Questions to Ask Before Buying a Car
Here's how to find the best deal on your next vehicle
The internet has revolutionized the way we make most large purchases, including how we buy cars. Even if you don't want to buy online, it's now possible, even easy, to thoroughly educate yourself about how to get the best deal when you buy or sell a car online in preparation.
If you were to walk into the dealership, pick out a car, and do the financing on the spot, you could easily walk away, having paid hundreds, even thousands, of dollars more than you should have. But it's not just about objective research and getting the best price.
There are also some personal questions you should ask yourself in preparation for buying a new car. To find the best deal for you, here are the top six questions you should ask yourself (and steps you should take) before you buy a new car.
Are You Upside Down On Your Current Car Loan?
You may know people who decided to buy a new car, only to find that they couldn't afford to because they were "upside-down" on their current loan. Welcome to the 60-month (or longer) car loan. There was a time when car loans were a standard 36 months.
Gradually, the terms became longer to enable more people to qualify for loans they couldn't afford by lowering the monthly payment. But while the monthly payment may have become more affordable in the short-term, the longer loan term ultimately equates to paying more in interest over the long-term. In many ways, a lower monthly payment is not your friend in the long run, particularly on a rapidly depreciating asset like a car.
If you try to sell your car before the loan term is over, you may find that it is worth less than you owe on it. To buy a new car, you'd have to pay off the balance on the original loan or roll it into the new loan, which creates a very expensive new car when all is said and done. Buying a car that depreciates quickly is another thing that can cause you to be "upside-down" on your loan. You can do more research on depreciation at Edmunds.com.
Have You Researched the Trade-In Value of Your Current Car?
Though it is tempting to weigh one with the other, you should keep the trade-in of your old car and the purchase of your new car as separate transactions by getting the trade-in offer before discussing the price of the new car.
Some dealerships will offer you a good trade-in value but will later be less likely to come down on the price of the car you're buying to compensate. To avoid this potential bait and switch, you should know the trade-in value of your current car and decide whether you'd rather sell it yourself or trade it in.
Have You Researched Interest Rates on Car Loans?
Don't evaluate the deal based on the monthly payment. This calculation is a common trap and a common sales technique. The interest rate is where most of the cost of a car loan lives. Know how much you'll pay over the life of the loan in principal and interest. If the dealer offers a good interest rate, find out what credit score you need to qualify for that rate.
It's not uncommon for new car buyers to be quoted a rate, complete the paperwork, and drive away in their new car only to get a call a few days later saying they didn't qualify for the rate quoted and their payment will be increased accordingly. Know ahead of time what rate your bank—or any bank or credit union you choose—would give you on a new car loan before you decide between a bank and the dealer. Hint: a bank or credit union will usually end up being the better of the two deals.
Have You Considered the Benefits of Buying a Used Car?
There's nothing like the feeling of buying a brand new car, but as always, you must consider the cost. Cars depreciate sharply in the first two years—as much as 30% to 40%. Consider these numbers: the car you pay $25,000 today may only be worth $15,000 in just two short years. As long as you keep the car for eight years or more, depreciation is a bit of a moot point. But if you trade your vehicle in before this eight-year timeframe, you'll end up having paid a lot more money for the car than you should have.
Do You Know the True Cost of Ownership of the Car?
Don't find out too late that you can afford to buy the car, but you can't afford to own it—due to operating expenses, insurance, gas mileage, annual excise taxes, and other ownership costs. You're not ready to buy a new car until you've researched and considered this information.
New car buyers often don't consider the higher costs of repairs and maintenance for certain models, tires that cost twice as much as those on other cars, higher gas costs, and higher insurance (depending on make, model, and even color).
One of the most important considerations is the repair record of the make and model. Research the vehicle's history of problems from other owners with the transmissions, brakes, electrical systems, and other components. Learn what it cost for routine repairs and maintenance.
Have You Evaluated Any Dealer or Manufacturer Offers Like Rebates or Low-Interest Rates?
A $2,000 rebate on your new car may sound good, but it may not beat the low-interest-rate deal the dealer may offer as an alternative. Don't be fooled by the lure of cash upfront. It's not always the best choice.
You can find out how to evaluate these offers, so you come out ahead. You can also find out about rebates and deals that manufacturers offer, but the dealer doesn't tell you about (instead they pocket the savings meant to be passed on to you, the buyer).
The Car Buying Bottom Line
Do your homework. Don't roll the balance of an upside-down loan into a new loan just because you're tired of your old car. Get the trade-in offer before discussing the price of the new car. Then use all the information and knowledge you've collected to negotiate a good deal.
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