If you are thinking about buying a car in 2012, now is the time to do some planning, so you'll be fully prepared when it comes time to make your purchase. Whether you end up buying a new or used car, chances are it will be the second most expensive item you own next to your home, so it makes financial sense to avoid any snap decisions. Here are 12 tips to ensure you buy an affordable car.
Determining what you can afford, not just for the car itself but for all ownership costs, is important before you settle on a certain make or model. Though spending no more than 20 percent of your monthly household income on all the cars in your household is a general rule of thumb, you may be able to afford more or less.
Bankrate's home budget calculator will help you calculate how much you can afford to spend. Keep in mind this number should cover all costs, including monthly payments, insurance, fuel, repairs and maintenance.
You've probably already started noticing cars that interest you. Make note of them and start researching them online at the automakers' websites and third-party vehicle information sites. Make sure your research includes assessing all of the car's features that are important to you as well as invoice and retail prices. Keep a file of your research, but don't head off to a dealership for a test drive just yet.
Don't assume you'll get the most bang for your buck buying a used car. Used cars are in high demand and are more expensive than ever, while many new cars have substantial rebates and other "perks" such as free maintenance and roadside assistance.
With used cars, you let someone else take the initial depreciation hit, while with new cars, you have the benefit of the full factory warranty. Sometimes certified pre-owned cars offer the best of both worlds: a car that's already experienced the bulk of its depreciation yet has a longer warranty.
To determine if the cars on your short list are within your budget, check the ownership costs for each car. This information is available at third-party vehicle information sites. But keep in mind the ownership costs on these sites are averages. Your actual costs, especially for fuel and insurance, may vary greatly.
Call your insurance agent to get a quote for the cars using your current coverage as a gauge, and do the math on your fuel costs based on the average price of gas in your area and the typical number of miles you drive.
Every car has a history, and you should know it. For new and used cars, check the model's reliability ratings to get an idea of how much you'll spend on repairs as well as how often you may find yourself bringing those cars in for service. For used cars, run a vehicle history report using the car's vehicle identification number, or VIN, to see if the car has any red flags, such as a serious accident, a lemon buyback or flood damage.
Don't wait until you are in the dealership office to figure out financing. Use Bankrate's rate search tool to see current interest rates nationwide. Also, check with local lenders, including credit unions, which are often 1 percent to 2 percent less than conventional banks.
There are now many community credit unions open to anyone living in their area, eliminating the need to work at a certain company to join. With credit loosening, blank-check auto loans -- or prearranged financing -- are being offered more widely, and they allow you to negotiate without wondering about your interest rate.
Dealers don't just want to sell you a car; they want to provide you the auto loan. That's because they often receive commissions on the car loans, whether they are from the manufacturer or from local lenders. While it makes sense to get a quote for a dealer car loan, be cautious if that offer seems too good to be true based on your credit or other loan approvals.
Dealers will sometimes indicate they can get you a great rate to get you to sign the contract, only to gloss over the section that says the rate is contingent on the loan approval. In some states, you could find yourself having driven home in your new car only to be asked to pay a higher interest rate, make a larger down payment or return the car.
The low-interest loans offered by manufacturers are designed to get customers into the dealership, but the reality is only 10 percent of customers qualify for them. Even if you do qualify, a low-interest loan may not be the best choice because you'll be giving up the cash-back rebate. Determine the best interest rate you qualify for and then use Bankrate's car rebate vs. low-interest calculator to determine the best deal.
Manufacturer websites will list all of the current cash-back rebates and "personal" discounts (such as discounts for military personnel or recent college grads) so make note of those before you visit a dealer. Also use third-party vehicle information sites to research dealers' incentives -- cash the manufacturer is offering the dealer to sell a specific model. While this money is technically from the dealer, it can reduce the car's price, but you have to ask for it.
Once you've decided on the car you want, go to a third-party vehicle information site and spec out the exact car you want including model year, trim level, engine, transmission and any options. Print out the pricing page and start your negotiations beginning with a few hundred dollars more than the invoice price for a new car or the wholesale price for a used car. Once you've negotiated the price, mention any cash-back rebates, personal discounts and dealers' incentives you've uncovered.
Check all third-party vehicle information sites to determine what your car is worth on a trade. Negotiate the price of the car you are buying first, leaving the trade out of the equation. If the dealer asks if you are trading, say no or that you aren't sure.
Once the price of the car has been settled, negotiate the value of your trade-in using the prices you found online. By negotiating the two separately, you are more likely to get the best price for each.
While a dealer may expect you to make your decision on a 15-minute test drive, you should take all the time you need. Be sure your test drive allows you to drive a short distance on city streets and get up to speed on a highway. Also, try pulling into and out of a parking space. Let them know you need more time behind the wheel if you do.
If you need to carry certain cargo or install car seats, bring those items along to the dealership to test their fit. Spend some time with the car parked going over the controls, seating, and mirror and pedal positions to help ensure you'll be comfortable for the long term.
Tara Baukus Mello writes Bankrate's cars blog as well as the weekly Driving for Dollars column, providing both practical financial advice for consumers as well as insight into the latest developments in the automotive world.
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