My first experience buying a car was fraught with uncertainty and misinformation and as a result, I ended up underwater on a car loan*, paying 5% interest on an unreliable vehicle. Through diligent research and knowing which questions to ask, my second car-buying experience was incredibly better. I was able to sell my car without going into negative equity on my new car loan, find a more reliable vehicle, and pay 3.59% interest.
The first and most time-consuming step was deciding which car I wanted to buy next, down to the make, model, and year range. Knowing these details at the beginning of the car-buying process will increase your chances of feeling satisfied with your purchase. After dealing with recalls, overheating problems, and other repairs for three years, finding something reliable was my top priority. Reliability should be the top priority for all money-conscious young adults because an unreliable vehicle may cost you thousands of dollars in repairs in addition to your car loan. You can find cars with reputations for being reliable on jdpower.com where every car brand is rated on quality, performance, and dependability. When looking at vehicles online, make sure to read the CarFax report to understand the vehicle’s history. Research what the repairs and damage on the report could mean for the next owner of that vehicle. I recommend conducting a majority of your research online as opposed to going to visiting different dealerships. Researching online will save you time and prevent you from forming emotional attachments to vehicles that salespeople count on to talk you into deals you wouldn’t normally accept. You can also visit the manufacturer’s website to see if there are any recalls on a particular vehicle.
Once you’ve figured out the make, model, and year range of the vehicle you want, and therefore your price range, it’s time to apply for pre-approval on an auto loan. Receiving pre-approval for an auto loan determines your interest rate before you even visit the dealership and removes one of the salesperson’s negotiating points. Loan pre-approval also sets a hard limit on what you’re able to pay for a vehicle and sets a realistic price range for you based on your credit score. I applied for an auto loan through a highly-rated, local credit union and was approved within hours. Credit unions tend to offer lower interest rates than traditional banks or auto-finance companies. One downside to credit unions is, depending on the size, they may not have some of the perks large, national banks have such as 24/7 customer service or a mobile banking app. Whether you decide to go with a credit union, traditional bank, or auto financing company, check their ratings on Google and Yelp to see how their customer experience ranks.
With your loan pre-approval, you’re ready to start negotiating, which should be done strictly over the phone. Once I found a few different cars I wanted, I called each dealership and placed my offer over the phone. Each salesperson I talked to tried to convince me to come into their dealership. They do this because they know they have more leverage if you go to all the trouble of visiting their dealership in person, it increases the stakes for you. Renowned personal finance advisor Ramit Sethi recommends negotiating over the phone because it makes the negotiation process so much easier for the buyer. Once you place offers at a few dealerships and they counter-offer, present those counter-offers to the other dealerships you’re talking to and ask them if they can offer you a better deal. Eventually, the dealerships are trying to out-sell each other and you choose whichever dealership gives you the best offer.
Once you go into the dealership to finalize your purchase, it’s important to stay alert. Make sure the vehicle you’re buying looks exactly as pictured online and ask about any concerning factors on the CarFax report (if applicable.) This is also when the salesperson may use fear to convince you to buy a warranty. I recommend declining any warranty offers in most cases because they usually end up being wasted money. However, there are certain factors to consider when deciding whether or not to purchase a warranty such as the likelihood of needing repairs or if the dealership offers perks with their warranties such as free oil changes.
Make sure the final amount and monthly payments add up. Even if you don’t have time at the dealership to look through your paperwork and do the math, do so sometime within the next few days at home where you don’t have a pushy salesperson staring at you from across a desk. In my case, the monthly payments and final cost seemed a little higher than I expected. After looking through 20 pages of paperwork on my vehicle purchase, I realized the dealership had snuck in a $1,900 service contract charge. After researching this and realizing that service contracts are supposed to be completely optional (the salesperson never presented as an option to me), I visited the dealership the following day and asked them to update my contract. ALWAYS ask them to update your contract. Many people think that once you sign the papers that the deal is final but many contracts actually allow changes for 60 to 90 days.
If nothing else, DO YOUR RESEARCH. Many of us want the process to be fast, easy, and convenient, but taking time to conduct thorough research and ask questions will likely save you thousands of dollars.
*Underwater on a car loan: You owe more money on the vehicle than it is worth
Jessie Schirrick 