just about everything you need to know about buying a new or used car. The tips are invaluable for anyone who wants to make sure they don't overpay for their new ride. One of the best things about the site is that it deconstructs various dealer scams. If you know the dealer's agenda before you walk in the door, you'll be able to spot if someone is taking advantage of you. We're certainly not saying that all car dealers are out to dupe you, but you have to be careful and be prepared. Remember, an ounce of prevention can save you thousands of dollars in the end.

Now that you know where to start looking for information, let's take a closer look at what you should know before you go shopping.

What to Know Before You Go Car Shopping

Before you start thinking about fun things like whether you want a convertible or a sports car, you need to do some self-examination. First and foremost, you need to examine your budget. You should set a reasonable price range for the car and begin to eliminate cars that are out of that price range. As a potential car buyer, you need to be realistic, don't fantasize about a $45,000 car when your budget will just barely support a $22,000 price-tag. Also, remember that trying to figure out a way to buy a car that is outside your price range is really not a good idea. After all, it's not much fun to have a car if you can't afford to go places in it.

You also need to know about your own credit history. If there's something that you think the dealer will ask, that's certainly something you should be prepared to answer. Many of the promotions that you see on television are reserved just for people with excellent credit. So having a copy of your own credit report is important. There are a variety of places to obtain a copy of your credit report. All of the three large national credit bureaus -- Equifax, Experian and TransUnion -- offer single reports and packages from their Web sites. A copy of your report costs $9 plus any taxes, shipping and/or handling charges. You can even get 3-in-1 reports, showing your credit history as reported by all three major credit reporting agencies. For example, the 3-in-1 package available from the Equifax Web site currently costs $29.95.

Finally, you need to know what your automobile needs are:

Do you need to haul heavy equipment? You may want to think about a pick-up truck.
Do you have a sizeable family or head up a carpool? You may want to think about a minivan, wagon or large sport utility vehicle (SUV).
Do you live in an area where you need four-wheel drive? You may want to think about an SUV with all-wheel or four-wheel drive.
Do you travel far or use the car rarely? If you log a lot of miles, you may want to research cars that get good gas mileage, like a hybrid car.
Do you have a towing requirement -- perhaps you need to tow a horse trailer or a boat? You may want to consider a heavy-duty pick-up truck or an SUV with a towing package.

There's a vast amount of choices for today's car buyer. Knowing what your automobile needs are is the easiest way to begin eliminating some of those options. Eventually, with some additional research, you should be able to narrow the field down considerably.

When you figure out what car you want (or what cars you want to check out up-close-and-personal -- think "test-drive"), there are some things you want to learn about the car(s) so that you can get the best deal possible when you're ready to buy. You will need to know the average price of the car, so you won't overpay. You can get a good idea of the base price (the price of the car without any special options) by visiting different dealerships and comparing prices and by using the Internet to get price quotes. You should also get an idea of how much the dealer will add on for various options like air conditioning, a cd player or anti-lock brakes. If you can, try to find out what the dealer price is and negotiate up from that figure. According to ConsumerReports, it's actually a lot better to do it that way as opposed to working from the sticker-price down.

In addition to visiting dealerships to do your research, you should also be reading car reviews in magazines and online. You can learn which cars are given high marks for safety, which cars get the best gas mileage, and so on. Once you've narrowed your list down to a few possibilities, you should read as many reviews on those makes and models as you can. Some good places to look for both professional and consumer car reviews are:

MotorTrend magazine
Automobile magazine
Car and Driver.com
Edmunds.com
CarReview.com

Another good way to find out about a car is by simply asking your family, friends, co-workers and neighbors. Among all these people, you're bound to find someone that drives or has driven the make or model you're researching.

Finally, if you plan to trade in a car you already own, you want to know the price of your trade-in. Remember that some car dealers make big money paying you way too little for your trade-in. Do your homework and check out what publications, such as the N.A.D.A. Official Used Car Guide, the Kelley Blue Book and the Consumer Reports Used Car Buying Guide, list as the market value of your trade-in. Keep in mind that these estimates are based on cars in good condition with an average of 12,000 miles per year. So, if your car has been driven less than or more than that, the price could go up or down accordingly. If you have enough information, no one will be able to take you for a ride!

Purchasing a Car

Car dealerships are a business. And, like any other business, they need to make money. Therefore it's pretty reasonable to assume that car dealers are out to sell you a car and make the most money possible on the deal. As a consumer, you want to get the best product for the best price. To attain that goal, you must avoid the common and costly pitfalls of car buying. Here are some points to ponder before you purchase:

There are two times of the year in which you will get the best price on a car: the last two weeks of December and July to October.
Competition gets you the best price. Know what other dealers are charging for the car and then the deal will be on your terms, not the dealer's.
Know your credit history and remember that it is illegal for anyone to run a credit check on you without your permission. Some car dealers actually ignore this rule.
Don't give the dealer your license or social security number.
Cars that need to be ordered from the factory should NOT cost more than the cars on the lot. Don't be fooled.
Be wary of letting a car dealer locate the car you want from another dealership. They often charge you unnecessary fees.
It is illegal for a car to have a missing MSRP or price invoice sticker.
Don't fall for advertising. Do your own independent research.

The thing that makes most car buyers nervous is that they know they are going to have to negotiate. Don't be afraid of negotiating. If you go into the dealership with a very good idea of what you want and what you want to pay, the negotiating is up to them, not you. You've done your work and now the dealer has to work to get closest to the price you want to pay.

One common dealer scam happens after you have decided to buy the car. At this point, the car salesman may start asking you to pay a variety of extra charges. This can mean hundreds or even a thousand or so dollars. Don't fall for these tactics. You agreed on a price and you should stick to it. Don't be afraid to walk out of a dealership if you feel that you are being treated unfairly. The bottom line is it's your money and you don't want to lose it because you didn't speak up.

One more thing to keep in mind is that, according to Car Buying Tips.com, trade-in buyers are among the world's most gullible people. Car dealers can make tons of money by giving you below market value for your trade-in. On top of that, they're probably reaping a large profit on your new purchase. In addition to a profit on your new car purchase, they will also sell your trade-in for far more than they paid you. If you are armed with a realistic idea of what your trade-in is worth, you'll know if the dealer is trying to take advantage. If you have a down-payment in addition to a trade-in and your trade-in is in good condition, you could consider trying to sell the car on your own. You might get a better price for it.

Okay, so you've found the perfect car. Before you even think about purchasing it, you need to know how you're going to pay for it. If, by some miracle in today's economy, you have saved enough to pay for the entire car, you will not need financing. But most car buyers today make their purchase by paying a down payment and then financing the balance -- making monthly car payments until the remainder of the loan is paid in full. Remember, that financing is a loan and as with all loans, you have to pay interest. Unless you don't mind paying thousands of dollars in interest, you'll want to make your down payment as high as you can afford. The low Annual Percentage Rates (APR) that dealerships and car companies advertise on television are the interest rates the dealer charges for financing. Often, those low rates are only for people with perfect credit or they are an introductory rate, meaning they will go up after a certain period of time.

If you know you have to finance the car, you need to shop around for the best interest rate. If you meet the qualifications set out by the car dealer -- perhaps you're a first-time car buyer, or you have excellent credit -- you may want to consider going through their finance department. Just make sure you read the fine print. An APR of 1.9% sounds great until you realize that is for the first year only. You want a low rate for the entire period of your loan.

Of course you can check out the rates at local banks and credit unions. But, you may find some of the most competitive rates on the Internet! Check out Web sites like ELoan, Lending Tree and PeopleFirst. The key to a great deal is to get the best price on the car as well as the best possible financing rate.

Addressing Problems After a Car Purchase

Once you've made your decision (and your purchase), you need to know what to do if you have any problems with your new car. Most new cars come with some kind of warranty. You'll be given the opportunity to purchase an extended warranty. Make sure you read the fine print. You may find that the extended warranty isn't worth the price. If you purchase a used car, it may still be under the manufacturer warranty, or you will have the option of purchasing an extended warranty. Whatever kind of warranty you end up with, know what is covered and what isn't. For instance, damage to the body of the car may be fixed free of charge under the warranty, but an automatic window that won't go up or down may not.

If you feel that you have been sold a "lemon" or a bad car, you do have recourse. All states have "lemon laws" that pertain to new car purchases. These laws allow you to take action against a dealer for selling you a bad car. If you feel you have been cheated, find out what you can do about it. Visit this Web site, the Better Business Bureau Law Program.

When you are going to be making a large purchase, don't leave anything to chance. The only way to improve your odds of getting the best deal possible is to know before you go. If you know what kind of car you want, what to expect to pay for it and what your rights are, you should have a positive car buying experience. So, do your homework and get ready to have fun on the open road!

For more information about buying a car and related topics, check out the links on the next page.