Buying A New Car

A new car is second only to a home as the most expensive purchase many consumers make. According to the National Automobile Dealers Association, the average price of a new car sold in the United States is $28,400. That’s why it’s important to know how to make a smart deal.

Buying Your New Car

Think about what car model and options you want and how much you’re willing to spend. Do some research. You’ll be less likely to feel pressured into making a hasty or expensive decision at the showroom and more likely to get a better deal.

Consider these suggestions:

• Check publications at a library or bookstore, or on the Internet, that discuss new car features and prices. These may provide information on the dealer’s costs for specific models and options.
  
• Shop around to get the best possible price by comparing models and prices in ads and at dealer showrooms. You also may want to contact car-buying services and broker-buying services to make comparisons.
  
• Plan to negotiate on price. Dealers may be willing to bargain on their profit margin, often between 10 and 20 percent.

Usually, this is the difference between the manufacturer’s suggested retail price (MSRP) and the invoice price.Because the price is a factor in the dealer’s calculations regardless of whether you pay cash or finance your car — and also affects your monthly payments — negotiating the price can save you money.

Consider ordering your new car if you don’t see what you want on the dealer’s lot. This may involve a delay, but cars on the lot may have options you don’t want — and that can raise the price. However, dealers often want to sell their current inventory quickly, so you may be able to negotiate a good deal if an in-stock car meets your needs.

Learning the Terms

Negotiations often have a vocabulary of their own. Here are some terms you may hear when you’re talking price

• .Invoice Price is the manufacturer’s initial charge to the dealer. This usually is higher than the dealer’s final cost because dealers receive rebates, allowances, discounts, and incentive awards. Generally, the invoice price should include freight (also known as destination and delivery). If you’re buying a car based on the invoice price (for example, “at invoice,” “$100 below invoice,” “two percent above invoice”) and if freight is already included, make sure freight isn’t added again to the sales contract.
  
• Base Price is the cost of the car without options, but includes standard equipment and factory warranty. This price is printed on the Monroney sticker.
  
• Monroney Sticker Price (MSRP) shows the base price, the manufacturer’s installed options with the manufacturer’s suggested retail price, the manufac-turer’s transportation charge, and the fuel economy (mileage). Affixed to the car window, this label is required by federal law, and may be removed only by the purchaser.
  
• Dealer Sticker Price, usually on a supplemental sticker, is the Monroney sticker price plus the suggested retail price of dealer-installed options, such as additional dealer markup (ADM) or additional dealer profit (ADP), dealer preparation, and undercoating.
  

Financing Your New Car

If you decide to finance your car, be aware that the financing obtained by the dealer, even if the dealer contacts lenders on your behalf, may not be the best deal you can get. Contact lenders directly. Compare the financing they offer you with the financing the dealer offers you. Because offers vary, shop around for the best deal, comparing the annual percentage rate (APR) and the length of the loan. When negotiating to finance a car, be wary of focusing only on the monthly payment. The total amount you will pay depends on the price of the car you negotiate, the APR, and the length of the loan.

Sometimes, dealers offer very low financing rates for specific cars or models, but may not be willing to negotiate on the price of these cars. To qualify for the special rates, you may be required to make a large down payment. With these conditions, you may find that it’s sometimes more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.

Before you sign a contract to purchase or finance the car, consider the terms of the financing and evaluate whether it is affordable. Before you drive off the lot, be sure to have a copy of the contract that both you and the dealer have signed and be sure that all blanks are filled in.

Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Before you buy credit insurance, consider the cost, and whether it’s worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is not required by federal law. If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of credit. That is, it must be reflected in the APR. Your state Attorney General also may have requirements about credit insurance. Check with your state Insurance Commissioner or state consumer protection agency.

Trading in Your Old Car

Discuss the possibility of a trade-in only after you’ve negotiated the best possible price for your new car and after you’ve researched the value of your old car. Check the library for reference books or magazines that can tell you how much it is worth. This information may help you get a better price from the dealer. Though it may take longer to sell your car yourself, you generally will get more money than if you trade it in.

Considering a Service Contract

Service contracts that you may buy with a new car provide for the repair of certain parts or problems. These contracts are offered by manufacturers, dealers, or independent companies and may or may not provide coverage beyond the manufac-turer’s warranty. Remember that a warranty is included in the price of the car while a service contract costs extra.

Before deciding to purchase a service contract, read it carefully and consider these questions:

• What’s the difference between the coverage under the warranty and the coverage under the service contract?
  
• What repairs are covered?
  
• Is routine maintenance covered?
  
• Who pays for the labor? The parts?
  
• Who performs the repairs? Can repairs be made elsewhere?
  
• How long does the service contract last?
  
• What are the cancellation and refund policies?

To File a Complaint

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Close the gap in your car insurance

What could make a bad car deal worse? A wreck that leaves you owing thousands on a car you don't own anymore.

By Liz Pulliam Weston

If you did everything wrong while acquiring your last vehicle, you may still be able to do at least one thing right. And that's buying so-called "gap insurance."

Gap insurance kicks in when the amount your insurer would pay for your totaled or stolen car falls short of what you still owe on the loan or lease.

Chances are good you need gap insurance if:

You purchased a new car and didn't have a down payment of at least 20%.
You're leasing a car.
You're financing for more than four years.
You rolled debt from your last car into your current auto loan.
I outlined why these car-buying practices are usually bad ideas in "The real reason you're broke." They are, unfortunately, fairly common scenarios that typically leave people "upside down," or owing more on their cars than the vehicles are worth.

Yet gap insurance remains a relatively unknown product, said Patrick Olsen, managing editor of Cars.com.
"As soon as you drive off the lot, depreciation kicks in," Olsen said. "I don't think people are aware of the danger they could be in."

If you don't make a 20% down payment, for example, you'll be upside-down on the car from the minute you drive off the lot, and you'll typically stay that way for two to three years, depending on the length of your loan. If you get in an accident or the car is stolen during that time, you may be in trouble.

"The insurance company will pay you what the vehicle is (currently) worth, and that's not necessary the same as what you owe," said Mike Meredith, financial editor for MSN Autos. "It could be a lot less."

You could be pushed over the edge

Here's an example. You buy or lease a car for around $25,000. Several months down the road, it's totaled, but your insurance check covers only the car's current value, which is about $20,000. Not only do you have to find new wheels, but you're on the hook to the finance or lease company for that $5,000 gap. It's not uncommon for cars to lose two-thirds of their value in just three years.

If you rolled debt from your old loan into your new one, that amount you owe could be even larger. One out of four vehicles that are financed includes debt rolled over from a previous vehicle, according to vehicle research site Edmunds.com, and the average amount of so-called "negative equity" is more than $4,000.

If your finances are already shaky, the gap between what you owe and what you're paid could be enough to push you right over the edge.

"It could be the difference between staying afloat and having to declare bankruptcy," said Phil Reed, consumer advice editor for Edmunds.com and co-author of the book "Strategies for Smart Car Buyers." At a minimum, you could be saddled with expensive and unwelcome debt.

If you're not sure where you stand, you can use the Kelley Blue Book tool on MSN Autos to see how much your car is really worth and compare that to what you owe. Insurers typically pay an amount somewhere between the car's trade-in value and what you'd get in a private sale.

Not to worry
Now, there are two scenarios where underwater drivers don't have to worry about gap insurance:
If it's already included in your lease. In some states, including New York, leases by law must include gap coverage, Olsen said.
If your auto policy is written to cover the gap. This isn't the norm, but some auto policies promise to pay off a loan regardless of what the car's worth. You can try reading your policy to see if you're covered for any gaps, or simply call your insurer and ask.
If you don't have coverage already, the solution fortunately doesn't have to be that expensive. A premium of a few hundred dollars should cover you for the life of the loan or lease. You typically can buy the coverage:

From the dealership or auto finance company. It's probably the most expensive choice, especially if you roll the cost into your monthly note. You'll be paying interest on it, plus paying for coverage even after you're no longer upside-down on your loan.
From your current auto insurer. It's usually the best choice, if your insurer offers the coverage. Farmers Insurance, for example, offers gap coverage at a flat rate of $25 every six months to Washington drivers. You can drop it once you're sure you're in the black.
From another insurance carrier. You can look for gap insurance providers; make sure they have top marks from one of the rating services such as A.M. Best, Standard & Poor's or TheStreet.com Ratings (formerly Weiss Ratings).
The best time to shop for coverage is before you even set foot on the dealer's lot, Reed said. He advises calling your insurer to get a quote for coverage as soon as you decide what car you're going to buy. But all isn't lost if you fail to plan that far ahead.

"It'll be cheaper through your agent than through a dealership," Reed said, "but you can always buy it (at the dealership) and cancel it later" once you've got coverage with your insurer.

If you're a savvy enough negotiator, you may be able to get the dealership to lower its premium, Meredith said, particularly if you already know what coverage would cost through your insurer.

Some dealerships and insurers require you to get the coverage when you buy the car, but others let you add it later. If you don't have gap coverage and need it, it's worth the effort to search for a company that will sell it to you.

Like most insurance, it's something you may never need, Meredith said, but "it's a really good thing to have if you need it."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

Keep Your Old Clunker or Buy a New Car?

It may clang and bang, but your despised old car may be the best bargain around.
By Des Toups

Let's divide the car-buying universe into two camps: those who keep a car until it drops, and those who think a new car will change their lives.

To the first, a round of applause. There's nothing short of the bus that's cheaper than keeping a car until it crumbles into a pile of rust. Almost any car can be nursed to 200,000 miles without endangering your life, and even a new engine is cheaper than all but the cheapest used cars.

To the second, another round of applause, because the 16 million or so new cars they buy every year instantly become used cars soon available at a considerable discount to those in Camp 1. And a moment of silence, because a new car will change their lives in ways they never foresaw on the dealer's lot.

If you're in a drive-until-the-muffler-is-dragging wannabe, read on. We'll look at ways to keep your car on the road longer and realistically weigh the costs of upgrading.

I'd love to keep my old car, but …

It no longer fits my life. You may have taken up gardening in a big way but still own a Corvette. You may feel nervous about taking your '78 Ford on a trip to Colorado. Your little Accord may be a tight squeeze when family comes to town. The answer to all: Rent. Why buy a gas-sucking pickup because you visit Home Depot twice a year or a $30,000 sport-utility because you take the kids skiing for a week at Easter? Even at $100 a weekend, renting is far cheaper than a car payment. Plus you get to drive the very latest without worrying about insurance, license tags, maintenance or depreciation. Or try swapping cars with a friend, returning it gassed-up and clean (with the oil changed, too, if the loan was more than a day or two. You want to be able to ask again next year.).

Those repair bills are really adding up. Then do the math. Does the cost of repairs exceed the cost of a new car? A typical new car is $21,000, about $350 a month for five years after 20% down. A rebuilt transmission might run $1,500, a huge outlay in one chunk, but far less than the $4,200 a year you'd spend on new-car payments alone. If you can't afford repairs twice a year, it's unlikely you can afford a new car payment every month. In any case, anybody with a car older than three years should be tucking aside $50 a month for repairs and maintenance. If the gods smile, you'll never use most of it and you'll have a tidy sum to blow on your next car.

I'm nervous driving an older car. Maybe little things are beginning to go: a new thermostat one month, a starter the next. You might simply spend $50 on a AAA membership and carry a cell phone, reminding yourself that even new cars aren't immune to mechanical failure. The upside of frequent breakdowns is that you'll get to know mechanics quite well. Find one you like. Flatter him. Pay your bills on time. And the next time he fixes your car, ask him to take a few minutes to see what else will need repair soon.

The repair costs more than the car is worth. A $1,500 engine rebuild that keeps your '83 Toyota on the road still makes good financial sense. It's at this point, however, that all but the flintiest drivers begin to think about upgrading.

Which brings us to our next question:

Am I ready for a newer car?
Your first step is to do nothing except write a check to yourself in the amount you're thinking you can afford every month. Put aside a car payment every month for three months (long enough for at least one of life's little emergencies to crop up).

To pass the time, make three phone calls: one to your bank, to find out what kind of rates they charge on loans to people with your credit history; one to your insurer, to ask the rates for comprehensive insurance on a model you think you'd like to buy; and one to your local DMV, to see what registration and licensing would cost.

At the end of three months, ask yourself these questions:

How much did it hurt? If you skimped at all on other bills or shorted the amount of the payment, you're not ready.
Would I have enough left over to pay for insurance and licensing fees each year?

Would I pay this much every month for the car that's in my driveway already? Sooner or later, every new car becomes an old car, and you'll feel about the next car just the way you do about your old clunker.

Would I rather have the cash? Our typical car payment, $350, adds up to more than $1,000 in just three short months. Perhaps you'd prefer to get a tan in Mexico and limp along with ol' Betsy another year.

Could I continue to save for another year and simply pay cash? Five grand would buy any of hundreds of reliable used models. Save for two years and you're in new-car territory, if your old car will fetch a few thousand.

If the craving for a shinier car hasn't passed in three months, at least you begin the shopping process with a few months' worth of car payments and a more realistic idea of the hit your wallet will take.

Side note: Never skimp on maintenance

Pay special attention to the things that will cost you a fortune if they break. That means regular oil changes, tire rotations and transmission tune-ups, even if the car is running fine. Timing belts, for example, are spendy at as much as $600, and replacing one for no other reason than that the odometer has turned 90,000 miles might seem wasteful. But let one break and you'll find that repairing bent valves could cost you three times that. Replacing torn CV boots, those plastic housings that keep grime and grit out of the car's constant-velocity joints, costs about a third as much as a CV joint repair. (If your owner's manual is long gone, MSN Autos has a free online service, My Car, that tracks your car's service schedule.)

Des Toups is senior editor at MSN Money in Seattle.

Avoiding Credit Hassles at the Dealership

by Phillip Reed

You fill out a credit application at a car dealership. You're led in to see the finance manager who happily announces, "Great news! I can finance you at 9.9 percent."You're tempted to say, "Sounds good. Let's do it." But then doubt sets in. Isn't the prime rate 6.5 percent now? How do I know this is the best rate I can get?So instead of readily agreeing, you say, "That rate sounds a bit high.""We base our interest rates on your credit score," he tells you.Naturally, you ask, "So what was my credit score?"

Now the tap-dancing begins. The finance manager tells you your credit is good — but not that good. There are a few little things on it ... But at the end of this shuffle he might say, "You know what? I just remembered there is this other bank where I think we can get you 9.1."Well, you've just saved yourself some money. But the rate still might not be as low as you can get. After all, if you don't know what your credit score is, you can't aggressively demand the best terms.

The interest rate you pay on financing your new car is like so many other things at the dealership — open to negotiation. So how do you go about getting the best deal? And is it worth haggling over a few percentage points?

First things first: Yes, it is definitely worth trying to get the best interest rate possible. While one percentage point might not seem like much, applied to a five-year loan it can be significant. For example, on a $20,000 auto loan at 9 percent for five years, according to the Edmunds.com loan calculator you would pay $415.17 a month. But if you financed the $20,000 at 7 percent, you would only pay $396.02 a month — a savings of $1,149 over the five-year period. And because of the way car lease payments are calculated, they have a greater impact when leasing than when buying.Clearly, a low interest rate is important. To accomplish this, make sure your credit report is up-to-date and all black marks have been removed. Those things that can negatively affect your credit include the following:
· Late payments
· Non-payment of bills
· Bankruptcies
· Liens
· Repossessions
Any financial blemishes will lower your score with the most commonly used credit ratings agencies: Experian, Trans Union and Equifax. These companies generate a rating which, for most people, falls somewhere between 330 and 850, and are called "FICO scores" named after Fair, Isaac & Co. Over 800 is considered perfect. Below 800 may put you on a lower credit tier. In the 600s you find yourself in the "sub-prime" area and will pay inflated interest rates. Higher interest rates are justified by lenders who say there is a risk the person will default on the loan. (Visit the FICO Web site for a more complete description of how credit scores are interpreted.)

Auto dealers rely heavily on FICO scores in setting your interest rate when you buy a new or used vehicle. Therefore, it's in your best interest to know your credit score before you visit a dealership. Otherwise, it may come as an unpleasant surprise in the finance and insurance room when you set up your loan.It's a good idea to check your credit scores periodically. In some cases, people who have common names might find someone else's misdeeds on their record. Besides that, if your credit is sub-prime, you will be subject to a number of expensive — and unpleasant — practices.

Two extreme cases are referred to as spot deliveries and bogus insurance sales.A spot delivery occurs when a dealer looks at a customer's credit and sees that they will probably qualify for a car, but they don't have all the information to set up the loan. They allow the customer to take the car while they continue trying to get them qualified. In some cases, the customer is told to return to the dealership and a new contract is generated — at a higher interest rate.In other cases, a customer is told that their credit is weak and they can't buy the car unless they pop for an expensive extended warranty or additional insurance policy. This is a false requirement intended for dealer profit.

Consumers should also know about a practice used in the auto business called "dealer markup." Here's how it works. You go car shopping and agree to buy a vehicle for a certain price. You then tell the salesperson that you are either going to finance the car or lease it through the dealership. Before you go into the finance and insurance room to review the final documents, the finance manager begins shopping for a car loan on your behalf. She may find that you qualify for a 7 percent loan over five years.Now things get sticky. The finance manager calls you in and says, "Great news! I can give you this loan at 11 percent." Obviously, she has marked up the interest rate 4 percentage points. The difference between what the bank charges the dealer and what the dealer charges you is their profit.

Is this illegal? Absolutely not. Is it unfair? Well, it depends how you look at it. They've done you a service by arranging the loan. For their work, they are making a profit.However, you want to save as much money as possible. The easiest way to do this is to arrange your financing before you go to the dealership. Check with your credit union or bank (keep in mind that interest rates are slightly higher for used-car loans than new car loans). Auto loans will usually be one or two points above the prime rate, which fluctuates throughout the year.Once you have been approved for a car loan, it's easy to go to a dealership and negotiate only for the purchase price of your new car. You will be asked several times throughout the process how you plan to pay for the car. Give them a relieved smile and say, "I'm paying cash for the car." This doesn't mean you are going to give them $20,000 in cash. It means that the dealership will receive one lump-sum payment for the car.

There are times, however, when financing through a dealership makes sense. Sometimes, the manufacturer offers to loan money at exceptionally low interest rates such as 2.9 or even 0.9 percent. If you can qualify for these special programs, you should take advantage of them, though they often mean reduced payment periods such as 24 or 36 months.

Bottom line: Don't be held hostage by the dealer. Do yourself and your family a big favor — clean up your credit report before you begin the car shopping process. Next, nail down a low-interest loan from an independent lender such as your credit union or bank. Then, and only then, hit the car lot and start shopping.