what to do before going to a car dealership

Jan Stromme/The Image Bank/Getty Images Plus

Jan Stromme/The Epitome Depository financial institution/Getty Images Plus

New cars these days have meliorate condom features and more than tech gizmos than models from a decade ago. And permit's face it: Trading in a beat-up clunker with grimy seats is an enticing thought.

Only many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers scroll over an average of $5,000 in debt from their last car into their new loan. They're paying for a machine they don't drive anymore. Ouch! That is not a winning personal finance strategy.

Just don't worry — NPR's Life Kit is here to help. Here's how to purchase a car without getting over your head in debt or paying more than you take to.

ane. Get preapproved for a loan before you set foot in a dealer's lot.

"The unmarried best advice I tin can requite to people is to get preapproved for a automobile loan from your bank, a credit union or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He too worked undercover at an car dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. Then Reed is going to pull back the curtain on the automobile-ownership game.

For 1 thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think near a crucial question. "How much automobile tin can I afford? You want to practice that before a salesperson has you falling in love with the limited model with the sunroof and leather seats. "

Reed says getting preapproved as well reveals any problems with your credit. And so earlier yous beginning auto shopping, yous might want to build upwards your credit score or get erroneous information off your credit study.

And store effectually for the best charge per unit. "People are being charged more for interest rates than they should be based upon their creditworthiness," says John Van Alst, a lawyer with the National Consumer Police force Eye.

Van Alst says many people don't realize it, only the dealership is allowed to jack upwardly the charge per unit it offers y'all above what you actually qualify for. So with your credit score, "yous might qualify for an interest rate of 6%," says Van Alst. But, he says, the dealership might not tell you that and offer you a nine% rate. If yous take that bad bargain, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance company, "they'll dissever that extra money."

So Reed says having that preapproval can be a valuable carte to have in your hand in the car-buying game. It tin help you negotiate a better charge per unit. "The preapproval volition human activity as a bargaining chip," he says. "If you're preapproved at 4.five%, the dealer says, 'Hey, yous know, I can become you 3.v. Would you exist interested?' And it'due south a good idea to take it, merely brand sure all of the terms, significant the downwards payment and the length of the loan, remain the aforementioned."

I discussion of caution most lenders: Van Alst says there are enough of shady lending outfits operating online. Reed says information technology's a practiced idea to go with a mainstream bank, credit union or other lender whose name yous recognize.

two. Continue it uncomplicated at the dealership.

If you're buying a automobile at a dealership, focus on i matter at a time. And don't tell the salespeople too much. Recollect — this is a kind of game. And if yous're playing cards, y'all don't concur them upwards and say, "Hey, everybody, expect — I have a pair of queens," right?

And so at the dealership, Reed and Van Alst both say, the kickoff step is to start with the toll of the vehicle yous are buying. The salesperson at the dealership will often want to know if you lot're planning to trade in some other motorcar and whether yous're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you lot're playing against pros. If you negotiate a really good buy price on the motorcar, they might jack up the interest rate to make extra money on you that style or lowball yous on your trade-in. They can juggle all those factors in their head at once. You don't want to. Continue it simple. One thing at a time.

Once you settle on a price, then you can talk about a trade-in if you have 1. But Reed and Van Alst say to exercise your homework there too. A piffling research online can tell you what your trade is worth in ballpark terms. Reed suggests looking at the complimentary pricing guides at Edmunds.com, Kelley Blue Book and NADA. On Autotrader, you lot can also encounter what people in your surface area are asking for your auto model. And he says, "You lot tin get an bodily offer from Carvana.com and also past taking the automobile to a CarMax, where they will write you a bank check on the spot."

And then he and Van Alst say don't be afraid to walk away or purchase the car at a good toll without the merchandise-in if y'all feel the dealership is lowballing you on your quondam car. Yous accept plenty of other good options these days.

Will Sanders/Stone/Getty Images Plus

Will Sanders/Stone/Getty Images Plus

3. Don't buy any add-ons at the dealership.

If you've bought a machine, y'all know how this works. Y'all've been at the dealership for hours, yous're tired, you've settled on a toll, y'all've haggled over the merchandise-in — then you lot get handed off to the finance director.

"You're led to this dorsum role. They'll often refer to information technology as the box," says Van Alst. This is where the dealership will endeavour to sell you extended warranties, tire protection plans, paint protection plans, something called gap insurance. Dealerships brand a lot of money on this stuff. And Van Alst says it's ofttimes very overpriced and most people accept no idea how to figure out a off-white price.

"Is this add together-on, you know, being marked upwardly 300%? You don't really know any of that," Van Alst says. And so he and Reed say a good strategy, especially with a new auto, is to but say no — to everything. He says especially with longer-term loans, at that place's more wiggle room for dealers to endeavor to sell you lot the extras. The finance person might try to tell you, "It's only a piffling more money per month." Only that coin adds up.

"Concerning the extended factory warranty, you can always buy information technology later," says Reed. "And then if you're buying a new car, you can buy it in 3 years from now, just before information technology goes out of warranty." At that signal, if y'all want the extended warranty, he says, y'all should call several dealerships and enquire for the all-time price each can offering. That fashion, he says, you're not rolling the cost into your car loan and paying involvement on a service you wouldn't even utilize for iii years considering you're still covered by the new car's warranty.

Gap insurance promises to cover whatever gap between the buy price of replacing your almost-new auto with a make-new car if your regular insurance doesn't pay for full replacement if your motorcar gets totaled. Van Alst says gap insurance is often overpriced and is fundamentally problematic. If you still want the product, it's best to obtain it through your regular insurance visitor, not the dealer.

4. Beware longer-term six- or 7-twelvemonth car loans.

A third of new car loans are now longer than six years. And that'due south "a really unsafe tendency," says Reed. We have a whole story about why that's the instance. Only in short, a seven-twelvemonth loan will mean lower monthly payments than a v-year loan. But information technology will as well mean paying a lot more than money in interest.

Reed says seven-twelvemonth loans oftentimes have higher interest rates than 5-year loans. And like nearly loans, the interest is front-loaded — you're paying more interest compared with principal in the outset years. "Almost people don't even realize this, and they don't know why it's dangerous," says Reed.

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Reed says that if y'all want to sell your car — you decide you can't afford it, or perchance you have another kid and need a minivan instead — with a seven-twelvemonth loan you are much more than likely to be stuck still attributable more than the motorcar is worth. And so he says, "It puts y'all in a very vulnerable financial state of affairs."

A better way to go, Reed says, is a v-year loan for a new car and "with a used car you should really finance it for merely 3 years, which is 36 months." Ane reason that makes sense, he says, is that if your used machine breaks down and isn't worth fixing — say the transmission totally goes — you're more probable to have paid off the loan past that time.

Reed says a five-year loan brand sense for new cars because "that's been the traditional way — it's kind of a sweet spot. The payments aren't too high. You know the car will still be in good condition. In that location will yet be value in the auto at the end of the five years."

Also, Van Alst and Reed say to brand sure dealers don't sideslip in extras or change the loan terms without you realizing it. Read carefully what you're signing.

Reed says a colleague at NerdWallet actually bought a minivan recently and "when she got dwelling, she looked at the contract." She had asked for a five-year loan only said the dealership instead stuck her with a seven-year loan. "And they included a factory warranty which she didn't request and she didn't want." Reed says she was able to cancel the unabridged contract, remove the extended warranty and get a rebate on information technology.

"But the indicate of it is," he says, "I mean, here'south somebody who is very financially savvy, and yet they were able to do this to her. And it's not an uncommon scenario for people to call back that they've got a skilful deal, but then when they get home and look at the contract, they detect out what's been done to them."

5. Don't buy too much auto. And consider a used car to save a lot of money!

"The golden rule is that all of your car expenses should actually exist no more than 20% of your have-home pay," says Reed. And he says that that'southward full automobile expenses, including insurance, gas and repairs. "So the car payment itself should exist betwixt 10 and 15%."

And if a new car with a v-year loan doesn't fit into your budget, you might decide y'all don't actually need a make-new car.

"Nosotros're actually living in a golden historic period of used cars," says Reed. "I mean, the reliability of used cars is remarkable these days." Reed says at that place is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that, he says, are definitely worth considering. "You lot know, people are buying good used cars at a hundred-thousand miles and driving them for another hundred-thousand miles," says Reed. "So I'm a big fan of buying a used auto equally a way to save money."

He acknowledges that which machine you purchase matters and that information technology'south a good idea to read reviews and ratings well-nigh which brands and models are more than or less probable to encounter plush repair problems down the route. He says some European cars are famously expensive to maintain.

NPR has a personal finance Facebook grouping called Your Coin and Your Life. And we asked group members about car buying. Many said they were shocked past how much coin some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, "twoscore years of owning vehicles and our total transportation purchases don't even add up to the toll of one of the financed ones these folks are talking about."

Dean is a freelance AV technician, and Patricia is a flight attendant. They say, "our nicest, newest purchase was a 2004 Honda Accordance for $2400, bought last year, that with regular maintenance could likely final another 100,000+ miles." And they say they "tin't empathize those who insist on driving their retirement funds away."

Fifty-fifty if you lot buy a slightly newer used car than the Raekers', the couple raises a dandy point. What else could you be spending that car payment money on? And if you can cut in one-half what you might otherwise spend, that'southward a lot of extra money for your retirement account, your kids' college fund or whatever else you'd rather exist doing with that money.

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Source: https://www.npr.org/2019/10/31/774757867/5-tips-for-buying-a-car-the-smart-way

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