At car dealerships, the deck is stacked against you, but arming yourself with some facts and strategies can be your ace-in-the-hole.
Whether you’re a first-time car buyer or you’ve been down that road before, buying a car can be stressful and intimidating. Texas A&M financial expert Nick Kilmer is the assistant director of money education in Scholarships & Financial Aid and he oversees Texas A&M’s personal finance counseling and education program, the Money Wise Aggie Program. He says at car dealerships, the deck is stacked against you, but arming yourself with some facts and strategies can be your ace-in-the-hole.
1. Buy or lease?
Although there are some advantages to leasing, such as lower monthly payments, Kilmer says the option to buy may be better if your budget allows for it and if you’re planning to keep your car for quite a while. “When you lease, it’s like renting; you are always paying,” he says. “And if you decide to buy the car at the end of the lease, you may end up paying more overall.” Leasing may also carry mileage restrictions and penalties for dings and dents. Kilmer says if you feel the need to have a new car every year or two, then leasing is a good option. Otherwise, the option to buy may be better.
2. New or used?
There may not be a clear-cut answer to this one, but Kilmer says there are variables to be weighed. New cars come with warranties, a higher resale value and that “new car smell.” But they also have a higher purchase price, higher insurance costs and the car’s value drops around 40 percent in the first three years. “So initially, you’ll probably owe more on the car than what it’s worth,” Kilmer explains. “But if you keep the car for 10 years, it doesn’t matter if the value goes down – it typically evens out after three years.”
Used cars have their pros too, says Kilmer, including lower purchase price and lower insurance costs. Some dealers offer certified pre-owned warranties. “But there may be higher maintenance and repair costs, and used cars are financed at higher rates,” Kilmer says.
Do the math, he says – compare the costs associated with the new car you want with the same model, but 3-5 years older.
3. Use online resources
There are a variety of websites to help car consumers. You can compare cars, find out how much your trade-in is worth, and get advice on negotiating with salespersons. Kilmer recommends Edmunds.com, KBB.com, ConsumerReports.org (requires a subscription), CarDeals.org and DontGetTakenEveryTime.com.
4. The three-part negotiation
Besides negotiating the price of the new car, you can also negotiate the trade-in price and financing. Kilmer has a few tips for each:
New Car Price – NEVER pay the sticker price; thoroughly research invoice price, holdbacks and other dealer incentives; ask for the “out-the-door” price (all costs included); avoid dealer extras like rust-proofing, teflon and fabric coating, and dealer security systems which are often overpriced.
Trade-In – Thoroughly clean your trade-in; check the web for approximate value; offer it for sale to used car dealers to find the wholesale price before you negotiate; keep in mind that selling it to a private third party may earn you significantly more money.
Financing – Compare dealer rates with rates obtained from other lenders (Kilmer suggests using bankrate.com to compare loans); never take the car home if the lending terms are conditional; don’t finance a car with balloon payments or prepayment penalties.
5. No stress, no rush
If possible, avoid rushing through the car-buying process, says Kilmer, and don’t shop for cars if you’re under an unusual amount of stress. “People make poor decisions when they’re stressed out,” he notes. “Car-buying is stressful enough, so if you’re going through a particularly stressful situation at home or work, it’s probably not a good time to buy a car.” And, he says, take your time if you can. “If you already have a car getting you from point A to B, there’s no need to rush to buy a new car,” he asserts. “Take your time, do your research and negotiate. Never buy a car the same day; give yourself at least 24 hours to think about the deal before you sign.”