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How to buy a car (without being taken for a ride)

A For Sale sign is displayed on the window of a car.
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A For Sale sign is displayed on the window of a car.

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New cars these days have better guard features and more tech gizmos than models from a decade ago. And let ‘s face it, trading in a battered clunker with begrimed seats is an enticing idea. But many Americans make big mistakes buying cars. Take new cable car purchases with a trade-in. A third of buyers roll over an average of $ 5,000 in debt from their last cable car into their new loan. They ‘re paying for a car they do n’t drive anymore. Ouch ! That is not a winning personal finance scheme. But do n’t worry — Life Kit is here to help. hera ‘s how to buy a car without getting over your promontory in debt or paying more than you have to.

1. Get preapproved for a loan before you set foot in a dealer’s lot.

“ The individual best advice I can give to people is to get preapproved for a cable car loan from your bank, a credit union or an on-line lender, ” says Philip Reed. He ‘s an automotive technical who writes a column for the personal finance site NerdWallet. He besides worked clandestine at an car franchise to learn the secrets of the clientele when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game .

For one thing, he says, getting a loan from a lender outside the cable car franchise prompts buyers to think about a all-important interview : “ How much car can I afford ? You want to do that before a salesperson has you falling in love with the limited exemplar with the sunroof and leather seats. ” Reed says getting preapproved besides reveals any problems with your credit rating. So before you start car denounce, you might want to build up your credit score or get erroneous data off your credit report. And workshop around for the best interest pace. “ People are being charged more for interest rates than they should be based upon their creditworthiness, ” says John Van Alst, a lawyer with the National Consumer Law Center. Van Alst says many people do n’t realize it, but the franchise is allowed to jack up the rate it offers you above what you actually qualify for. With your credit score “ you might qualify for an sake pace of 6 %, ” says Van Alst, but the franchise might not tell you that and offer you a 9 % rate. If you take that badly deal, you could pay thousands of dollars more in matter to. Van Alst says the franchise and its finance company, “ they ‘ll split that extra money. ”

Reed says having that preapproval can be a valuable wag to have in your hand to help you negotiate a better pace. “ The preapproval will act as a bargaining chip, ” he says. “ If you ‘re preapproved at 4.5 %, the dealer says, ‘Hey, you know, I can get you 3.5. Would you be interested ? ‘ And it ‘s a good idea to take it, but make indisputable all of the terms and conditions, meaning the down requital and the length of the loan, remain the lapp. ”

2. Test drive, test drive, test drive.

These days many of us like to research things we buy on-line. And that ‘s beneficial. But you besides need to get your hands off the laptop or smartphone and onto some guidance wheels or you ‘ll waste a lot of fourth dimension researching vehicles that you wo n’t like in the goal. Dianne Whitmire sells cars at a Toyota franchise near Los Angeles. She says she constantly sees people who spend hours and hours online researching a car, finding the best price, all the other information. They call her 10 times. But when they ultimately show up to drive the car, they say, “ I did n’t realize this seat was this way. This is not the model I want. ” Whitmire says you need to be a bite more old school about things and actually drive a bunch together of cars. “ I ‘ve been doing this for 40 years, ” she says. “ It used to be that people would go to a franchise and repel about and figure out what car they actually wanted, what their choices were. ” She suggests driving cars that are within your budget so you are n’t seduced by what you ca n’t afford. This means you want to find salesperson who are very well showing you a bunch of cars and not being besides pushful or trying to upsell you into a pricier model. “ That person who says, ‘What about right now, that car right out there right field nowadays ? What would it take ? ‘ ” — repeatedly trying to sell you a car that very day — she says that ‘s probably a sign you ‘ve got the wrong salesperson. One thing you can do in that position is just tell the salesperson, “ Look, I ‘m not ready to buy a cable car today. I ‘m test-driving a few cars, I ‘m narrowing it down. If you ‘re not comfortable with that possibly there ‘s another salesperson here who can show me a car. ”

3. Start with the price of the car.

If you ‘re buying a car at a franchise, concenter on one thing at a time. And do n’t tell the salesperson besides much. Remember, this is a kind of game. If you ‘re playing cards, you do n’t hold them up and say, “ Hey, everybody, look — I have a pair of queens, ” proper ? indeed at the franchise, Reed and Van Alst both say, the first footfall is to start with the price of the vehicle you are buying. The salesperson at the franchise will frequently want to know if you ‘re planning to trade in another cable car and whether you ‘re besides looking to get a loan through the franchise. Reed says do n’t answer those questions ! That makes the game excessively complicated, and you ‘re playing against pros. If you negotiate a truly well buy price on the car, they might jack up the interest rate to make extra money or lowball you on your trade-in. They can juggle all those factors in their head at once. You do n’t want to. Keep it elementary. One thing at a time. once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there, excessively. A little research on-line can tell you what your deal is worth in approximate range terms. Reed suggests looking at the unblock price guides at Edmunds.com, Kelley Blue Book and NADA. On Autotrader, you can besides see what people in your area are asking for your car model. And, he says, “ You can get an actual offer from Carvana.com and besides by taking the car to a CarMax, where they will write you a check on the topographic point. ” He and Van Alst say do n’t be afraid to walk away or buy the car at a well price without the trade-in if you feel the franchise is lowballing you on your honest-to-god car. You have plenty of other dependable options these days.

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Here's how to buy a car without getting over your head in debt or paying more than you have to.
Enlarge this image

Stone/Getty Images Plus
Here's how to buy a car without getting over your head in debt or paying more than you have to.

Stone/Getty Images Plus

4. Beware of seven-year car loans.

A third base of new car loans are now longer than six years. And that ‘s “ a very dangerous vogue, ” says Reed. We have a whole story about why that ‘s the case. In short, a seven-year loan will mean lower monthly payments than a five-year lend. But it will besides mean paying a distribute more money in pastime. As with other types of loans, you pay a bunch more interest than star in the early years, so you ‘re paying off what you actually owe much more lento in a seven-year loan. “ There ‘s indeed much interest front-loaded in that, ” says Whitmire. Seven-year car loans are financially dangerous because cars depreciate in value the here and now you drive off the lot. “ You ‘re waging this struggle against depreciation because basically you ‘re paying off a loanword while the car drops in value, ” says Reed. One big risk is that you might need to sell the car well earlier seven years. You might lose your subcontract, or you have a pull the leg of, or a third child and need a minivan. When you go to sell that car on a seven-year loan, you ‘re likely going to find out that you owe thousands of dollars more than the car is actually worth. NPR talked to one car buyer who rolled over $ 17,000 into his next cable car because he was so top down on the fomite — in other words, he owed that much more on the loanword than the cable car was actually worth. So a seven-year car loan : bad idea. “ If a ally asked me, ” says Whitmire, “ I ‘d say I would n’t do it. ” A lot of people could obviously use this advice. According to industry data, 32 % of new car buyers with a trade-in are rolling over about $ 5,000 in damaging equity into their future loanword when they buy a new cable car. A better direction to go, Reed says, is a five-year loan for a new car, and “ with a secondhand car you should very finance it for only three years, which is 36 months. ” One rationality that makes feel, he says, is that if your use cable car breaks down and is n’t worth fixing — say the transmission wholly goes — you ‘re more likely to have paid off the loan by that time. Reed says a five-year lend makes sense for new cars because “ that ‘s been the traditional room — it ‘s kind of a angelic spot. The payments are n’t excessively high gear. You know the cable car will still be in effective condition. There will still be value in the car at the end of the five years. ”

5. Don’t buy any add-ons at the dealership.

If you ‘ve bought a cable car, you know how this works. You ‘ve been at the franchise for hours, you ‘re tired, you ‘ve settled on a price, you ‘ve haggled over the trade-in — then you get handed off to the finance coach. “ You ‘re led to this back office. They ‘ll much refer to it as the box, ” says Van Alst. This is where the franchise will try to sell you extend warranties, tire protection plans, paint protection plans, something called col policy. Dealerships make a draw of money on this stuff. And Van Alst says it ‘s frequently very overpriced and most people have no idea how to figure out a honest price. “ Is this accessory, you know, being marked up 300 % ? You do n’t truly know any of that, ” Van Alst says. He and Reed say a good scheme, specially with a new car, is to equitable say no — to everything. He says specially with longer-term loans, there ‘s more wiggle room for dealers to try to sell you the extras. The finance person might try to tell you, “ It ‘s only a little more money per month. ” But that money adds up. “ Concerning the exsert factory guarantee, you can always buy it by and by, ” says Reed. “ so if you ‘re buying a new cable car, you can buy it in three years from now, merely before it goes out of guarantee. ” At that period, if you want the extend guarantee, he says, you should call several dealerships and ask for the best price each can offer. That direction, he says, you ‘re not rolling the cost into your car loan and paying sake on a service you would n’t tied use for three years because you ‘re calm covered by the new car ‘s guarantee. Gap insurance promises to cover any gap between the purchase price of replacing your almost-new car with a brand-new car if your regular policy does n’t pay for wax substitute if your car gets totaled. Van Alst says gap insurance is much overpriced and is basically debatable. If you still want the product, it ‘s best to obtain it through your regular insurance party, not the dealer.

6. Don’t buy too much car. And consider a used car to save a lot of money.

“ The gold convention is that all of your car expenses should truly be no more than 20 % of your take-home pay, ” says Reed. And he says that that ‘s total cable car expenses, including insurance, boast and repairs. “ so the car requital itself should be between 10 and 15 %. ” And if a new car with a five-year lend does n’t fit into your budget, you might decide you do n’t actually need a brand-new car. “ We ‘re actually living in a golden senesce of use cars, ” says Reed. “ I mean, the dependability of use cars is noteworthy these days. ” He says there is an endless river of cars coming off three-year leases that are in very effective supreme headquarters allied powers europe. And even cars that are older than that are decidedly worth considering. “ You know, people are buying beneficial practice cars at a hundred thousand miles and driving them for another hundred thousand miles, ” says Reed. “ so I ‘m a big fan of buying a use car as a manner to save money. ” He acknowledges that which car you buy matters. It ‘s a good theme to read reviews and ratings about which brands and models are more or less probably to run into dearly-won repair problems down the road. He says some european cars are excellently expensive to maintain. NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car buying. Many said they were shocked by how a lot money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, “ 40 years of owning vehicles and our sum department of transportation purchases do n’t even add up to the monetary value of one of the finance ones these folks are talking about. ” Dean is a freelancer AV technician, and Patricia is a flight accompaniment. They say, “ our nicest, newest purchase was a 2004 Honda Accord for $ 2,400, bought last year, that with regular maintenance could likely last another 100,000+ miles. ” And they say they “ ca n’t understand those who insist on driving their retirement funds away. ” even if you buy a slightly newer used car than the Raekers ‘, the couple raises a great degree. What else could you be spending that car requital money on ? And if you can cut in half what you might otherwise spend, that ‘s a draw of extra money for your retirement report, your kids ‘ college fund or whatever else you ‘d rather be doing with that money.

We ‘d love to hear from you — if you ‘ve got a good animation hack, leave us a voice mail at 202-216-9823 or e-mail us at LifeKit @ npr.org. Your lean could appear in an approaching episode. If you love life Kit and want more, subscribe to our newsletter. The sound recording part of this history was produced by Sylvie Douglis.

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