Car Buying: Four Steps to a Bargain on Wheels


David Bach

America is car obsessed. We love our vehicles -- at last count, America has over 200 million passenger cars and light trucks on the road, according the U.S. Transportation Department. Many high school and college graduates will dream of a new car this summer. And many will go out and buy one.

These auto shoppers should make sure they buy a car the smart way. Pay too much for a car, or spend too much of your paycheck on car payments, and you could easily end up car-rich and cash-poor.

New cars depreciate by 25 percent in the first year, according to Bank Rate Monitor. That means a $20,000 car costs you $5,000 in depreciation during year one. If you finance the car for six years at the currently typical interest rate of 6.69%, that car will cost you about $6,900 in depreciation and interest alone in the first year, not including the car payments. That's not including fuel, maintenance, and insurance!

So trust me on this. When you get a new job, don't rush out and buy a new car. Do your research, and buy a good used car. Here's how to snag the right car at the right price.

1. Find the Money

The single most important thing I can tell you is this: If your car costs more then 15% of your take-home pay, it's too much. So before you start looking:

Price the whole package, not just a car. Remember that you'll be paying taxes, title fees, insurance, fuel, maintenance, repair, parking, tolls, and often times, finance charges for your vehicle, as well as the purchase price. Your budget should take all these factors into account.

Get pre-approved. If you're going to finance your car, shop for your auto loan before you shop for your car. To compare rates and terms, go to the Yahoo! Auto Loan Center, BankRate.com, and eLoan.com. Low-down-payment loans with small monthly payments may look attractive but will cost you more in the long run, so aim to put down the largest down payment and opt for the shortest term you can afford.

2. Shop Smart, and Do Your Research

Now that you know what you can spend, it's time to get informed about:

Safety. Motor vehicle accidents are the No. 1 cause of death among Americans aged 5 to 33, so check out the safety rating of any car you're considering at IIHS.org , and NHTSA.dot.gov.

Reliability. For comprehensive car-test data and lists of the best and worst used cars, check out Consumer Reports' Web site or get a copy of the magazine's April issue -- their annual automotive issue -- at your local library.

Pay particular attention to 3-to-5-year-old "Best Bet" models. These historically reliable, top-rated vehicles generally have years of life left in them, yet can cost less than half as much as their new counterparts, making them perhaps the wisest of all car buys.

Top car sites. Check out one or more of these sites for a complete lowdown on the models you're interested in, and narrow in on a few top picks:

* AutobyTel.com: Prices, research, reviews, comparison information, and cars for sale.
* AutoTrader.com: Prices, research, and comparison information.
* Yahoo! Autos: Prices, research, and comparison information.
* Cars.com: Prices, photos, features, specifications, and reviews.
* Edmunds.com: Prices, specifications, reviews, and classifieds.
* Kelley Blue Book: Prices, reviews, ratings, and buying advice.
* NADA.com: Prices, reviews, and ratings.
* AutoWeb.com: Prices, research, reviews, discussions.
* eBay Motors: A huge used-car auction site.

Insurance. Especially if you're under 25, unmarried, and male -- and even if you aren't -- insurance cost can be a deal-breaker. So get an actual quote on a specific year, make, and model of car before you buy. Also, be aware that some cars -- especially sporty coupes, convertibles, and high-performance cars in general -- can cost hundreds or even thousands of dollars more per year to insure than others. To compare quotes on vehicles, try Insure.com.

3. Look at Some Actual Vehicles

Now that you've got a "short list" of vehicles that meet your budget and needs, go test drive some cars. Give each prospective purchase a three-tier check:

Give it a thorough lookover. Print out several copies of this pre-purchase checklist and take them with you when you go shopping.

Check its history. Ask to see the vehicle's title. Copy the Vehicle Identification Number (VIN) and have CarFax.com search for any abnormalities -- such as evidence of odometer rollback, theft, serious accident, or flood damage.

Get a professional pre-purchase inspection. Ask the seller if you can take the vehicle to a mechanic of your choice, or a national auto inspection chain, such as Carchex.com or Pre-CheckedAutos.com. If the answer is no, don't buy the car.

4. Cut a Deal

Once you've found a car you like and it passes muster, it's time to negotiate.

Decide on how much you're willing to pay. There's nothing that says you have to pay the car's asking price. You're in control of the transaction, so you decide what your magic number is. Promise yourself that if you can't strike a deal for that price, you'll walk away. There are lots of other cars out there, and you can always reconsider and make a higher offer later.

Assemble your documents. Print out a copy of a valuation of the car from one of the car-pricing Web sites mentioned above, entering the appropriate condition, mileage, model, options, and location as requested. Bring a copy of the professional pre-purchase inspection and the CarFax report. Use these resources to negotiate your best price.

Review the paperwork. If you're financing the car make sure you understand the terms of the loan agreement. If there's a transferable manufacturer's warranty, ask to see the warranty paperwork, and confirm the terms. Visit this Federal Trade Commission Web page for more information on reviewing loan agreements and vehicle warranties and on steps to take when buying a used vehicle in general.

Finally, don't fall for "car loan insurance". A wonderful profit center for some car dealers is "car loan insurance." This insurance pays the car loan off if you die "prematurely", meaning before the dealer gets fully paid. Don't take this insurance. If you die before your car is paid off, the dealer can come get it if they want it.

Also some unscrupulous dealers will not only push you to buy this insurance, they will sell it to you up front, and then bundle it into your car loan. Don't fall for that tactic, either.

Use these tips and you'll be buying your next car the smart way. Before you drive off, make sure your vehicle is properly registered and ensured. And remember, buckle those seat belts, drive safely, and enjoy your summer!

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