A Step by Step Guide to Buying a Car at a Dealership

Car shopping has come a long way since the days when buyers would kick the tires. Car salespeople know this most of all, and are compelled more than ever to avoid hassles and haggles and get you behind the wheel of the car you want, at the price you can afford.

But let’s not forget: purchasing a new car is often the second-biggest purchase that most people make, after buying a house. So here’s a ten-step guide to help you navigate the car dealership experience.

1. What’s the car for you?

Before you head into the showroom, know what you will use this car for: taking kids to school? Driving to work? Or are you rewarding yourself with your own set of hot wheels? What kind of car shopper are you?

• Value-driven: You want a good price, but will pay for quality.
• Image-drive: You are concerned with what your vehicle says about you.
• Methodical: You enjoy shopping and consider yourself an expert car buyer.
• Safety-Conscious: You want a safe and reliable vehicle you can trust to keep you and your family safe on the road.

2. What’s your credit report and score?

A good credit history and score will lower your cost when you borrow money. If you’ve paid your bills on time and established a track record of using credit responsibly, you’ll qualify for a far more affordable auto loan than someone who has paid bills late or has judgments in their credit report.
You’re entitled to a free copy of your credit report each and every year. You can get one online from AnnualCreditReport.com or call Equifax, Experian and TransUnion, the three major credit reporting agencies, and they will mail you a copy. Getting your credit score costs $1. Make sure all the information is accurate and up-to-date. Dispute any errors you find and you might be able to get them removed.

You won’t qualify for the best deals if your credit is anything less than excellent, but you should still be able to get a loan if you’re willing to pay a higher interest rate.

Young people who do not have established credit, or those who have imperfect credit, may want to consider a co-owner or a bigger down payment. “If you have a short credit history, it will improve your chances for getting approved if you come up with a larger down payment,” says Ron Montoya, senior consumer advice editor at the auto website Edmunds.com.

3. What Can You Afford?

Think of a set price range before you shop online. That will keep you from falling in love with cars you can’t afford. You should budget no more than 20% of your monthly take-home pay to go towards a monthly car payment. Understanding your budget will save you time, too, so make sure you account for how much gas this car will use, and put aside some money for the eventual repairs and periodic maintenance. Once you know what kind of car you want, check insurance rates since those can vary wildly.

4: Ask to be pre-approved

Check loan rates at banks, credit unions and other lenders and ask to be preapproved when you apply for a car loan. Start with the bank where you keep your money and ask if they offer discounted rates for established customers. Credit unions typically offer members far lower interest rates for new or used car loans, so joining one might be a way to save.

Figure out how much you can spend by adding your pre-approved loan to the value of your old car, and any cash you will put toward a down payment. Shop for models a few thousand dollars below that total because there will be taxes and extra fees.

5. What’s your trade worth?

If you’re trading in your old car, make sure you close the deal on your new car before even discussing the value of the old car.

And always check the value, before you negotiate with the salesperson, by going to trusted websites like kbb.com and nada.com. If you still owe money on that vehicle, first find out exactly how much it will cost you to pay off the loan, and if you owe more than the trade is worth, you’ll have to add that to the cost of your new wheels.

6. Check for deals in newspapers and online

Many dealerships advertise a car at a lower cost in your local newspaper and online. It’s just like your supermarket: they’ll run specials on certain foods to get you in the door and dealerships often run sales at the end of the month, year, or on holiday weekends.

7. Do your homework and compare quotes

While the window stickers will tell you the Manufacturer’s Suggested Retail Price, or MSRP, you can also find out the dealer’s invoice price, trade-in values, financing, incentives, inventory, expert ratings, user reviews, and even recent transactions by going online, says Alec Gutierrez, senior market analyst of automotive insights at Kelley Blue Book.

When you get quotes on the vehicle you want, see if they fall in between the fair market value and the invoice price, which is the price the dealer paid to get that car on their lot. Gutierrez recommends you take those two numbers and ask the salesperson for their best price. And use information to get competing bids from other dealers.

8. What kind of financing can you afford?

Don’t increase the number of months on your loan in order to lower your monthly payment. That often means you’ll pay much more in interest over the life of the loan, and you’ll end up owing more than the car is worth. Those 6, 7 and 8-year auto loans will wreck your budget and devour your savings.

9. Take your time before you take the car home

Take the time to test drive and closely inspect the car you’ll keep in your driveway. Many car buyers have regrets within mere minutes of becoming an owner, so don’t rush this important step. Have your salesperson or the person delivering your car explain all the functions and answer any questions. And find out what to do if something unexpectedly does go wrong.

10. Remember: You’ve Got The Power

“The balance of power has definitely tipped in the consumer’s favor,” says Joe Webb, founder of DealerKnows, an automotive Internet sales training firm.

“You have much more control over the four most important aspects of the car deal,” adds Carroll Lachnit, features editor for Edmunds.com. “Price, trade, financing and down payment.”
Lastly, Lachnit says to beware of add-ons and extras like “extended warranties.” Just say “no” to those options. Only add something to your car loan if there is no cheaper way to attain that service or option.