Besides buying a house, buying a new car is typically the largest purchase many of us make. But a car isn’t just a purchase. Cars take us to work, carry us to our social lives, and for many people our cars are a reflection of who we are. Unfortunately, buying a car can also be an extremely stressful event that fills us with distrust and leaves us feeling like we were just raked over the coals. So we got together back at the FCIC and put together a few things to consider before shopping for a new car.
The days of visiting your local new car showroom and walking the lot until you find a car that looks right for you are over. And so are the days of being pressured by sales people until you buy a car that may not be right for you. Thanks to the internet, shoppers can go to the website of every car manufacturer and review every model of car available. In fact, most manufacturer sites will even let you use drop down menus to “build” an electronic version of your dream car. Then, when you decide which model, colors, and accessories you want, you can hit the locate dealer button and find the closest showroom that has your car. There are even great websites now that compare car models and provide information aboutsafety,fuel economy,model ratings,prices,and generalcar buying tips. The great advantage these websites give you is the ability to walk into a dealership, and tell the salesperson exactly which car that you want and exactly how much you are willing to pay for the car. And if you don’t want to go to a showroom, there are websites where you can actually buy cars.
Ok, so you found your dream car. It has the engine you want, it’s the right color, and the cup holder is perfect for that gigantic cup of coffee that you drink each morning on the way to work. Now it’s time to sit down with your salesperson andnegotiateyour price. You may qualify for special discounts or benefits for being aVeteranor a member of another qualifying group. Here is where your research is really going to pay off. The sales person will offer you discounts and cash back deals that sound great, but if you don’t go into the negotiation knowing the dealer invoice price (how much the dealership actually paid to buy the car) and what discounts you qualify for, you are going to overpay. Dealers set car prices by adding dealership overhead costs like marketing fees to the price that they pay for each car. Then, they increase the price again to give them a profit margin. So, when salespeople negotiate with buyers, they start at a high price, and work their way down toward the invoice. This makes it look like they are giving customers steep discounts.
As a buyer, need to know the invoice price of the car you are going to buy, because for you to get a good deal on that car you need to negotiate up from the invoice instead of down from the inflated price. Depending on the dealership you are shopping at, this process can take minutes or hours. Sometimes the salesperson has the authority to make deals with the buyer, and sometimes you end up meeting with their supervisor, and occasionally, the owner of the lot. We suggest that you dress comfortably and be prepared to walk out without the car you want. This way, you can put whatever time is needed into making sure that you get the best deal possible and everyone at the dealership will know that you are serious about getting a good deal.
Whew, you’re almost there. You found the car you want, you made it through the negotiation, and you shook hands with the salesperson on a price that you both feel good about. If you are paying cash for the car, you’re done. But if you are financing your purchase, there is one more important negotiation ahead of you. The salesperson will walk you back into an office in the back area of the dealership to meet with a financing officer. The finance officer will have a bunch of paperwork for you to fill out, most important of which will be one that gives them permission and the information that they need to get yourcredit score. Many lenders use Credit Scores, or specifically credit bureau scores, to help determine whether you are likely to repay a loan on time. So,your scoretells the dealership how low an annual percentage rate that you qualify for.
Here is another chance for your research skills to pay off. Before you go to the dealership, you should get a copy of your credit report, so you know what kind of rates that you should qualify for. If you know that your score is high, 620 and up, you should be offered the lowest rates possible. But finance officers may not always give customers the best rates that they qualify for. Car manufacturers often have their own finance departments, so they make more profit when selling customers loans at higher interest rates. So, keep your comfortable clothes on, and remain prepared to walk out without buying the car. You may spend more time and meet more supervisors before you agree on an interest rate for your loan. You should also consider shopping around for loans before you go to the dealership. Banks, credit unions, and shopping clubs all offer car loans now, so you may be able to find a better deal outside of the financing department of your dealership.
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