June 8 2010|08.38 AM UTC

Jonathan Rivers

12 Ways to Intelligently Buy a New Car

Category: Personal FinanceTags: , , ,

Conventional wisdom says that a brand new car is one of the worst purchases a consumer can make. The biggest objection is depreciation. A new car, we’ve all heard, loses 25% or more of its value as soon as you drive it off the lot. But is it truly that cut and dry? After all, if you plan to own a car for ten years, the depreciation argument is irrelevant. Furthermore, some people take pride in owning a new car and knowing it was cared for from the start. That said, it’s all too easy to buy the wrong new car or pay more than necessary for the right one. Without a clear game plan, you can quickly be led astray by emotion, hype or sales pitches.

Today, Billshrink offers 12 time-tested strategies to ensure that your new car is intelligently selected and purchased.

Assess Your Needs

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The bedrock of a smart new car buying strategy is an assessment of your needs. You need to confidently determine what kind of car you need (and why) before stepping foot onto a dealer’s show room. To do this, you need only observe your own current or expected driving habits. Obviously, a construction worker doing jobs in town and hauling his own materials has different needs than a traveling businessperson who constantly crosses state borders. Questions to ask include how many miles per year you plan on driving, whether you will be driving mostly on highways or local roads and how many passengers you expect to be carrying. Focus on your actual driving habits rather than any “image” that you hope to convey.

Match Your Needs to a Vehicle

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With your needs defined, the next step is matching those needs to a specific vehicle, or type of vehicle. To continue our scenario, it is unlikely that our local construction worker would be happy with a Toyota Prius or a Volkswagen Golf. Such tiny cars are ill-suited to hauling tools or lumber and simply have no place at a messy job site. Instead, he would be far better off driving a sturdy and powerful pickup truck or SUV. Our traveling businessperson, on the other hand, is a prime candidate for those small and fuel-efficient cars. For him, a gigantic SUV would be little more than an expensive indulgence in a vehicle he had no demonstrable use for. Remember: buying a new car is a bad deal if you turn around and sell it two or three years later. The only way you’ll keep a car for the long haul is if it truly matches your lifestyle.

Consider Your Budget

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Once you know what type of car you need, it’s time to consider your budget. Prices can vary wildly even in the same category of vehicle. A Honda Civic, for instance, can be several thousand dollars cheaper than a Volkswagen Jetta. Deciding between the two (or other cars) is not simply a matter of which one you prefer, but also which one you can afford to own. Nor can this be determined solely by the car’s sticker price. Total cost of ownership calculators like the one at Edmunds.com will analyze your prospective vehicle in terms of taxes, fuel, repairs, loan costs and more. Be sure to run any car you are considering through this calculator before talking to any dealers or salespeople.

Determine Insurance Costs

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It costs more to insure a newer car than an older one. For one thing, financing a car requires you to purchase full coverage rather than skating by with the legal minimum. But even the legal minimum (assuming you paid all cash for the car) will cost more on a newer vehicle. Therefore, it pays to gather several competitive insurance quotes as part of your shopping process. Most insurance companies now offer free online quote services, meaning that this important task can be taken care of inside of an hour. Insurance costs, too, should be considered alongside the total cost of ownership numbers discussed above.

Finance (Even If You Don’t Have To)

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We frequently hear that car dealers are enticed by all-cash offers and are willing to lower prices if you make one. In reality, this is not as true as you might think. Quite the contrary: dealers often receive bonuses for arranging financing at or above the prevailing market interest rate. Some dealers, in recognition of these bonuses, even abide by the saying “cash is trash.” For this reason, it often pays to finance your new car purchase even if you can afford to pay all cash. You are more likely to negotiate a lower selling price by financing (and enabling the dealer to collect his bonus) than by paying for the vehicle in one fell swoop.

Obtain Invoice Price Information

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Broadly speaking, there are two prices of a car: the invoice price (what the dealer paid) and the MSRP (the sticker price.) The invoice price is always somewhat lower than the MSRP so as to provide a profit for the dealer. The reason to obtain invoice pricing information is that it provides you with insight and negotiating leverage. If you know what the dealer paid, you can intelligently evaluate the price he charges and know a good deal when you see one. Invoice prices should be obtained not only for your car as a whole, but also for each of the options you might want, such as built-in GPS, premium sound and heated seats.

Pick Options Carefully

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It’s easy to get caught up in the car buying spirit and add on all kinds of attractive-sounding options. Heated seats, bike racks, ground kits and automatic starters are just a few options commonly added to new vehicles. Yet every new car buyer should be careful to select their options deliberately. It might sound obvious, for instance, that any “respectable” new car should come with a sunroof. But if you live in a perpetually rainy area or truthfully don’t use the sunroof you already have, why pay an extra $1,000 to get one? Always consider whether you will actually benefit from the options you want, rather than merely whether they sound cool at the time.

Solicit Competitive Price Proposals

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The biggest mistake you can make is to walk into a dealership and make an offer. In the 21st century, this is simply an inefficient way to go about the process. FightingChance.com proprietor James Bragg points out that despite their emotional or ego value, cars are ultimately just expensive commodities – “the same vehicles with the same pricing structure at every dealership.” Consequently, you will be far better positioned to find the best deal by getting multiple dealers to bid for your business than by going to them hat in hand. Bragg’s Fighting Chance package offers comprehensive instructions on exactly how to do this, including up-to-date sales and pricing data for the specific car(s) you are considering.

Wait Until The End of a Month or Quarter

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Always remember that dealerships are sales-driven organizations in constant pursuit of monthly, quarterly and yearly sales targets. By the end of a month, a dealership has either surpassed its target, neared its target or is nowhere close to its target. Moreover, they earn bonuses of varying amounts for each of these things. Keeping this in mind, it often pays to begin soliciting offers at the end of a month or quarter, when the aforementioned sales targets are fresh in everyone’s mind. Timing your purchase in this way puts you in a position of power against salespeople who are scrambling to meet their numbers. Assuming your current car is still drivable, you effectively have total negotiating leverage.

Research Proper Maintenance For Your Car

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Most cars tend to have one or two common yet avoidable problems that arise from neglected maintenance or repairs. To prevent this, research the ideal maintenance procedures and schedules for your new vehicle. This includes the types of motor oil, coolant and gasoline recommended by the manufacturer, how often timing belts need to be changed, weather-specific maintenance, commonly neglected repairs and more. Virtually all of this information can be found for free on various online forums, or even your owner’s manual. A key advantage of having a new car is that you can care for it properly from day one, and it is an advantage you ignore at your own peril.

Don’t Lease

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Leasing a car is virtually always a bad decision. In an exhaustive article on the subject, Woody’s Goodies explores over a dozen reasons why you should not lease. Among them:
- Mileage limits
- Higher insurance costs (even higher than financing a new car)
- Confusing and high finance charges
- Early termination clauses
- Diminished tax benefits
In short, it is becoming harder and harder to intelligently lease a vehicle. The vast majority of people are better served economically to buy their new car instead.

Don’t Settle

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We mentioned it earlier, but it bears repeating. Buying a new car is only a good deal if you keep it for relatively long time. Therefore, while keeping practicality and affordability in mind, you also need to make sure the car you buy is the one you want. As you are researching or test-driving, always ask yourself whether this is a car you will enjoy and feel proud of driving long after the 3-6 month “new car euphoria” has worn off. Most new cars will outshine your current ride, but what you are ultimately looking for is one with real longevity and staying power. Only then will you hang onto it once it’s paid off rather than swapping it for something better.

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{ 2 comments… read them below or add one }

Alex June 25, 2010 at 1:34 pm

Tip #0: Don’t buy from a dealer. I was looking at a $29,000 car recently (on ebay) that was nicer than a car that a local dealer wanted $37,000 for!

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Jonas August 20, 2010 at 2:56 pm

Seems like Autos are the big one that purchasers are in way too much of a hurry to THINK about. Buying the unsuitable car, the ‘gotta-be-new’ car, totally useless & costly options, “giving away” the trade, and financing or leasing without a clue about the sneaky math..

Look at us. Everybody’s head is (to put it nicely) in Disneyland, they are on a Vanity Trip to Big Purchase Land (woo hoo!) And it looks to me they are unwisely setting themselves up to be ripped off. No wonder the auto retail industry is so accommodating towards them! People apparently need to be kept in style, and broke for good measure I guess.

Personally I’ll buy used if I can. And ignore new car buyers’ excuses about why they are SO financially strapped, “can never travel” or ever go out or even eat proper food etc. Money is about ALL purchase decisions we make, not just the ones we like to spotlight as our little “hardship story.”

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