Microwave ovens eventually die and require replacement. When mine started making an odd popping sound and emitting an electrical smell during use, I unplugged it, went to the closest store known to sell microwave ovens, bought a new one, plugged it in, and then continued heating up leftovers for lunch. It took less than an hour.
Cars eventually die and require replacement. People don’t buy cars like they buy microwave ovens. You never wake up, decide to buy a new car, walk into a dealership showroom, swipe a credit or debit card, and drive away in less than an hour.
J.D. Power research confirms this. In recent years, the company’s New Autoshopper Study has found that about 80 percent of car buyers use the Internet to research new vehicle purchases, spend an average of 14 hours doing so, and take an average of four months to make a decision about which make and model to buy.
As a person who has purchased several new cars, this makes sense. Choosing a new vehicle is not the same as choosing a new microwave. For example, few people care what their microwave looks like. Most people care what their new car looks like.
Beyond this, microwaves cost a fraction of what new cars cost. Spending hours researching reviews and comparison-shopping new microwaves is not a cost-effective way to spend your time.
New cars are different. For most people, a new vehicle is the second most expensive item they will ever buy, aside from their home. Thousands of dollars are usually at stake, not to mention your long-term happiness with the purchase.
That’s why it is important to get your choice of a new vehicle right, and to make smart decisions during the entire selection and purchase process.
1.) Establish Your Budget
Before you do anything, you need to know how much money you can spend on a new car. You need to decide if you’ll pay cash (few people do this), if you’ll finance (most people do this), or if you’ll lease (increasingly, more people do this).
When paying cash, knowing your budget for a new set of wheels is easy. Just don’t forget to factor in the sales tax on the purchase, the registration fee, and what your insurance premium will cost.
When financing or leasing, you’ll need to know what you can afford to pay each month. Be sure to consider gasoline, insurance premiums, and annual registration fees in this amount, and remember that gas prices are rather volatile. Typically, they’re more likely to go up than down.
Once you know what you can afford to pay each month, you’ll need to understand how that amount translates into a vehicle price. This is critically important. You never, ever, want to get pegged as a “payment shopper” by a car dealership. Once a car salesperson knows that you’re solely focused on payment, he or she will turn your pockets inside out.
Let’s say that you can spend $750 per month on a car. If insurance is likely to be $100 per month, and if you’re going to spend another $150 per month on gas, then you can afford to pay $500 per month for the actual car. Assuming that your down payment covers sales tax and registration fees, and you finance the car for 60 months, that means you can buy something priced at $28,000 or so, leaving an extra two grand left over to cover interest on your loan.
2.) Determine What You Need
Once you know how much you can spend on a new vehicle, it is important to understand the difference between your needs and your wants.
• If you’re single with no plans to get married and have kids, you simply need to get something you can afford.
• If you’re a parent, or planning to become one, you need something roomy and safe.
• If you’re an empty nester saddled with college bills and an underfunded 401K, you probably need to get a used Toyota Prius instead of a new car.
• If you’re older and suffering lots of aches and pains, you need something that is easy to get into and out of.
• If you’re a contractor, you need a work vehicle, a truck or a van appropriate for your requirements.
Everyone has a unique set of requirements in a new vehicle. Choosing something that meets those requirements is critical to long-term satisfaction with your purchase.
3.) Decide What You Want
Once you know which types of vehicles will satisfy your needs given the amount of money you have to spend, it is time to decide what you want in your new car.
Wants are related to a variety of factors including:
• Fuel Economy
Just as different people have different needs for a new car, we also have different wants. No wonder, then, that there are so many makes and models from which we can choose.
4.) Choose a Vehicle
Once you know what you need, and once you know what you want, it is time to conduct the research necessary to find the right new vehicle.
Nearly half of all car buyers, according to J.D. Power, choose their next new vehicle based on previous experience with a specific make or model. These people are brand loyalists, and while they don’t buy new cars like they might buy new microwaves, they also don’t spend nearly the same amount of time researching new vehicles as the rest of the car buying populace.
People looking for something different to drive are comparing vehicles, and have usually narrowed potential choices down to three models. To decide which of the trio to buy, they’re reading reviews, they’re looking up prices, they’re factoring in rebates and incentives, they’re consulting ratings, and they’re making comparisons.
At this point, it is also time to visit dealerships and to conduct test drives. This is your chance to evaluate acceleration, ride, and handling properties, to determine comfort levels, to use the in-vehicle technology, and to see the car up close and in person, in natural light, and in various paint color choices.
Only after you’ve determined your budget, evaluated your needs, established your wants, conducted thorough research, and taken test drives can you make the best possible decision on a new car.
Once you’ve done all of these things, the good news is that the hard part is over. The bad news is that you’ve still got several important steps to take before it is time to make a deal.
5.) Get Insurance Quotes
Now that you’ve found the perfect car, the one that meets most of your needs and most of your wants, and you’re confident that it will fit your budget, it is time to see what the insurance is going to cost.
Insurance companies examine multiple factors when setting insurance premiums. According to Esurance, which is owned by Allstate, your driving record is one of the primary factors that will determine what you’re going to pay for car insurance. For obvious reasons, a clean driving record is preferable to an insurance company. If your record is not free of tickets and accidents, you will pay more for insurance.
Additionally, insurance companies review statistics in order to make predictions about risk. Younger people are less experienced drivers and are more likely to get into an accident. Men are more likely than women to cause a collision. Single people are more likely than married people to be involved in a crash. Cars used in cities are more likely to get damaged or stolen than cars used in the country.
Insurance companies also consider the make, model, and type of vehicle you plan to insure, and Esurance specifically says that vehicles with top crash-test ratings are typically more affordable in terms of insurance. Insurance costs are also based, in part, on how many miles you drive and your credit rating.
Be sure to obtain multiple quotes for car insurance. Get one from your current insurance provider, and consider using a website such as Compare.com to obtain quotes from multiple companies.
6.) Arrange Your Financing
After you’ve determined that you can afford your selected vehicle, including the insurance policy, it is time to get serious about buying the car. Don’t head to the dealership just yet, though. You’re going to want to arrange financing in advance of the purchase.
First, if you don’t know what your credit rating is, you need to find out. Federal law provides consumers the ability to obtain one free credit report annually from each of the three primary reporting agencies: Trans Union, Equifax, and Experian. Use the official, federally authorized and secure AnnualCreditReport.com. website to request all three reports.
Once you know your credit rating, you’ll better understand your car financing options. Great credit provides access to the lowest interest rates. Poor credit results in paying higher interest rates. Monthly car payments fluctuate depending on your creditworthiness, so if your credit is not excellent, prepare to pay more per month or to lengthen the period of the loan in order to keep payments affordable.
To find great loan rates, use Bankrate.com or LendingTree.com as a starting place, and also discuss your options with your current bank or credit union. Once you’ve settled on a loan that works for you, apply for a pre-approved loan. This way, when you go to the dealership, you can use your pre-approved loan and interest rate as a baseline against which the dealer can compete.
Dealers make lots of money by providing car buyers with financing. See if the dealership can beat your pre-approved rate. If it can, finance the new car through the dealership, but make sure the dealer’s loan rate and terms are identical to the loan for which you are pre-approved.
7.) Establish Your Trade-in Value
When most people buy a new car, they’re replacing an old car. If this describes your situation, you’re going to need to decide whether or not you want to trade the old car in at the dealership or sell it on your own.
If you sell your old car on your own, you will get more money for it, but you’ll also endure plenty of hassle associated with the process of advertising the car, arranging for test drives, and completing the necessary paperwork to properly and legally transfer ownership.
If you trade your old car in at the dealership, you won’t need to do any of this stuff. But, the dealership won’t give you nearly as much money for the car as a private buyer will. This is because the dealer is assuming all of the hassle associated with price negotiation, ownership transfer, reconditioning, and reselling the car at a profit.
Before you trade your old car in, be realistic about its condition and whether or not the dealership will keep the car for its own used car lot or will wholesale the car at an auction. Normally, only the best trade-ins stay on the dealer’s used car lot, the vehicles in the best condition and with the greatest chance of selling fast. Everything else gets trucked to an auction.
Look up the “book value” of your trade using several different resources, and do your best to get the dealership to give you an amount close to that. If you’re trading a well-maintained example of a popular model, you’ll get more money for your old car.
You’ll also need to establish a value for your old car if you sell it on your own. Consulting sources of “book value” can be useful in order to set a baseline, but a used car is only worth as much as someone is willing to pay for it. Again, if you’re selling a well-maintained example of a popular model, you’ll get more money for your old car.
8.) Negotiate Your Purchase
Finally, the time has come to negotiate a deal on your next new car. Now you need to decide what you’re going to pay for the new car, how you’re going to buy the new car, and where you’re going to buy the new car.
Before you negotiate a deal, check the auto manufacturer’s website to make sure you’re informed about current rebates, lease specials, and financing deals.
Also, keep in mind that as a general rule vehicles that are in plentiful supply can be purchased at or close to the invoice price while vehicles that are not in plentiful supply are likely to command a price premium, and sometimes that premium puts the selling price above the sticker price.
For example, the Ford F-150 might be the most popular vehicle in America, but multiple factories are set up to crank out as many copies of this full-size pickup as is possible. You won’t pay more than invoice, unless you want the limited-production Raptor model, which will command a premium.
Rebates are paid to the customer, and are typically applied to the deal in order to reduce the price of the vehicle. If the dealer agrees to sell you the new car at invoice, deduct the rebate from that negotiated price, but keep in mind that you’ll still need to pay sales tax on the full, negotiated price.
Incentives are paid to the dealership, and are used at the dealership’s discretion to make a deal more appealing to a customer. Typically, it is impossible to know the exact amount of any incentives on a given day, but if the dealership has lots of versions of the vehicle that you want sitting in stock, chances are excellent that the dealer is getting some kind of incentive to make the deal irresistible to you.
If you’d prefer to avoid the nonsense associated with negotiation, which can consume precious hours or even days of your life, consider using a service that has established a pre-negotiated price for a vehicle on your behalf.
One of our favorites is TrueCar, in part because this company does such a great job of using infographics to communicate what you will pay compared to what other people pay. The problem with TrueCar is that the dealership in your hometown might not be signed up for the company’s program. There are tangible benefits to buying your new car at your local dealership, and they range from helping to keep your local tax base healthy to geographic convenience related to service, recalls, and repairs.
Since most dealerships make most of their profit selling loans, warranty programs, and service contracts; through the service drive from maintenance, recalls, and repairs; and from the used car lot, chances are excellent that you can negotiate a price for your new vehicle that is in the same neighborhood as those offered by car buying services.
Just keep in mind that those low buying service prices include rebates. If you’re planning to take advantage of a financing offer instead, the selling price is going to be higher than what you might find on any website promising a low, pre-negotiated price.