By; John Miller
If you are considering buying a new car in your future, there are a couple of things you should remember. Make sure that you are buying what you want, and some slick salesman isn’t selling the car he wants to get off the lot.
Selecting your new car can be a daunting task, fraught with the potential for costly errors, bad choices, and buyer’s remorse. The average new car loan last between 5 and 7 years, when you consider that the average first marriage in the U.S. only lasts a bit over 8 years that is a large commitment. You want to get it right; not regret it for years to come. A few common-sense precautions could eliminate a lot of grief.
How do you ensure you get the best possible vehicle?
Needs & Wants
The first step is to sit down with a blank page and list the things you need and want in the new car. If you just wander onto a car lot the chances are very good you will make an emotional decision that may not fill those needs and desires. I recommend a list of at least ten things important to you in the new ride. Do you need it big or small? How many passengers will there be? Is fuel economy an important factor? Do you want things like leather trim or a moon roof? What electronics do you want; navigation, premium audio, Apple Car Play or Android Auto? What safety items do you want; emergency braking, dynamic cruise control, cross traffic alerts, blind spot monitors? The list can go on and on but one of the best places to find out what is available in safety and convenience features is a website called My Car Does What?
Here it may be a good idea to talk to some friends who have late model cars. What do they think of the options on their cars? Is there something they really like, or regret having? If they have a make or model that you are considering will they let you drive it around and play with the controls and features?
If this is going to be a shared car talk with the other person who will be driving it and get their input. A feature you may not think much of might be very important to them. Eventually, every car has another driver; the next buyer. Considering some options that may not be important to you but helps the resale value could be a good idea.
When you complete this step you will have a list of things the new car should have or even must have, a good idea of what is available and possibly some feedback from trusted friends.
Next, do an honest estimate of your budget. We can all figure ways to fudge the budget to justify the things we want, and that sort of self-delusion usually leads to financial stress. The accepted rule of thumb is a 20% down payment of cash or trade-in equity and 5 years of payments of no more than 15% of your net take-home pay.
Using this formula if you have a take-home of 4000 per month you can afford about 600 a month for a car, however, that should include the cost of insurance and maintenance. The average monthly cost of maintenance according to AAA is 99 dollars, and the average insurance costs in Texas are $100 a month (these can vary widely based on location, vehicle rating, and driving record).
Why would you budget $99 a month for maintenance of a new car? That average is over the five-year ownership of the typical new car. For the first 3 years you will have a manufacturer’s warranty for most things that go wrong, but will still have to pay for oil changes, battery replacements, tires, inspections, and other usual wear and tear items such as brakes. Setting aside a hundred bucks a month will cover that and build a bit of reserve for post-warranty issues that may come up. If your maintenance money goes to car payments, you may find yourself in a bind later in the car’s life.
Insurance can be a budget buster,
if you have a poor driving record or pick the wrong car. Even for an average driver, rates can vary drastically depending on where you live. The $1000 a year average in Texas is more than doubled in New Jersey. The insurance rates for a basic four-door sedan are going to be quite different than those for a Mustang GT, or even a Dodge Charger. There is a site to use for a first glance at the car ratings; State Farm Insurance Vehicle Ratings. Comparing what you now drive to the one on your list will give a fair estimate of how insurance costs may change. When you are close to a final decision the best approach is to call your agent and get a firm price before signing on the line.
Now, back to that formula and the $600 a month we could afford as a payment. It is now down to about $400. How much car can you buy for $400 a month? With a 20% down payment and 5% interest a $30,000 car will run $405 a month. Not bad! Of course, a bigger down payment or trade-in value, or a lower interest rate will improve that buying power.
Now you have your list of needs, wants and a realistic budget.
The first two steps are simple and shouldn’t take more than a couple of hours to do, however, the hard work is ahead. Now you must research what is available and narrow the field down to a few viable choices. All the car makers have comprehensive websites that will allow you to find out what is available that meets your criteria. Reasonable expectations should rule here. You probably don’t want to spend a lot of time on the Ferrari website if you have a $30,000 budget and need to carry two kids around. A lot of the car makers have sister companies where you could find very similar styles and features for considerably less money. If you like the Lexus ES 350 look at a Toyota Camryor Avalon. The same holds true with Lincoln and Ford, Buick or GMC with Chevy, of Infinity with Nissan. You may not get the status name brand, but you could get a good car at a fair price that you won’t regret each time a payment is due.
Now it’s time to get out and drive. Arrange to road test the cars on your short list. To make a fair determination you need to spend time in the seat and behind the wheel. A short trip around the dealership block will NOT provide the true evaluation you want. A longer drive that includes freeway and local street driving will help you make the assessment. If you can arrange to have a knowledgeable salesperson ride along to explain the features of the car you will come away with a much better understanding of what you will get for your money. This is not when you buy! Comparing several cars on your list at different dealers will give you a true picture not only of the cars you are considering but of the attitude and professionalism of the dealers involved.
At great place to test drive all of the cars on your short list, and some that don’t fit your budget or lifestyle but you just want to drive, is an auto show. The Houston Auto Show has more than 80 cars in the Ride and Drive program, and several hundred on display to sit in and get information about. There are auto shows year round across the country. Houston’s is January 23 through 27.
Unless the car in mind is a new release, or significantly changed this year, ask the salesman if they still have last year’s model for sale. In many cases, you can save thousands of dollars by buying a new but year-old model.
Finally, it is time to negotiate! Ask about all the available incentives and rebates. Some of these will be available only if you use the makers’ finance company. That’s ok if you are getting a competitive rate, but don’t sacrifice interest points to get a rebate. Every car or pick up now has a transportation charge and that is not negotiable. Years ago the price of getting the car from the maker to the dealer was included, but rising costs of fuel, trucking and rail have caused all the manufacturers to list that item separately, isolating it from the price of the car. Other than transportation, sales tax, and registration fees there should be no other charges on the invoice. Pick ups and high end cars have a larger profit margin than the economy models and you may be able to get a small price cut on them. Accessory packages have larger profit and give the salesman room to negotiate, but base models have no room for flexibility.
Dealer Add Ons
Dealer added charges for special preps, protection of paint or upholstery, advertising costs or any other fees are a bogus and sneaky way for dealers to increase their profit. If your salesman insists, he cannot remove those costs, find another dealer. Extended warranty is another question at the time you buy, and we will cover that in another article, but in most cases, I do not recommend them.
At this point, you have a new car that fits your lifestyle and budget, congratulations! Happy motoring.
P.S. If you ignored your budget and bought the Ferrari anyway…come pick me up so we can go for a ride!
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