How-to Guides

Thinking of buying a car? You'll save money, avoid headaches, and get the car you want if you pay attention to buying advice from auto industry insiders and consumer credit experts.

First, decide what kind of vehicle you need. What you choose is entirely up to you, but a little red sports car is probably unwise if you drive clients around or ferry four kids to soccer games. Similarly, think hard before you pay extra for a four-wheel drive sports utility vehicle if it seldom snows where you live and your only off-road driving is in shopping mall parking lots.

Consider, too, whether a late-model used car, costing thousands of dollars less than a new vehicle, would meet your needs. The biggest cost in owning a new car is depreciation, with some new cars dropping in value by as much as 20% in the first year on the road.

You've probably decided that auto leasing is not for you. There can be pluses to leasing, most notably low down payments, convenience, and accounting advantages for businesses. But it is almost impossible, over the long run, to lease a car for less than it costs to buy. By buying, you'll also avoid charges for extra wear or for mileage over the usual 12,000- to 15,000-mile yearly limit.
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Regardless of where you live, certain types of auto insurance are required. The following is a list of some required and optional coverages.

Bodily Injury Liability -- pays for medical or death expenses resulting from an accident in which you are at fault.

Property Damage Liability -- pays for repair or replacement and legal expenses for property damaged in an accident in which you are at fault.

Personal Injury Protection -- pays for expenses resulting from injury or death to you or your passengers, regardless of who is at fault. This coverage will also pay a death benefit to the deceased's survivors.

Uninsured/Underinsured Motorist Protection -- pays personal injury or death benefits if you are in an accident caused by an uninsured, underinsured, or hit-and-run driver.

Collision -- optional in most states, this pays for damage caused to your car in a collision or rollover, minus a deductible set by the insured. Higher deductibles typically result in lower premiums.

Comprehensive -- pays for damage caused by theft, vandalism, fire, and most natural disasters. Though optional in most states, banks will typically require you to purchase this insurance if the vehicle you are buying is being used as collateral for a loan. Equipping your vehicle with certain antitheft devices can reduce your premium.

Helpful Resources

Auto-Buying Ammunition
You'll need ammunition in your search for the best buy. Knowledge -- especially here -- is power, so learn everything you can about the vehicles you're considering.

• Do your research before you even talk to a salesperson.
• Check Consumer Reports for the lowdown on a model's value (or lack of value) and the auto magazines for technical and performance data. Consumer Reports publishes a maintenance guide each spring that shows the repair history on cars. Edmund's New Car Prices is an accurate and up-to-date listing of new vehicles.
• Talk to people who own the cars you're thinking about so you'll get a ground-level view of the good and bad points.
• If you are on the Internet, use a search engine like Alta Vista or Yahoo! to find what information is available on the Web. See whether there's a Usenet news group dedicated to discussions of the vehicles you're considering.

Helpful Resources

The following magazines regularly report on new cars and can be found at most bookstores and newsstands.

Road & Track
For the more mechanically inclined, Road & Track offers reports on high-performance cars and trucks.

Car & Driver
Reports on a variety of new cars and trucks, with a slant toward high-performance models. Periodically ranks new vehicles according to class.
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Determine how much money your car of choice -- with the options you want -- is fetching on the local market. When you get to the auto showroom, you'll probably find good deals and, perhaps, rebates on slow sellers. But expect high prices and little bargaining room on fast-sellers like pickups and sport utility vehicles. That means you have to know the real value of the car or truck if you want to get the best deal.
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The first step to getting a good deal on a new car is to be informed. New car cost guides are available in bookstores, libraries and on the Web. These will help you find the factory invoice price and the cost of various options.

When you are negotiating price with the dealer, remember the invoice price does not represent the actual cost of the car. The dealer may receive a rebate from the manufacturer for each car he or she sells, usually 2% to 3% of the sticker price. Depending on the time of year and the demand for the car, that rebate may be enough profit for the dealer to sell the car "at invoice."

At other times, the dealer may add additional profit to the price of the car. With some domestic cars, you can expect to pay $200 to $600 over invoice. For more popular models you may pay two to three times that much.
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If you want convenience, trade in the car you own now. But you'll usually get more cash if you clean it up and sell it yourself.

Look at newspaper classified and dealer ads and go to used car lots and ask how much they'd offer you to get a firm idea of how much your trade-in is worth. The figure printed in a blue book or black book doesn't matter. You have to know the real street price. If the dealer can match that, or come close, snap it up.
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There are one-price car dealers who won't haggle over price because they have already put a realistic sticker on their vehicles. This is an attractive way to buy if you are not comfortable negotiating a price or if you find haggling with a salesperson not to your taste. But keep in mind that 90% of the dealers are ready, if pressed, to give a little to get your business. By knowing the real value of the vehicle, you're at a decided advantage.
A good salesperson will attempt to be your friend. It is an effective selling technique. This is a business deal, with you paying a lot of money for a purchase. Courtesy, firmness, and awareness of the target car's real value should be your concerns.

You'll want to visit a few dealers -- once to look and another, separate time, to negotiate. A convenient location should be a consideration. The cost of many adjustments to your car must be absorbed by the dealer who sells you the car, so find one nearby. In those first months of your warranty, another dealer can legally refuse to do the special-adjustment service.

Financing
Most people use financing to pay for a new car. If you are thinking about financing your new car, you may do so through an auto loan or home equity loan.

Be sure to get the shortest payback time you can comfortably handle. A shorter-term loan with larger payment amounts will save money in the long run. A $15,000 loan at 8% for five years, for example, will cost $3,240 in interest. By paying an extra $62 a month for the same loan over four years, your interest cost would drop to $2,568.
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