Buying or Leasing a Vehicle – Before You Begin
What kind of vehicle do you need: a sedan, an SUV, a van or a pickup? Should you buy a new vehicle or a used vehicle? Is leasing or buying the right decision for you? How can you be sure you pay the lowest price for the model you want? Should you buy from a dealership, a broker or an individual? What kind of financing makes the most sense? And how do you know if the vehicle you buy is a quality product and a good value?
There are no easy answers to these questions. As one of your largest expenditures, an automobile represents a major financial investment, one that will factor significantly into both your monthly budget and long-term financial plan. But it is also a practical and necessary means of transportation, and a valuable asset and future commodity.
There is no one best way to buy your next vehicle. Consumer and financial experts agree that the key to success is to do your homework, gather dependable information and understand your needs and priorities. When you assess your requirements, you will be able to answer the questions that lead you to the ideal vehicle for you. Only you — after careful consideration — can determine which vehicle makes sense for you.
Get started now by filling out this simple form. You will get a free, no-obligation price quote from a dealer in your area and instant access to our popular Insider’s Buying Guide and Financing Guide. Our service is for serious car buyers who plan to purchase a car in the next 30 days.
Key Steps to Buying a Car
The buying process is actually very simple. There are four basic steps:
1. Find the Car
2. Get a Fair Price
3. Pay for the Car
4. Plan for the Future
The challenge is getting all the right information so you get the best deal.
Once you’ve researched and decided on the car you want, you need to find a dealer you are comfortable with. If you used our free car finder and quote service, a dealer with the car you are interested in will contact you shortly with a quote.
If you prefer not to use our service, call multiple dealers to determine if they have the car you want. Either way once you find a dealer with your car they will generally ask you some questions to qualify you as a buyer:
What car are you driving now?
When do you plan to buy a car?
What cars have you been looking at?
What dealerships have you been to?
We suggest you politely answer these questions and use this time to guage whether you can work with this dealer. If you are comfortable with this dealer and they have the car you want, get their quote and compare it to your Fair Price estimation. (We discuss how to calculate this next.)
If you have not used our free service yet or would like to locate another car please go to our free car finder and quote service and enter the car you are interested in.
Estimating a Fair Price From a Dealer
The main goal in estimating the Fair Price is to determine what the dealer paid for the car. The quote you receive will often be lower than the Sticker Price, which is the MSRP (Manufacturers Suggested Retail Price). This is because the quote captures the impact of supply and demand and is a realistic offer. But we have found with a little more research you can get a better price.
First, you need to start at the invoice price. This is the price the dealer actually pays for the car. We suggest two sites that provide the invoice price: AutoSite.com and Cars.com. With either service you can build your car with different options and then get both the Invoice Price and the MSRP. Again, the Invoice Price is the price the dealer paid and the MSRP is a suggested price. Your quote will be the average sales price.
You also need to be aware of which fees are fair and which are bogus. These fees are summarized in the next section.
Breaking Down Dealer Fees
Dealers need to make money too. Some do this by earning their fees while others trick you with bogus fees. The general rule for all of these add-ons is you don’t need them, but if you really want them go to the source and save yourself literally thousands of dollars.
For example, most cars come with 6-year/100,000 mile rust warranties; so paying the dealer for rust proofing is unnecessary and is generally a service that is overpriced. If you live in an area where rust is problem (e.g. the beach) go to a local shop and get this done. You will be astonished with how much you can save and often how much higher quality the job is. The same is true with the presentation package — this can be done much cheaper and better at a local detailing shop. Window etching is completely unnecessary. It has not been proven to reduce theft and insurance companies do not require it. Other theft prevention devices are much more effective.
Credit Life Insurance: Credit Life insurance is also better purchased direct from an insurance company if it is something you want. In general, most people do not benefit from this insurance. The State of Ohio’s Insurance Division provides a good description of this insurance and who should buy it. For extended warranties we recommend going online. One of the better extended warranty companies is Warranty Direct.
Dealer Administrative Fees and Preparation Fees: If you see any other fees that are added like Dealer Administrative Fees or Preparation Fees ask the dealer what this covers and use common sense. For example if they are charging you $500 to vacuum the car, get those fees removed. If the dealer says it was already done and refuses, either negotiate it down to a reasonable amount or purchase your car elsewhere. If the dealer is being unscrupulous now they will continue being this way the entire deal. Better to go somewhere else.
Dealer Holdback: One last item that may appear somewhat confusing is called dealer Holdback. Holdback is money the manufacturer, e.g. Honda, often pays the dealer, e.g. Fred’s Honda, to cover the costs of holding inventory. The amount is around 2-3% of invoice. Edmonds lists the latest holdback rates. Sometimes you can get the dealer to cut into their holdback getting you a price under Invoice, but this is very rare and we suggest not trying to negotiate this. On the other hand, if the car has only been on the lot for one day and the dealer is trying to charge you inventory costs you can let them know you know about the holdback payments.
Final Words of Advice: Now you should have a good idea of how to estimate the fair price. You can use this price to negotiate with the dealer. Most of the time, dealers are honest businessmen: our dealers in particular know that you have this information, so negotiation should be the easiest part of your purchase (after all, having this information does protect you from the occasional bad apple.)
One last word of advice. Sometimes the time you buy may help save you money. Occasionally, at the end of the month or at the end of the year, dealers may need to meet sales targets to qualify for a bonus or move inventory for newer models. During these times they can be more willing to give up some profit. If you are patient, waiting until such a time can save you money.
Paying for the Car
One of the biggest mistakes you can make when buying a car is not lining up independent financing before going to the dealer. Dealers actually make most of their profit from selling loans rather than from selling cars. This occurs because banks pay dealers a commission for every loan they sell. This means if you go direct to the bank you keep the commission for yourself. And today many direct banks are able to under price traditional banks because of their lower overhead – meaning financing is one of the biggest areas where you can save money.
We cannot emphasize how important it is to go to the dealer with your own financing. It gives your negotiating advantage: knowing the best APR you qualify for and buying from the position of a cash buyer. In addition to negotiating advantage it often just saves you thousands of dollars by getting the best price available.
Plan for the Future With Auto Insurance
Now that you have figured out your financing this is a good time to evaluate your auto insurance. Many times your auto financing will be contingent on having auto insurance so reviewing your current policy makes sense.