Four Steps to Smart Car Buying

A car is typically the second largest purchase that most people will make in their lives, after a house.If you are looking to shell out 5 figures on something that will rapidly lose its value, shouldn’t you try to make the smartest decision possible?Yet, most people don’t.To further complicate matters, the automotive industry contains many pitfalls to lure you into making a less-than-smart financial decision.The purpose of this article is to show you four basic steps to smart car buying that will help you to avoid those pitfalls.

1.Buy the right vehicle:The right vehicle is one that you can really afford.Unfortunately, automobile costs are rising.It’s getting more and more difficult to find an affordable vehicle that still meets your needs.And, if you’re like me, your desires often exceed your budget.That’s where you need to be honest with yourself and separate true needs from desires.You may want the beautiful luxury car with the heated seats, navigation system and 19 inch allow wheels.But, do you really need it?Of course, if you can truly afford it (see the financing section below), then why not?But if the $40,000 car is going to stretch your budget to the point of bursting, then buy the $25,000 car that meets your true needs.Look for new vehicles that offer good quality for the money, and hold their value well over time.Or consider a quality, pre-owned model that you can purchase for a lower price.Let someone else pay the initial depreciation!

2.Don’t pay too much:Car dealers want to maximize the selling price in order to maximize their profits.They are a business, after all.On the other hand, you, the customer, want to minimize the price you have to pay!This is where you need to be an educated and savvy negotiator.To make sure you get the best possible deal on a new or used vehicle, you need to negotiate with at least four or five different dealers.Furthermore, never discuss the price of the vehicle in terms of monthly payments.Discussing monthly payments allows the dealer to play with the financing terms to get you the monthly payment you want without ever discounting the actual price of the car.You should, therefore, negotiate the selling price only!Do your homework to find out the fair market value for that vehicle in your area and if any rebate or other incentives are available.(Edmunds.com is one of the best automotive research sites on the web.)Paying the least amount of money possible for a vehicle will minimize the initial depreciation when you drive it off the lot and reduce your total out-of-pocket costs.If you need to know if a certain vehicle price will fit into your monthly budget, use a monthly payment calculator like the one at www.Bankrate.com.

3.Choose the right financing:The financial institutions have solvedthe problem of rising automobile costs by offering auto loans with longer terms.As little as ten years ago, most new car loans had a term of just 48 months and required at least a 10% down payment.Now, loan terms of 60, 72 or even 83 months with no money down are commonplace.This allows you to enjoy a lower monthly payment on a more expensive car, but is that a smart financial decision?Unless you are buying a high-end car that will hold its value exceptionally well, a long loan term is risky.Most vehicles will lose their value much faster than you pay them off, leaving you in a negative equity hole the size of the Grand Canyon!How much fun would it be to trade in your 2-year old car, only to find out that you owe $5,000 more on it than it is worth?A longer loan term also means that you are throwing away more money on interest and paying a higher, overall cost for the vehicle.Let’s say you purchase a $30,000 car with no money down.If you finance it for 48 months at 6.5% interest, you will have paid a total of $34,149.53 at the end of the loan.If you extend that loan term to 60 months, you will have paid a total of $35,219.07.That’s an extra $1,160 in interest!A 72 month loan has a higher interest rate (say 7%), putting you at $36,825.85!That’s almost $2,700 more for the exact same car!

The smartest decision is to just pay cash for a car you can afford.However, most of us don’t have thousands of dollars lying around.The next best decision is to buy a car for which you can afford the monthly payments on a 48 month loan with a 10-20% down payment.If your vehicle needs and budget absolutely require you to finance the vehicle for a longer term or with no money down, then protect yourself by purchasing gap insurance and plan to keep the vehicle for at least three and a half years to avoid negative equity.And don’t get talked into leasing to get a lower monthly payment unless you truly know how many miles per year you drive.

4.Say Noto the extras:Most people are concerned about paying too much for the vehicle itself.They don’t realize that the big sellactually happens in the finance office.This is where the person known as the finance manager(or business manager) offers you various products such as gap insurance, extended warranties, clear coat and fabric protection, rust-proofing, and other stuff you probably don’t need.Many dealers only show you the impact to your monthly payment of purchasing these products, which appears small.Some of these products, like gap insurance and extended warranties, can be very beneficial and worth purchasing.However, you can usually purchase the same (or very similar) products for less online, through your insurance agent or through Women’s Automotive Solutions.Even if you prefer to buy these products from the dealer, be sure to research the price of similar products from other sources.Then, ask the dealer to show you the actual price of the product, and negotiate with the finance manager based on your outside research.Most dealers would rather make less profit than no profit at all!

Making a smart car buying decision can be a difficult and daunting task.However, if you do your homework, select the right car and financing, and negotiate like a pro, you can get a great deal that won’t come back to haunt you a few years down the line.

LeeAnn Shattuck is the owner and Chief Car Chickof Women’s Automotive Solutions, Inc. Women’s Automotive Solutions is a unique car buying service dedicated to helping women through the entire car selection and buying process. Their automotive experience enables them to save clients hundreds to thousands of dollars on a new or used car without the usual frustrations that come with car shopping. www.WomensAutomotiveSolutions.com