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.

How to Say No When An Auto Salesperson Is Pressuring You

Being able to say no -- and mean it -- isn't just helpful when negotiating a car purchase. It's essential, says Philip Reed, consumer advice editor for auto research site Edmunds.com.

"The most effective way of saying no is saying it with your feet" by leaving the dealership when you don't get what you want, said Reed, author of "Strategies for Smart Car Buyers." "Some people say you should leave at least twice" before agreeing to buy a car.

You don't necessarily have to resort to that level of gamesmanship, Reed said, but you should find a salesperson who can take no for an answer.

Avoid the high pressure approach to car buying. Take your auto shopping on the Web. Click here to play the video.
"Car buying is a very expensive purchase with a lot of moving parts. . . . You need to be comfortable with your salesperson," Reed said. "You don't want someone who, when you say no, says, 'Well, why not?' or 'Didn't I tell you about this or that?' "

Using statements that can't really be argued, like "That's not my taste" or "I just don't want that," can help you fend off an aggressive salesperson, but a better solution is "if you're feeling uncomfortable, find someone else who understands no means no."

Extensively researching the car you want and arranging financing before you walk onto the lot can help you thwart attempts to sell you more car than you can afford. Being clear and consistent about what you're looking for will help, too, Grenny said, as can enlisting the salesperson to help you solve your problem rather than creating new ones.

"You can say something like, 'I want a year-old car with these features and I want to pay close to low Blue Book,' " Grenny said. " 'I'd also like you to make a reasonable profit. So how do we do that?' "

Negotiating the deal with the salesperson is usually only the first step. Many dealerships will also trot you to a "closer" as well as the "F&I" (financing and insurance) person. These folks may view your agreement with the salesperson as just the starting point for selling you more stuff you don't want.

Be upfront, Reed urged. "Tell them, 'I want to wrap this up as soon as possible. I don't want any after-sell,' " he said. That may short-circuit the sales pitch, or they may trot out a "deal" on the extended warranty or paint protection.

Repeating "I don't want to be rude, but I want to wrap this up," Reed said, should deflate any further attempts. If not -- once again -- say no with your feet. You can say something like, "Wow, this deal is going to be a lot more expensive than I thought. I guess we can't go through with it today." Chances are the pitches will stop

Top Dealer Tricks To Watch Out For!

At the core, most dealers aren't out to rip you off. But they employ experienced and aggressive salespeople who have a bag of tricks designed to maximize the salesperson's cut and the dealer's profit.

The credit cozen: Some dealers may say something like, "With your credit score, you won't qualify for competitive financing rates.'' This may be true. However, some dealers will imply your credit is worse than it is so that you think you'll have to pay a higher interest rate. That's why it's important to know your credit score before you head to the showroom.

The single transaction strategy: Many people view buying a car as one transaction. It's not, and dealers know this. It's really three transactions rolled into one -- the new-car price, the trade-in value, and the financing. The dealer sees all three as ways to make money. Treat each of these as separate transactions, and negotiate each one. If you get a new car for $200 over invoice, but receive only $1,000 for a trade-in car that's worth $2,500, you haven't done as well as you could.

The payment ploy: A dealer might say, "We can get you into this car for only $389 a month.'' Probably true, but how? In some cases, the dealer may have factored in a large down payment, or may have stretched the term of the loan out to 60 or 72 months. Focus on the price of the car rather than the monthly payment. Never answer the question, "How much can you pay each month?'' Stick to saying, "I can afford to pay X-dollars for the car.''
The sticker shenanigan: The vehicle price listed on the window is what's known as the MSRP, or manufacturer's suggested retail price. Who cares? You want to know the invoice price -- the amount the dealer paid for it. Working from the invoice up is much easier than trying to cut dollars from the MSRP. You should also find out what cars actually are selling for, after taking into account any consumer and dealer incentives. Of course, some really hot cars go for sticker price and even above. Be patient and wait: The prices will fall as demand slacks off. And three years later, you'll be selling or trading a car for the same money as the early buyers who may have paid thousands more initially

The holdback hustle: Manufacturers often give cash incentives -- sometimes called a "holdback'' -- to their dealers to encourage them to move slow-selling models. This typically isn't mentioned in advertisements. You'll want to search for holdbacks or other factory-to-dealer incentives available for the car you're considering. While it's not a given that the dealer will apply any of these funds to the car you like, it doesn't hurt to ask.

The financing four-flush: Some dealers have been known to call customers days or even weeks after they signed a purchase agreement to tell them that the financing fell through. It's a crock. The dealer can know if you qualify for financing almost instantly. The goal? To sign you up for a loan with a higher interest rate because, according to them, they just found out you didn't qualify for the lower rate. Never leave the showroom without signed contracts that spell out every detail and with every blank filled in. If you've got that, they can't roll back on the financing.

The insurance illusion: Some dealers may try hard to get you to purchase an insurance policy when you're buying your car. One type, gap insurance, covers the difference between what the car is worth and the amount you still owe on it. Say the car is worth $10,000 but you still owe $12,000. If your car is a total loss, a gap insurance policy will cover that $2,000 difference. But don't automatically agree to it. Some insurers include the benefits of gap insurance in their regular comprehensive automobile coverage, so check there first. Also, gap insurance is generally quite inexpensive when purchased from your regular insurance company rather than a dealer. Another favorite, credit life insurance, will pay the balance of your loan if you die before you've been able to repay it. These policies may or may not make sense for you -- although in most cases you should decline all such offers. If these policies interest you, you'll want to understand what you're purchasing, and have the opportunity to decline it and shop around for better prices. The mark-up on these policies at the dealership can be enormous, in part because the insurance companies that sell the policies to the dealerships offer them huge incentives -- everything from cash to first-class trips -- to push them.

The rate razzle-dazzle: It certainly sounds tempting -- zero percent interest to finance a new car. However, this deal may not be the best one for your pocketbook. For starters, most financing incentives are for shorter terms and you need a stellar credit record. With very short-term loans, such as 24 or 36 months, payments on even a moderately priced car can be sky high. In addition, you may be better off finding your own financing, and then taking the dealer rebate, if one is offered. Say you're looking at a $20,000 car and will get $4,000 on your trade-in. You can choose between zero-percent financing, or financing at 3.49 percent with a $2,000 rebate. The term of the loan is 36 months. Over the course of the loan, you'll come out ahead by more than $1,200 if you take the rebate and the 3.49 percent financing. Use our calculator to compute the actual dollars over the term of the loan to figure out what deal suits you best.

The rollover ruse: Often, it's tempting to want to trade up to a more expensive car -- even before you've finished paying off the car you're currently driving. One way that some car buyers do this is by "rolling over" the remaining payments on their current car into a new car loan or lease. While this isn't illegal, it's risky. Why? You'll end up owing more on the second car than it's worth. In the parlance of the automobile world, you'll be "upside down" in the vehicle. If it's totaled in an accident, or if you decide down the road to trade it in, you'll end up writing out a big check to cover the remaining amount of the loan. Rule of thumb: Don't roll over an old car loan into a new one.
The long-term trick: There's nothing illegal or even deceptive about dealers offering loan periods extending out six or seven years. After all, many cars last longer than they used to, and longer loan terms mean your monthly payments are lower than they otherwise would be. Still, it's not optimal. You're likely to continually owe more on your car than it's worth, because your car is depreciating faster than you're paying it off. If you're considering a long loan period, you probably should scale back to a less expensive car better suited to your budget.

The balloon bamboozle: Similarly, some dealers will encourage you to purchase a car for unrealistically low monthly payments now, but with a balloon (inflated or much larger) payment at the end of the loan period. In a few cases, this can be a legitimate way to finance a car. For instance, you may just have graduated and can realistically assume that your income will rise by the time the balloon payment comes due. Be wary. That big payment could hit you when you're least able to pay it.

When Haggling Pays Off

Since you can't avoid the car salesperson's negotiating ploys, your only defense is to recognize what he's doing. You then have the chance to use some of those tactics yourself -- becoming the fisherman instead of the fish.
It's called haggling. How well you do it could be the key factor in determining the price you agree to pay for your new car.Here are some tactics you can use when negotiating a deal:

Invoke higher authority. In this tactic, the buyer and seller arrive at a tentative agreement, then one party has to get someone to OK the deal. Anyone who has haggled with a car salesperson is familiar with this tactic: You arrive at a price, then the salesperson has to get the sales manager's approval. Buyers can use this tactic, too. The wife can say she loves the car, but apologetically explains to the salesman that her husband won't budge unless the price is reduced. Or vice versa.

Never say yes to the first proposal. The first price the dealer tosses out in a negotiation will almost never be the best offer. So reject it out of hand. What's the worst that can happen? He won't budge and you go to another dealer.
Make sure to flinch. The most common tactical mistake that consumers make is to remain calm in the face of a proposal. It's better to flinch -- to appear shocked and surprised by an "outrageous" offer, even if it's not really unreasonable. You might think a stoic demeanor looks professional, but in the haggling business, it will cost you.
Squeeze your opponent: You say, 'I'm sorry, but you'll have to do better than that.' Then you shut up. Too many people just can't stay quiet; they blink and fill in the silence with words that drain all the power out of their rejection. Keep quiet. Chances are that you'll get a more reasonable offer.

Never offer to split the difference in price. Always wait for the other side to split the difference; it gives your opponent a feeling of winning and, if you split the difference again, it'll be in your favor.
Save a small concession. Hold back something you're willing to give up at the end so the other side can feel the satisfaction of winning something.

You might not feel comfortable using these tactics, but the experts say they'll be used on you.

Biggest Mistakes Car Buyers Can Make

Yep, getting a new set of wheels is one of those wonderful sources of high-octane excitement -- but don't get too revved up.

Car-buying is, or should be, a calculated decision. It's a major purchase. So, before you go cuckoo for that coupe or raving for that roadster, consider these mistakes car buyers can make.

1.Buying the wrong vehicle: Sure, those SUVs look big and cool, and dealers are dealing. But do you need one to drive the mile and a half to bingo every Sunday? Is that racy red sports car really the best choice for your family-of-five-kids-and-growing?

2.Showing emotions in the showroom: If you fall in love with a car, be sure not to overreact and get too anxious. Give yourself some time to sit back and make sure it's the car for you. In short, don't let your heart rule your head -- it can lead to aching in both body parts. Also, keep a grasp on reality. If you can afford $20,000 and the object of your affection lists for $30,000, you might be able to negotiate it down to, say, $27,000, but there's no way you're going to be able to buy it for $20,000.

3.Choosing a dealer by location: No, dealers are not all the same, not even for the same exact makes and models. Ask around. Learn from friends' experiences. Also, determine your dealer's CSI (Customer Satisfaction Index), which is a ranking generally maintained by individual automakers for the dealerships that sell their vehicles. Ford, for example, gives out what's called the Blue Oval Award to dealers with a top ranking. The CSI is a reflection of how well an individual dealer satisfies its customers both in terms of sales and service. Ask your salesman about the dealership's awards. If he balks, you should walk. You can also check a dealership's complaint record with the Better Business Bureau.

4. Talking trade-in too early: This is another easy trap to fall into because dealers love to play the trade-in game. Don't let them muddy the waters. Negotiate a satisfactory price for the new car, and then bring up your trade-in. Another thought: If you bring in your old car full of trash and covered in mud, the appraiser will rightly assume you don't put much value on it yourself.

5. Going it alone when you need a helping hand: If hassles give you headaches and negotiations make you nauseated, turn it over to an auto broker or a service such as the AAA Endorsed Auto Buying Program, which nets members special pricing through authorized dealers.

6. Forgetting that it ain't over 'til it's over: Or, in the case of car buying, it ain't over 'til the business manager sings. You may think you bought your car once the sales manager shakes your hand and tells you what a great deal you got. But beware the business office, often called the finance and insurance office. Dealers often make as much money in this room as they do on the showroom floor. Insurance, dealer add-ons, extra fees and interest rate changes are among the common ploys you could get clobbered with on your way out the door.

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.