If you decide to get a car loan, be sure to shop for your loan. In fact, it makes sense to shop for your loan before you shop for your car. Research a number of financing sources including banks. Some car dealers also offer financing. Compare the interest rates they offer. Find out what your monthly payment would be for different loan amounts. Consider asking for pre-approval of your loan. If you’re pre-approved, it means you can shop for a car in your price range with the confidence that you’ll get the loan you need. The lowest interest rate may not be your best deal. To learn more about this and other aspects of loans, see the topic Using Credit to Your Advantage.
Consider the kind of vehicle that will meet your transportation needs. Be sure to consider safety records, gas mileage, maintenance, and insurance costs. Use the Web, consumer and auto magazines, and other publications to research the possibilities. Look at ratings and evaluations by automotive professionals and road tests, especially those performed over thousands of miles to evaluate a car's gas mileage, durability, and maintenance issues. Research safety records. Narrow your choices to a few specific cars. Check with your insurance agent to compare the cost of insuring each car. Based on your research, compare the total costs of each car you’re considering. Does the amount fit your budget?
Nowadays, an increasing number of people are buying cars over the Web and there are lots of helpful Web sites. Even if you use the Web, it makes sense to visit local dealerships if you can. This will give you the opportunity to see the cars first-hand, take test drives, ask questions, and evaluate their parts and service departments. Depending on where you live, your local dealership may not offer you the best price. Dealers located far from major cities pay lower overhead costs and can afford to offer larger discounts. Some dealers have adopted a “one-price” policy on new cars, meaning that every car is offered at a fixed price with no negotiating between the dealership and the customer. While this system may make your transaction faster and easier, keep in mind that the price you pay might be higher than what you might pay by negotiating.
As you comparison shop, retain some flexibility about make, model, year and color. You may find a car you like better and/or a better deal. Narrow your choice. Decide on specifics such as the color and options you want. Remember to take resale value into account. If it comes time to sell the car, you will want a color and options that appeal to prospective buyers. Research the dealer invoice for the car you’re interested in. This will give you a rough idea of how much of a discount a dealer can provide. Be careful about extra options the dealer may offer you, such as undercoating, fabric protection, and paint sealant. These are often unnecessary add-ons that are significantly overpriced. If you’re buying a used car, point out any flaws or problems with the car to the seller. Before you agree to buy it, be sure to have it inspected by a certified mechanic.
Consider shopping during traditionally slow sales periods, such as late December and late summer/early fall. Be a patient and persistent shopper. Avoid being more anxious to buy than the seller is to sell. Decide on your top price, a number you feel is fair for the vehicle, with monthly payments you can afford. Start negotiations by focusing on the price of the car – not on payments, insurance, a trade-in, or extras. Avoid being the first person to mention a specific price. Ideally begin your negotiation at least 20% below what you’re willing to pay. Remember that the dealer needs to make a profit and is likely to make a high counteroffer. Know your “cash on hand.” If you have can write a substantial check on the spot it may get the seller’s attention and strengthen your ability to negotiate the price.
Be prepared to spend at least a few hours negotiating. Maintain your composure. Don’t argue. You can be firm, but be polite. This attitude will show the seller that you’re a person who cannot be intimidated, rushed, pushed, or panicked into a decision. Don’t let the seller know exactly what you’re thinking. If you’re too enthusiastic about a specific car, you’re less likely to get the best price. Don’t divulge the top amount you’re willing to pay or the monthly payment you can afford. If the seller pressures you, simply smile and say something such as: “You have my offer. I appreciate your time and effort, but this is my budget limit.” Beware of dealers who bring another salesperson or manager into the negotiation to wear you down. Reach a deal with the original salesperson or walk out. Be ready to walk away – slowly. Chances are the seller will make one last attempt to find a price you can agree on. Leave on good terms. Even if you don’t buy today, you might be back again later.
Review the contract carefully. Make sure it reflects everything that was agreed on. Beware of any unnecessary or overpriced extras the dealer may attempt to tack on. Don’t let your guard down until you leave the dealership. Don't pay for “dealer prep”! It's already been paid for by the manufacturer. Think carefully before you agree to an extended warranty. Some dealers may imply that banks require extra warranty protection for longer financing terms, but that may not be the case. You may not need one, or may be able to get a better deal later. Be prepared to cancel the deal. If something doesn’t feel right, or you have a “gut feeling” that your purchase will be a mistake: walk away! Remember, you can always find another car. Never sign a contract with any blank spaces. Get a copy of the contract immediately.