what to bring to dealership when buying a new car

January Stromme/The Image Bank/Getty Images Plus

Jan Stromme/The Image Depository financial institution/Getty Images Plus

New cars these days have improve safe features and more tech gizmos than models from a decade ago. And let'southward face it: Trading in a mussed-up clunker with grimy seats is an enticing idea.

Simply many Americans make big mistakes buying cars. Take new automobile purchases with a merchandise-in. A third of buyers curl over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.

Merely don't worry — NPR's Life Kit is here to help. Here'south how to buy a automobile without getting over your head in debt or paying more than you have to.

1. Get preapproved for a loan before you set pes in a dealer's lot.

"The single best advice I can requite to people is to get preapproved for a car loan from your banking company, a credit wedlock or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He also worked undercover at an car dealership to learn the secrets of the business concern when he worked for the car-ownership site Edmunds.com. So Reed is going to pull dorsum the drape on the car-ownership game.

For one matter, he says, getting a loan from a lender outside the car dealership prompts buyers to remember about a crucial question. "How much motorcar can I afford? You want to do that before a salesperson has you lot falling in dear with the limited model with the sunroof and leather seats. "

Reed says getting preapproved also reveals whatsoever bug with your credit. So earlier y'all start car shopping, you lot might want to build up your credit score or get erroneous data off your credit report.

And store around for the best rate. "People are being charged more for involvement rates than they should exist based upon their creditworthiness," says John Van Alst, a lawyer with the National Consumer Law Center.

Van Alst says many people don't realize it, but the dealership is allowed to jack upward the rate it offers you to a higher place what you really authorize for. And so with your credit score, "you might authorize for an involvement rate of 6%," says Van Alst. But, he says, the dealership might not tell you lot that and offer you a 9% charge per unit. If y'all take that bad bargain, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance visitor, "they'll split that extra coin."

And so Reed says having that preapproval tin can be a valuable card to have in your hand in the car-buying game. It can help yous negotiate a better rate. "The preapproval volition human action as a bargaining bit," he says. "If you're preapproved at 4.five%, the dealer says, 'Hey, you know, I tin become you three.five. Would y'all be interested?' And it'due south a good thought to take it, but brand sure all of the terms, meaning the downward payment and the length of the loan, remain the aforementioned."

One discussion of caution about lenders: Van Alst says there are plenty of shady lending outfits operating online. Reed says it'south a practiced thought to go with a mainstream bank, credit union or other lender whose name you lot recognize.

2. Go on it simple at the dealership.

If you lot're buying a motorcar at a dealership, focus on one thing at a time. And don't tell the salespeople likewise much. Recall — this is a kind of game. And if you lot're playing cards, you don't hold them up and say, "Hey, everybody, expect — I have a pair of queens," right?

And then at the dealership, Reed and Van Alst both say, the starting time stride is to offset with the price of the vehicle you are ownership. The salesperson at the dealership will often want to know if you lot're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and yous're playing against pros. If you lot negotiate a really good purchase cost on the machine, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't desire to. Go along it elementary. 1 affair at a fourth dimension.

Once you settle on a cost, and so you tin talk about a trade-in if you have i. Just Reed and Van Alst say to exercise your homework there too. A footling research online can tell you lot what your trade is worth in ballpark terms. Reed suggests looking at the free pricing guides at Edmunds.com, Kelley Bluish Book and NADA. On Autotrader, you can also encounter what people in your expanse are asking for your machine model. And he says, "You lot can get an actual offer from Carvana.com and besides by taking the machine to a CarMax, where they will write you a check on the spot."

So he and Van Alst say don't be afraid to walk abroad or purchase the car at a adept cost without the trade-in if y'all feel the dealership is lowballing you lot on your former machine. You have enough of other good options these days.

Will Sanders/Stone/Getty Images Plus

Will Sanders/Stone/Getty Images Plus

3. Don't buy whatever add-ons at the dealership.

If you've bought a car, you know how this works. You've been at the dealership for hours, yous're tired, you've settled on a price, you've haggled over the trade-in — and so you get handed off to the finance manager.

"You're led to this back office. They'll oftentimes refer to it equally the box," says Van Alst. This is where the dealership volition try to sell you extended warranties, tire protection plans, pigment protection plans, something called gap insurance. Dealerships brand a lot of money on this stuff. And Van Alst says it's often very overpriced and most people have no idea how to figure out a fair price.

"Is this add-on, you know, beingness marked up 300%? You don't really know any of that," Van Alst says. And then he and Reed say a good strategy, especially with a new car, is to simply say no — to everything. He says peculiarly with longer-term loans, at that place'south more wiggle room for dealers to try to sell you lot the extras. The finance person might try to tell you, "Information technology'southward only a picayune more than coin per calendar month." But that money adds upwards.

"Concerning the extended factory warranty, you can always buy information technology later," says Reed. "So if you're buying a new car, y'all tin can buy it in three years from now, just before it goes out of warranty." At that bespeak, if you lot want the extended warranty, he says, you should phone call several dealerships and ask for the best cost each tin offering. That style, he says, you lot're not rolling the cost into your car loan and paying interest on a service you lot wouldn't even use for three years considering y'all're still covered by the new car's warranty.

Gap insurance promises to cover any gap between the purchase price of replacing your nearly-new automobile with a brand-new automobile if your regular insurance doesn't pay for total replacement if your machine gets totaled. Van Alst says gap insurance is often overpriced and is fundamentally problematic. If you however desire the product, it's best to obtain it through your regular insurance visitor, non the dealer.

four. Beware longer-term six- or vii-yr car loans.

A tertiary of new machine loans are now longer than six years. And that's "a really unsafe trend," says Reed. We have a whole story nigh why that'due south the instance. Simply in brusk, a vii-year loan volition mean lower monthly payments than a 5-year loan. But it will also mean paying a lot more money in interest.

Reed says 7-year loans ofttimes have higher interest rates than five-year loans. And like most loans, the interest is front-loaded — you're paying more involvement compared with principal in the first years. "Almost people don't even realize this, and they don't know why it's dangerous," says Reed.

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Reed says that if you want to sell your car — you determine you can't afford it, or maybe you lot have another kid and need a minivan instead — with a seven-yr loan you are much more likely to be stuck still owing more than than the auto is worth. And so he says, "Information technology puts you in a very vulnerable fiscal situation."

A better way to get, Reed says, is a five-year loan for a new car and "with a used car you should actually finance information technology for just three years, which is 36 months." One reason that makes sense, he says, is that if your used auto breaks downwardly and isn't worth fixing — say the transmission totally goes — you're more than likely to have paid off the loan by that time.

Reed says a five-year loan brand sense for new cars because "that's been the traditional fashion — information technology's kind of a sweet spot. The payments aren't besides high. You know the car will still be in skillful status. There will still be value in the car at the finish of the five years."

Also, Van Alst and Reed say to make sure dealers don't slip in extras or change the loan terms without you realizing it. Read carefully what you're signing.

Reed says a colleague at NerdWallet actually bought a minivan recently and "when she got home, she looked at the contract." She had asked for a v-year loan but said the dealership instead stuck her with a seven-year loan. "And they included a manufactory warranty which she didn't request and she didn't want." Reed says she was able to cancel the unabridged contract, remove the extended warranty and get a rebate on it.

"But the point of information technology is," he says, "I mean, here's somebody who is very financially savvy, and all the same they were able to practise this to her. And it'due south not an uncommon scenario for people to think that they've got a good bargain, merely and then when they go abode and look at the contract, they find out what'due south been washed to them."

5. Don't purchase too much car. And consider a used automobile to save a lot of money!

"The golden rule is that all of your car expenses should really exist no more than xx% of your take-home pay," says Reed. And he says that that'due south total car expenses, including insurance, gas and repairs. "So the car payment itself should be betwixt 10 and 15%."

And if a new car with a v-yr loan doesn't fit into your upkeep, y'all might decide you lot don't actually demand a make-new motorcar.

"Nosotros're really living in a aureate historic period of used cars," says Reed. "I mean, the reliability of used cars is remarkable these days." Reed says there is an countless river of cars coming off three-twelvemonth leases that are in very good shape. And even cars that are older than that, he says, are definitely worth because. "You lot know, people are buying good used cars at a hundred-yard miles and driving them for some other hundred-thousand miles," says Reed. "And then I'grand a big fan of buying a used motorcar as a mode to save money."

He acknowledges that which motorcar you buy matters and that it's a good idea to read reviews and ratings about which brands and models are more than or less probable to run into costly repair problems down the road. He says some European cars are famously expensive to maintain.

NPR has a personal finance Facebook group chosen Your Money and Your Life. And we asked grouping members near car buying. Many said they were shocked past how much 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 full transportation purchases don't even add up to the cost of one of the financed ones these folks are talking most."

Dean is a freelance AV technician, and Patricia is a flight attendant. They say, "our nicest, newest purchase was a 2004 Honda Accord for $2400, bought terminal twelvemonth, that with regular maintenance could likely last another 100,000+ miles." And they say they "tin can'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 betoken. What else could you be spending that auto payment coin on? And if you can cut in half what you might otherwise spend, that's a lot of extra coin for your retirement business relationship, your kids' college fund or whatever else you'd rather be doing with that coin.

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Source: https://www.npr.org/2019/10/31/774757867/5-tips-for-buying-a-car-the-smart-way

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