New Car Buying Tips

Next to a home, a car is the biggest purchase most people make. Some basic knowledge can go a long way in helping buyers be prepared when they decide to buy a new car.

I've bought and sold many cars over the years and have dealt with all kinds of car dealers, some honest, some criminally not. Here are my key car buying tips:

Research is Key
With the amazing amount of information available online there really is no excuse for not being thoroughly prepared. Buyers need to know the exact dealer invoice price, what the dealership pays the factory. You can also find out the cost of options. Even though the dealer invoice amount is what they pay the factory, there are other incentives and hold-backs paid to the dealership that can create profit for them on each sale. Negotiate from the invoice price and perhaps add a few hundred dollars as fair profit.

Try the Kelley Blue Book site, I think they have the most information, for both new and used vehicles. You can also check with Consumer Reports and AAA for more. Mobile phone apps also allow buyers to check information from the dealership floor. Also check with auto maker's websites but remember the prices you see are the retail suggested prices, not what smart buyers should pay.

Leasing
Leasing a car is really like a long-term rental. The lease amount is based on the amount the car will depreciate over the course of the lease. Unless your tax professional recommends leasing for tax purposes, or your business leases a vehicle for you, purchasing is usually a better option.

However, if you don't keep cars very long, the low lease payment may be a good way to free up cash flow, but remember when the lease is over, you are left with nothing. You must either purchase the vehicle by paying the usually large residual amount or find a new vehicle.

Financing
Although cash is still king, with interest rates so low, you may be able to get a better deal by financing than paying in full. The key to financing is to have everything pre-arranged before you step into the dealership. Your best rate may be at your local credit union, most offer a pre-approval process.

Dealers do make money off the financing, with factory rates so low, it may make sense to take advantage of them. Keep in mind those lowest advertised rates are usually for those with tier 1 credit, which can mean a minimum credit score of 750.

Consider A Certified Pre-Owned Car
Save thousands over a new model, most major brands now offer certified pre-owned autos. They are low mileage, gently used models, thoroughly inspected and backed with a great warranty. Many makers also offer attractive financing rates for these gently used models. We looked at Mercedes certified pre-owned cars this weekend with our son and they were offering 1.9% financing on them.

The best financial move is to buy a reasonably priced used car, which you can pay off and then drive for years after paying it off.

Drive a Hard Bargain
As an educated buyer, you are coming in with information and your financing in hand. This is a buyer's market and you always need to keep yourself in the position of power. You must be prepared to walk away, most likely they will follow you. Dealerships are hurting and if they realize they can't make a profit from you, they would rather have the additional sale, than nothing at all.

Never fall in love with a specific car. Also consider calling to speak with the sales manager in advance and making an appointment to deal with them directly. Let them know you have done your research, have financing pre-approved and don't want to waste either of your time. Some dealerships have an Internet salesman or department allowing you to deal directly with them and even confirming the deal in advance.