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How Much Does a Tesla Cost?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Tesla Roadster
Tesla

Teslas are the newest, spiffiest electric vehicles on the block. The first models were priced as luxury vehicles, but Elon Musk promised to make an EV affordable for most Americans by rolling out the Model 3 at an advertised price below $35,000. There is more to the price, however, as we’ll explain.

Musk’s fancier models will cost you a pretty penny — up to $250,000 — along with Tesla’s upgrades. Availability and price depend on the model and the trim you choose. For the whole picture, keep reading.

How much does each new Tesla model cost?

In order of price, Tesla offers four consumer car models: 3, S, X and the upcoming second-generation Roadster, which you can reserve now. It speaks to company founder Elon Musk’s sense of humor that if you put the first models in the order they were produced you get “S3X.”

*It’s important to note that the advertised prices don’t include a $1,200 destination and document fee, and they do include a $7,500 federal tax incentive and an estimated savings in gas over five years. Neither price includes taxes or registration fees.

What about the tax credit?

Time is running out on the full $7,500 federal tax credit available to the first 200,000 people who buy a new Tesla model. Because Tesla reached that point in July, the tax credit is being phased out and will end in 2019, barring an extension by Congress. Customers need to have their new car delivered on or before Dec. 31, 2018 to get the full amount of the credit.

Customers who have their Teslas delivered in the first half of 2019, between Jan. 1 and June 30, get half of the tax credit amount, $3,750. Those with vehicles delivered in the second half of the year, July 1 to Dec. 31 get half of that, $1,875. In 2020, there is no scheduled tax credit.

The good news? There are state tax credits you may be able to use for your new Tesla. The following states and Washington D.C. offer incentives like tax credits, tax exemptions and reduced rates for EV charging: Arizona, California, Connecticut, Colorado, Delaware, Hawaii, Louisiana, Maryland, Massachusetts, Nevada, New Jersey, New York and Pennsylvania.

How much does a Model 3 cost?

The Model 3 is Tesla’s least expensive car. You may be able to drive away in one for a minimum of $47,200. If that amount surprises you, then you know the Model 3 is often highlighted as costing less than $35,000. So why the discrepancy?

The quoted $34,200 price tag is after estimated savings, including the expiring $7,500 federal tax credit and the fuel savings you would have over five years if you owned a gasoline-powered car. Add those back in and you get to the sticker price of $46,000. Then, tack on Tesla’s standard $1,200 delivery and document fee to get a price of $47,200, not including tax and registration fees.

How to read the trim levels
The Model 3 trims are named in a self-explanatory way, but the trims for the next two models are named with numbers and letters that may need clarification. The trim levels for the Model S and X are named with numbers and the letters “P” and “D.” The number is the size of the battery — how many kilowatt hours it can hold. “P” stands for performance model and it’s the top, most expensive trim. “D” stands for dual drive, meaning the car is all-wheel drive. The higher the number, the farther you can go on a single charge. The 75D is the lowest trim level and the least expensive, followed by 100D and then P100D.

How much does a Model S cost?

The sticker price for the 75D trim of a Model S is $78,000. For a greater driving range by about 76 miles, the 100D trim comes in at a $96,000 sticker price. And for a greater performance, the P100D goes from zero to 60 in 2.5 seconds, a 64% faster acceleration for $39,000 more than the 100D.

How much does a Model X cost?

While models 3 and S are sedans, the Model X is an SUV with optional third-row seating. The lowest trim, the 75D, has an $84,000 sticker price. The next trim up, the 100D, has a sticker price of $99,000 and will get you 58 miles more in driving range. The top trim P100D for $140,000 will get you from zero to 60 mph in 2.9 seconds, instead of 4.7 seconds that the 100D achieves.

How much does a Tesla Roadster cost?

The most expensive Tesla model is the second-generation Roadster. A Founders Series Roadster is $250,000; although you could get a base Roadster for $200,000. Given the $50,000 price difference between the Founders Series Roadster and the base Roadster, which is enough to buy a whole other Tesla, the Founders Series Roadster has got to offer something special — and it does. You can go from zero to 60 in 1.9 seconds and from zero to 100 in 4.2 seconds, which is pretty dang quick acceleration.

Can you negotiate?

Most car brands let you negotiate on prices. We even wrote about how to negotiate a car price. With Tesla, however, there is no price negotiation. James Wolf, a senior engineer at LendingTree, the parent company of MagnifyMoney, bought his Model 3 in October 2018. He explained, “There is no negotiation when it comes to the price, only your options [can] adjust the price.”

There are no back-and-forth, tit for tat price negotiations on a new Tesla. The price is the price, take it or leave it. The only negotiation on a new Tesla is the one you may have with yourself and your budget: there are plenty of drool-worthy option upgrades, the cheapest of which adds a cool $1,000 to the price tag. More on that later.

Tesla fees and options

As with any car purchase, there will be unavoidable fees and some enticing options you could add to the vehicle. Both will increase the final price.

Can you avoid the destination and document fees?
No. Of the $1,200 fee, $1,000 is the delivery fee, which is charged in the U.S. and Canada regardless of delivery method or location, even if you pick it up hot from the factory floor. Why? It’s government-mandated. The delivery fee, also known as the destination charge, has to be separate from the MSRP and clearly disclosed. The remaining $200 is the document fee.

How much do options cost?
The least expensive upgrade is getting a black and white interior in a Model 3, rather than the all black. The most expensive is adding autopilot after you buy the car for $7,000, instead of ordering it for $5,000 when you get the car new.

**For Models S and X the interior options of Black and White, and Cream are available for purchase on the two lower trims only. The Black and White option is available for no up-charge on the top trim, but the Cream is not available on the top trim.

How much is tax?

Property tax. Vehicle property tax depends on your state and your county or city of residence. It varies pretty wildly, so check your state’s Department of Motor Vehicles website for more information.

Sales tax. If you’re lucky enough to live in state without sales tax (Alaska, Delaware, Montana, Oregon, New Hampshire), you may not have to pay taxes on the car’s purchase.

For the rest of the country, state sales tax applies. You may also have local sales taxes to contend with. The highest average combined state and local sales tax rate is in Tennessee at 9.46% as of July 2018. The lowest is Alaska at 1.43%. And the average in California is 8.55%.

Is tax included in the final amount I pay for the Tesla? If you live in a state where Tesla has a sales license, the applicable taxes you’ll have to pay will be included in your total. If you live in a state where Tesla does not have a sales license, taxes will not be included in the total, but you will have to pay them when you register the car in your state.

Do I have to pay California sales tax? If you pick the car up in California and you live in a different state where Tesla does not have a sales license, Tesla, by law, has to charge California sales tax. For further information on this, see a tax professional or talk to a Tesla representative.

Where does Tesla have a sales license? Tesla has a sales license to directly sell vehicles in about half of U.S. states. Different states have different automotive sales laws. You could see a thread on the Tesla Motors Club website with a map on Tesla sales licensure.

Financing a Tesla

If you’re not paying cash, you may be able to get a loan through Tesla or another lender. It does not hurt your credit to apply to multiple lenders any more than it does to apply to one lender, as long as you do so within a 14-day window. It’s always good idea to shop around for a car loan just as you would for the car itself — only talking to one lender is one of the common mistakes people make when they need an auto loan.

Tesla financing and leasing. Once you create a Tesla account, which you may do here, you can submit a credit application online and hear back from Tesla within 48 hours. Tesla financing is only available in these states: California, Colorado, Florida, Georgia, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Virginia and Washington.

Financing with your own lender. If you have your own lender, you’ll need to provide the name of the lender, the exact dollar amount of the loan and the lender’s address and phone number to Tesla. In turn, the lender will want the VIN, which you can find in your Tesla account.

How much does a used Tesla cost?

Despite it being a relatively new car company, there are used Teslas available for sale. Some models are almost 10 years old, as the first generation Roadster came out in 2008. It’s these older models that are the least expensive Teslas you’ll find, priced in the upper $30,000 range. Tesla itself offers used models that passed a rigorous inspection and come with a warranty. You can also find used Teslas for sale off third-party car buying sites, such as AutoTempest and CarGurus.

Because they are used, you won’t have to pay the $1,000 destination fee, which only applies to new cars; unless, of course, you’re getting the car shipped to you specially. If you buy the car from a dealership rather than a private person, you will still face all of the typical dealer fees. And no matter how you buy the car, you’ll need to pay the appropriate taxes.

The bottom line

The least expensive new Tesla will cost you $47,200 before taxes and before any available tax credits. You can’t negotiate on the price of a Tesla, but you can pick and choose options that suit you. If you’d like to see what else is out there without leaving your couch, you could look at the best online car buying sites for 2018.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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17 Best Online Car Buying Sites for 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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As soon as you get to a dealership, the pressure is on. There are ways to reduce the stress of buying a new car (we recommend getting preapproved for an auto loan before you go), but nowadays, you don’t even have to go to a dealership at all. Dozens of car-buying websites let you complete the whole process online.

To help you choose which auto site to use, we’ve rounded up the best online car buying sites out there — whether you want to do everything online, shop around for fun or just arm yourself with knowledge.

Best car buying sites for doing everything online

From your smartphone or computer browser, these three companies let you car shop, loan shop and order a vehicle to be delivered directly to you.

Carvana

Surf the Carvana website to get a car (and a car loan) delivered to your driveway with extremely minimal interaction with another person.

Pros: Carvana owns the cars it sells. The listings for each car are extensive, including 360-degree photos and a free Carfax report. Each vehicle has a seven-day return policy and a 100-day or 4,189-mile dealer warranty.

Cons: You don’t have the option to negotiate on price, and unlike peer-to-peer sites and dealerships, you can’t see or test-drive a car before you buy it. Delivery fees aren’t included and if you have a trade-in, you have to deliver it to one of their local markets.

Vroom

On Vroom, you can both buy and sell a car completely online. You can trade in your vehicle without needing an appraiser, and Vroom will even buy your car without requiring you to buy one of theirs.

Pros: Vroom only sells vehicles that pass multiple inspections and have clean titles. Photos, descriptions and a free AutoCheck vehicle history report are on each vehicle listing. All vehicles have a seven-day or 250-mile return period, as well as a 90-day or 6,000-mile complimentary warranty and one year of free 24/7 roadside assistance.

Cons: Vroom’s inventory is smaller than competitors, and the $499 delivery fee isn’t included in the car’s price.

Fair

Fair is an app that allows you to car-shop, secure financing and trade in your old vehicle, all online. But in a twist, you cannot actually buy a vehicle on Fair. Instead, the site offers a middle ground between renting and leasing. Prices are generally lower than renting a car, and the terms are shorter than your typical 36-month lease.

After you download the Fair app and get prequalified, you can browse the inventory and see the monthly payments and how many miles each car has. When you choose one, you’ll drive (and pay for) that car until you don’t want it. At that point, you can turn it in and get a new one that suits you.

Your monthly payment is similar to what you would pay on a loan if you had purchased the car. The vehicles Fair lists are described on its website as “high-quality, pre-owned and certified pre-owned,” under 5 years old with less than 70,000 miles on them.

Pros: Warranty, maintenance and roadside assistance are included in your monthly price. You are not billed in advance, and pricing is prorated if you swap in a car mid-month.

Cons: Your money never goes toward building equity and owning the vehicle.

Best peer-to-peer car buying sites

These sites facilitate private used car sales and generally don’t make many assurances about their condition or value. They can be great ways to find deals, but also expose the buyer to more risk.

Remember: No matter what site you find your next used car on, always perform due diligence — have a mechanic check the car to make sure it’s not a lemon. Many states do not protect used car buyers by excluding used cars, especially privately sold used cars, from falling under their lemon law. Check out our guides to how to avoid buying a lemon car and how to navigate a used car inspection to know what red flags to look for when you check out your potential new car.

Shift

This company helps buyers and sellers in the peer-to-peer auto market by doing much more than just providing a website with for-sale ads. Each car posted to Shift has passed a thorough mechanic inspection and a review of its vehicle history report. Each listing has professional photos and an expert description.

Shift allows you to do everything completely online if you wish. You can apply for financing through Shift and have the company handle the paperwork to transfer the title and vehicle registration. The company also can have the car delivered to you; however, if you live near one of the company’s seven California locations, you have the option to test drive a car with a Shift employee who takes the car to you and can answer any questions you may have.

Pros: Shift reduces the risk of buying from an independent seller. On the flip side, it makes being an independent seller easier, as buyers can more easily trust that the deal isn’t a scam and the car isn’t a lemon.

Cons: While you can have the car delivered anywhere in the U.S., the option to test-drive through their website service is only available at its seven California locations.

Craigslist

This is perhaps the most old-school car-buying website out there. Anyone can create a free car listing to sell their private vehicle, and each metro area has its own sub-website so you can browse locally. There are usually a lot of options and a large price range. However, Craigslist doesn’t offer a vetting process on the vehicle, and there are no seller profiles. — so this site is buy- and sell-at-your-own-risk.

Pros: If you are careful and knowledgeable, you could find good deals.

Cons: Craigslist potentially has a mix of honest sellers and people who are out to scam you, and telling the two apart can take some savvy. You can check out our guide to avoiding Craigslist car scams for more information.

Facebook Marketplace

Facebook allows its users to list for sale all manner of items and markets them to people in the surrounding area. This site offers a way to vet a seller and buyer more thoroughly than you could through other platforms. Most people use Facebook as a social media platform and as such, their profile is tied into their social lives; you can see any of their profile information that they make publicly available by following the link from the for-sale posting.

Pros: Depending on privacy settings, you may be able to see the buyer or seller’s profile. This can help you get an idea of whether the person wants to do an honest transaction or if the seller or buyer is actually just a profile shell built by someone trying to scam you or sell stolen goods.

Cons: The Facebook Marketplace may provide a more limited pool of listings or available buyers, since most people don’t think “Facebook” when they think of selling a car. In addition, used car dealers are starting to get in on the platform by creating Facebook business pages, making it less of a pure peer-to-peer site.

eBay Motors

On eBay, there are two ways of buying and selling a car: a fixed-price system and an auction system. The fixed-price method lets buyers shop listings with set prices, and the first person who clicks to buy the car gets it. In the auction system, the seller posts the vehicle with a minimum price and sets a time period to accept bids. When the time is up, the person who bid the most is announced as the winning buyer.

Pros: When buying on eBay, you get a Vehicle Purchase Protection (VPP) plan included at no additional cost. This protects you against certain losses associated with fraud. To qualify, your transaction must be made through eBay (not Western Union, Moneygram, or similar services.). The vehicle also has to be less than 10 years old and listed as having a clear title.

Cons: You don’t want to place bids on more than one vehicle. If your bid wins, you are usually contractually obligated to buy it. To avoid suddenly having to buy five cars and a truck, you’ll probably only want to bid on one thing at a time — which isn’t the most efficient thing to do if you need to buy a car quickly. If you want to retract a bid or cancel a winning bid, you can fill out a bid retraction form, talk to the seller or contact eBay customer service.

Best car-buying services

If the thought of negotiating gives you the chills, but you can’t find the car you want on an online-only site, consider a car-buying service. The range of services you can get from these companies varies widely. Some give you up-front information you can use to shop confidently; others offer a full-service program that delivers the car and the contract for you to sign to your door.

Be aware that many car-buying services focus on sticker price negotiation, not total cost. Dealers make the most profit not on the price of the car, but on the financing of the car — signing you up for a loan. One of the best ways to save money in car buying is to know what loan you qualify for and negotiate on the whole deal, not only the sticker price of the car.

TrueCar

TrueCar compiles and lists local prices on the type of car you want from their network of dealers, and tells you the price people recently paid for that same car. This information is offered for free and helps users know if they’re getting a fair deal on the car’s price.

The service is free to you because the dealerships pay TrueCar to be in its certified network; TrueCar makes its money by acting as a sales lead generation business.

Pros: Buyers can use TrueCar to see comprehensive pricing and communicate with certified dealers. The transparency of the TrueCar number helps push prices down overall.

Cons: As soon as you fill out the online form, expect calls and texts from a few dealers.

CarBargains

Run by the nonprofit company Consumers’ Checkbook, CarBargains charges $250 to collect bid prices from at least five dealers in your area on a certain type of car you’re looking for, making the dealers compete for your business.

Pros: Experienced people negotiate the car price for you, so you don’t have to sweat it. You won’t have to talk with salespeople or do the leg work of visiting different dealerships. Also, you’re paying directly for the service — CarBargains isn’t taking any commission from dealerships, so there’s less conflict of interest.

Cons: It’s a rather expensive service for what amounts to five phone calls and a free internet search. You could do the work yourself by researching listings and using free online guides like Kelley Blue Book or NADAguides to find the industry-standard value on what the cars are worth.

Authority Auto

Authority Auto offers more than car price negotiation help — it’s a true concierge service and offers as much or as little service as you’d like, from a free review of a final contract before you sign it to delivering a car and the contract for it to your door. Pricing is either commission-based, or potential customers can call for pricing.

Pros: There are multiple levels of service according to your needs. Authority Auto doesn’t take commissions from dealerships, so there’s less likely to be conflict of interest. Plus, some services they offer are commission-based on a percentage of what they save you, which motivates them to find you savings.

Cons: Authority Auto can take a big chunk of the money you save. If you choose to have them review your final contract before you sign it and they find savings of $4,000 or more, the total commission they take can go up to $2,000.

Best car-buying websites with mixed inventory

These sites pull postings of vehicles that match what you’re searching for from a multitude of other websites. These can be useful when you’re first starting your search.

CarGurus

If you’re not sure whether you want a new or a used car, or whether you want to get it from a dealership or another person — but you do know you want it to be red, check out CarGurus. It features new, certified pre-owned and used vehicles.

Pros: Once you find a car you like, you can sign up on the CarGurus app or by email for notifications letting you know if the price drops. Their search result page is prioritized by how well the car is priced under market value (excluding the sponsored listings at the top). It also has dealer ratings and links to a map with the car’s location and directions on how to get there.

Cons: You might have to scroll past sponsored listings at the top of your search results, since they may not match what you want. Vehicle history reports are summarized for free on each listing, but the full reports aren’t free.

AutoTempest

AutoTempest pulls search results from major used car sites like eBay, CarSoup, CarsDirect, Oodle, Craigslist and others. You can choose to see used cars from both dealers and private sellers, and you’re able to search in your local area or across the country.

Pros: Each search listing shows photos of the car, its price, mileage and location, options for a free vehicle history report and shipping quotes. It also has consumer education guides on price negotiation and how to avoid scams.

Cons: Because it pulls from so many sites, there isn’t a standard for quality of posts or any type of vetting — some leave a lot to be desired regarding information and photos.

Autotrader

Autotrader provides useful starting resources for car buyers, such as top 10 lists of new and used vehicles under certain price points. It’s also a search engine for used cars.

Pros: The auto research, reviews and tools are easy to understand and use. You can search by listing features, and filter search results by type of seller or whether the listing includes photos or a video.

Cons: The top results you get from each search are sponsored ads that may drastically differ from your search criteria, while on the resource page the regular car buyer may have to click around to find news that isn’t for car junkies.

Best websites for new car buying

While most car sites focus on used cars, there are a few that specialize in new cars. Here’s our favorite.

CarsDirect

CarsDirect doesn’t simply pull inventory postings from dealerships in your area: it keeps up-to-date on cash rebates, so you have a better idea of the actual sales price you would pay for a car.

Pros: Besides tracking cash rebates, CarsDirect has links to news and expert reviews about the car you’re looking at, right on that car’s result page. There is also a separate section with videos, how-to-choose articles and a “versus” section that will link you to similar competitor car models.

Cons: CarsDirect may not show results from all of the dealers in your area, so be sure to look around for prices. It also doesn’t track all rebates you may be able to get on a vehicle. You won’t find rebates based on credit or profession (military, educator or student discounts) and other new-car incentives the manufacturer or local dealer may offer aren’t given. You’ll have to visit the manufacturer’s website or a dealer for information on them, which may add up to be worth more than the cash incentives CarsDirect does track.

Industry standards

These three companies have been around the block and have established reputations for being among the best online car buying sites.

Kelley Blue Book

KBB first became famous as a guide for determining vehicle value, and now doubles as an online car buying site. It offers the slick feature of showing you inventory, prices and a vehicle’s fair market value in one place. It also has a four-star mobile app in the Google Play Store.

Pros: For each vehicle, you can see ratings from KBB experts and consumers, the car’s fair market value and the seller’s price, for easy comparison. The search filters are useful in a common-sense way; you can easily see who’s selling what for how much and how far away they are from you. If you’re selling your car, KBB also has an instant cash offer program.

Cons: Vehicle history reports aren’t free. If you click the “get a loan” button, remember still to shop around for your auto loan to make sure you get a good deal.

NADAguides

Similar to Kelley Blue Book, the National Automobile Dealers Association (NADA) guide functions as a source for you to determine what a car is worth. When you’re shopping, you can look for new or used vehicles to see what models and trims are available and their prices.

Pros: You can search by vehicle type, see current cash rebates on new cars in your area or use a comparison tool to put cars side-by-side.

Cons: While you can see car prices, NADAguides doesn’t offer direct listings on their site. Once you choose a vehicle, you’re sent to another site with the actual listing. If you’re interested in a new car, NADAguides will send you to a dealership; if you’re interested in a used car, it will send you to Autotrader.

Edmunds

Edmunds has direct listings posted on its site and a large number of reviews and road tests on new and used cars.

Pros: Each listing on the result page priced below market value has an icon showing if it is a fair, good or great deal.

Cons: Like most sites with used cars, there are some scam artists who post on Edmunds — so be careful if you see a vehicle that’s priced for less than half of what it’s worth. Some vehicle listings also require that you submit personal contact information to the seller in order to see the price — we don’t recommend doing that.

Methodology: In order to be chosen as a best online website, sites generally had to be easy to navigate as well as informative, but each company also had to meet the following qualifications:

  • It could not have its own brand of physical dealerships where consumers can visit and test drive vehicles.
  • Operations could not be limited to one state.
  • It has to sell regular consumer vehicles, not only company fleet vehicles or classic cars.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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What to Bring When Buying a Car: 8 Documents to Have

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

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On top of the normal stress of buying a vehicle, there’s the aggravation that comes from not having all of the paperwork you might need. The last thing you want is to make more trips to the dealership. To help you save time, money and some sweat, we made a list to check off before you hit the lot.

1. Proof of identity

This one seems like a no-brainer and it often is. If you’re a U.S. citizen with a current (unexpired) driver’s license, you’re usually good to go. But if you want to or need to use other documents to buy a car, here’s what you could use depending on your situation.

U.S. citizens: Most federal and state-issued identification that includes a photo of you, such as passports and state ID cards, should suffice. Military ID badges, however, are not acceptable as proof of identity because making a photocopy of them is illegal.

Non-U.S. citizens: You’ll have to bring your passport and visa when buying a car. The passport serves as your identification document. The visa shows you are legally allowed to be in the U.S. for a period of time. If you want to finance a vehicle with a U.S. lender, the lender will want evidence that you are allowed to stay in the country for at least the entire duration of the loan. So if your U.S. work visa is for 60 months, but you want a loan for 72 months, the loan probably will not be approved. In this example, you might have to get a loan for a 60-month term or shorter, which may mean you need a less expensive car.

To prove that you may legally drive on public roads, you usually need an international driver’s permit or a local driver’s license.

Do you need a driver’s license? Technically you could buy a vehicle without a driver’s license, but you couldn’t legally drive it, get auto insurance for it (required by lenders if you are financing the car) or register it in your name. Generally, you must provide your driver’s license, not necessarily as proof of identity, but as proof you can legally drive. The dealership will require you show your license before you even take a vehicle on a test-drive.

There is, of course, the obvious loophole: if you’re not going to drive the vehicle, it isn’t an issue. If you are a cosigner for a person who does have a license and you’re not going to drive the vehicle at all, then you don’t have to worry about having your own driver’s license. A couple examples for this situation include a grandparent who can no longer drive but cosigns for a grandchild or a disabled person buying a vehicle that their caretaker will drive for them.

2. Proof of income

Not all lenders will require proof of income, but you’re more likely to need it if you have a new job or have multiple sources of income. They want to make sure you’ll be able to not only cover your new car payment but also still be able to make rent. How little or how much proof you’ll need to submit depends on how you get your income.

Proof of income for primary job(s). Perhaps the most convenient thing for you to take as proof of income for your primary job(s) is your tax form, your W-2 or W-4. If that’s not available, then what will probably suffice is three months of pay stubs. The pay stubs should show the total amount you’re paid before taxes and the total amount you actually receive (after taxes, benefits and any other deductions).

Proof of income if you’re self-employed. If you don’t have an employer-provided tax form or pay stubs because you work for yourself, or you’re a freelancer or a contractor, the best things to bring are your 1099 tax form and at least three months of personal bank statements showing income being deposited into your account. Any work contracts showing you will have gainful employment for a set time, such as a year-long contract to develop a website, could be useful as well.

Proof of income if you’re going to start a job. If you’re not employed yet or you’re changing jobs and want your potential lender to consider your future income as a reason you can afford the new car, then bring your job offer letter. It should show the employer’s name and contact information, your name, future start date, annual income and any bonuses being offered. Many lenders will want to verify the offer with the future employer. Many lenders require that this starting date is no more than 90 days out from when you sign the financing contract for the car.

Multiple sources of income. You do not have to prove every single source and amount of income you earn. You only have to report it if you want the lender to take this other income into consideration. For example, if you earn $30,000 a year from your job, but you also receive $10,000 a year from Social Security, alimony, pension, child support, stock dividends etc., that’s a lot of money that could help you afford your car payment.

The more you are able to make your loan payments, the less risky it is for the lender to lend you the money. This translates more likely getting a loan and having better loan term. So if you have a significant amount of income from other sources, consider including it in your auto loan application.

To prove these sources of income, you may have to provide a couple of different documents in addition to bank statements. The second type of documentation depends on the type of income source.

  • Social Security. The award letter from the government showing the amount you receive and how often you receive it.
  • Pension. A letter showing that you are to receive a specified amount from a pension fund managing company, the start date and for how long it will continue. It may be that it continues for the rest of your life or until you reach a certain age.
  • Interest and dividends. The issuer of these should provide an income statement showing how much and when you receive it.
  • Child support or alimony. A signed court order showing the amount that is to be paid to you and the dates you’re going to receive the payments.

If you have any questions specific to your situation, you could also ask the lender directly or a dealership finance manager.

3. Proof of residence

You’re most likely to need this if you recently moved. The address you provided on the loan application should be your residential address — where you actually live. Most lenders will not accept a P.O. box or a business address as your primary address.

The most commonly accepted forms for proof of residence are utility bills such as electricity, water and gas. You usually only need one utility bill as proof. But if the utility bills aren’t in your name, then a medical bill or tax bill, bank statement, lease or mortgage contract, driver’s license, cellphone bill or several pieces of business mail (or junk mail) may work, depending on the lender.

If you absolutely need to receive mail at an address that is not your residential address, you can specify that your mailing address is different from your residential address. Specifying this may be an option during the process of buying the car, or you may need to contact the lender afterward to add to your personal preferences.

4. Current vehicle registration (for trade-in)

To trade in a vehicle, you have to prove you have the right to do so. If you have the current vehicle registration in hand and only in your name, you’re good to go in most cases. This applies if you go to a dealership to get your new car, no matter whether you still owe money on the vehicle or you own the car outright.

Do you need to bring the title? If you own the vehicle (you paid off the loan or you paid for it in cash), then you should have a title and it’s best to bring it in order to avoid delays in paperwork processing. But if you lost it, you could fill out a form that’s called “lost title” or “request for title”(provided by the dealership or your state’s DMV site) and may be able to trade in the car with that form instead of the title, as long as you have the current vehicle registration.

What’s a payoff instead of a title? If you owe money on the trade-in, you don’t have a title. In this case, you’ll need a payoff statement, which shows how much money it costs to pay off the entire vehicle loan at once, at an exact date. You do not have to worry about getting this yourself if you go to a dealership. At a dealer, your salesperson can get a payoff quote from your lender (which is listed on the vehicle registration) and take it from there.

If you are buying a car from a private seller, you might have to do more work. If you need a loan to buy the car from the private seller, the lender may call and get the payoff amount for you and apply that amount into your new loan, or you may have to call yourself to find the amount and tell your new lender what it is.

If the trade-in isn’t yours. In the case that the car you want to trade in isn’t yours, you need to have the owner sign off, saying that they give you the right to trade it in and they acknowledge they won’t have a right to the new car. Some places require that the owner go to the dealership, show their ID and do this in person. If the owner lives in a different state, the same paperwork applies and can be sent to them, but they will probably have to have it notarized.

If there is another name on the vehicle registration or title. If your name is on the paperwork for the trade-in along with someone else’s, you might have to get them to sign off on the transaction. Because their name is on the paperwork, they’re technically part owner. Depending on the state, you may not be able to sell or trade it without their permission.

To find out whether your state requires consent from both owners before you can sell or trade a vehicle, visit your state’s Department of Motor Vehicles website or ask a manager at a dealership. If it is required, follow the steps in the section above to get permission from another person.

5. Method of payment

Whether you’re giving a small down payment or paying for the whole vehicle at once, here are some notes on what to bring when buying a car in the way of money and funds.

Credit or debit cards. Do bring your card and don’t forget your PIN number (if you have one). Also, don’t be surprised if the transaction is declined if you didn’t warn the card company about a large purchase in advance. Call your credit card company or bank (if it’s a debit card) ahead of time to let them know you’re giving a vehicle down payment and you may need a one-time or a one-day increase to your normal daily credit or debit limit. It’s easier to do this ahead of time instead of when you’re in the finance office at the dealership.

Cash. Bring large bills for faster processing and expect a dealership manager to count it in front of you and check for counterfeit currency.

Check. For exceptionally large personal checks, the dealership finance manager may call your financial institution to ensure fund availability. Some dealers have a third-party check processing company that guarantees checks. If the dealership can’t verify funds, they may ask for a different form of payment.

A dealer’s check. If you already accepted a loan offer directly from a lender, the lender may give you a blank check (with a maximum limit on it) for you to use to buy a vehicle. After you strike a deal and sign the paperwork to buy the car, you’ll give the dealer’s check to the finance manager who will fill it out and send it to the lender with the other paperwork. Your loan will be finalized when the lender pays the dealer.

6. Rebate qualification documents

If you want a rebate, you usually need to bring appropriate documents showing you qualify. Here are three common car rebates and the documents to take with you to show you meet the requirements.

  • Military. Bring the appropriate document pertaining to your current military status:
    Active duty: Bring your Leave and Earnings Statement (LES).
    Retired or separated from service: Bring your DD-214 discharge papers.
    Again, military ID badges are not acceptable. If you want to receive the discount because your spouse or household member served, not you, they will need to come with you and bring their LES or DD-214 and proof of their relationship with you such as a marriage license or proof of residence.
  • Grad/Student. Your diploma showing you graduated or transcript papers showing your soon-to-be graduation are generally accepted. You may also need to have proof of income.
  • Conquest/Loyalty. Bring the vehicle registration or title of the car that shows either a competitor brand and model (for the conquest rebate) or the same brand (for the loyalty rebate) to prove that you (or someone in your household) currently owns it. If the car is not registered to a household member, you may have to prove that you live at the same address with proof of residence for each of you.

7. Knowledge of your credit and banking history

The following things aren’t required papers to bring with you but should at least be familiar knowledge when making a major purchaser. If you want to bring a copy of any of these for your own reference, feel free.

Credit history. When the lender does a hard pull on your credit, they will receive a copy of your credit history. You don’t need to provide one to the lender. You should, however, know your credit score (you could check it at LendingTree) and what’s on your credit history report. Both are important when shopping for a car loan because they impact the type of loan offer you receive. (LendingTree owns MagnifyMoney.)

Dealerships are usually able to make money by increasing the auto loan APR above what the lender charges. And to convince you that you deserve a higher APR, they might point out places where your credit history is lacking. If you have your own copy of your credit history and a preapproval from another lender, you’ll have a better idea of the rate you deserve.

Banking history. Usually, if a lender asks for bank statements, they want them as proof of income or proof of assets. Unless you know you need these, it’s not recommended to bring them. It would be good, however, to know how to get into your bank account from another computer, so you could print bank statements at the dealership if later deemed necessary.

Asset amounts. How much you have in your savings or investment accounts isn’t just a good way to show off that you manage money well, it’s also a way for the lender to confirm that if you don’t make your car payments, you have liquid assets the lender can take instead. You would only likely need these documents to buy a car if you have a lot of current debt on your credit history.

8. An auto loan preapproval

Because dealerships can make money by increasing your auto loan APR above what the lender charges, we highly recommend you get an auto loan preapproval from your bank, credit union or online lender before you step foot into a dealership.

A preapproval will tell you the APR you can get, the amount you can borrow and how long or short your loan can be. You’re not tied to any one dealership, either. If you don’t like the dealership, you can leave and take your preapproval with you. It doesn’t hurt your credit to apply for a few preapprovals or a few auto loans any more than it would to apply for one — if you do your applications within a 14-day window.

So if a salesperson offers you a 5% APR loan and you have a 2% APR preapproval in your pocket, your life just got easier. You can read more about the benefits of getting a preapproved auto loan here.

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Terms

24 To 84

months

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Varies

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LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Auto Loan

How to Negotiate Car Price

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

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A car is only worth what someone is willing to pay for it. So it’s usually a salesperson’s job to convince you it’s worth a lot. Many Americans hate bargaining and rarely do it. So when faced with negotiating a major purchase with someone who negotiates as their job, it can be daunting.

We give you advice in negotiating car prices, tricks for the shy — or bold — and different tactics to try depending on what type of car you’re buying, new or used.

Car price negotiating tips for everyone

The first part of successful negotiation is doing your homework — looking up car values and doing some online price shopping. It’s an unpopular step. It doesn’t have the same feeling many people associate with negotiation: fast talking, slicked hair, Cuban cigars. But it’s definitely the starting point for a successful car search.

Look up the current values
No matter how you plan to get your car, whether you want to buy your car completely online with as little human interaction as possible or stride onto the car lot with your cowboy hat on, ready to duke it out, you should know what to fight for other than the vague idea of “cheaper price.”

A safe bet is to use what the lenders use to find the value of vehicles. Lenders price vehicles based on industry guides such as Kelley Blue Book (KBB) or via the National Automobile Dealers Association (NADA). Both are entirely free to use online. Once you narrow your choices to a couple of cars or the car, look up what it’s worth. That’s the fair market value, and you should aim for that or lower.

New cars will have a guide value and a manufacturer’s suggested retail price (MSRP). The two should be similar, but you could make the case you deserve to pay the lower price. See below for more on how to negotiate a new car price.

Shop virtually before shopping in person
Visit a few dealership websites or online marketplaces to see what’s out there. There are several auto-buying websites and phone apps such as Edmunds and VIN check by iSeeCars that will tell you how a car’s sticker price compares with its market value. You can also see how similar cars are priced in your area thanks to mapping features, which may be easier to navigate rather than clicking through search filters and numerous pages for each dealership.

If you find that a car you want is priced more cheaply in the next town, call your local dealership, tell them the other guy is selling that car for the lower price and ask them to beat it. And, if you want, you could repeat this call-and-price process several times to see how low you can get the price.

Be aware that many dealerships will do their best to get your personal information. It’s relatively safe to give your name and email, but we don’t recommend you provide your address or phone number unless you want them calling you back often. Tell them you’re shopping around and you need them to convince you by giving their best price before you go in or provide any personal information.

Do not focus on monthly payments
This is the most common and most costly mistake car buyers make. Focusing on monthly payments makes it easier for the dealership to keep the car price high and slip other things into your payment. Thinking about things on a monthly basis prevents you from seeing the total cost.

A common trick is for the salesperson to use a negotiation worksheet called the “four square.” On this four square, they may address everything with you but the car price. Instead of writing price negotiations in one of the four boxes, a salesperson might write reasons why the price is set, such as “newest model” and “moonroof.” Don’t let them get away with this. It’s feasible that anyone could sell you anything at any price and still meet your monthly payment requirement — they just make the loan longer. If you get a good price on the car, the monthly payment will follow.

After you decide on the price, when you do get to talking about monthly payment, ask what the monthly payment includes. It should only include the car, taxes, title and license fees, the APR and negative equity from a trade-in, if applicable. It should not include warranty, Guaranteed Auto Protection (GAP) insurance or anything else.

If it does include something else, ask what the charges are and their total prices, not their monthly prices. A warranty may cost $30 a month, which may not sound like a lot, but over your entire loan it can add up to more than $2,000. If you don’t want it, say so.

Always keep your eye on the APR
The dealership cannot change your APR based on whether you buy a warranty or any other add-ons. The best way to prevent them from increasing your APR period is to get preapproved loan offers from other lenders before you go to the dealership to shop for cars. This way you already have loan options and you know what APR you deserve. You can read more on getting an auto loan preapproval here.

Go with a friend
For the bold and the shy alike, going to negotiate car prices with a friend or family member can be a huge help. Having someone to talk to while the salesperson runs to check prices with a manager will give you something to do besides twiddle your thumbs and wonder silently what’s taking so long. An extra set of eyes may see something you don’t.

Be aware that whoever goes with you will probably get a window of insight into your finances. If privacy matters to you, don’t take a friend who won’t respect it. Let your friend know ahead of time if you don’t want them to share any of your information they may learn during the process.

Try to time it right
Sometimes when you need a new car, you need it right away. Other times, you may have the luxury of being able to plan out when to get another vehicle. If you have that luxury, here are the times when you’re more likely to negotiate a better deal.

  • On a weekday. There is less business at a dealership during the workday. Things won’t be as busy, meaning the salesperson is less likely to pressure you to hurry up and buy the car so they can move on to the next customer.
  • The end of the month. Most dealerships have monthly sales goals. If you go at the end of the month, they might be really pushing to hit that number and thus be willing to cut a better deal for you than they would be at the beginning of the month.
  • The end of the year. With new car models coming in, dealerships want to clear out the older models. These older models are still new cars; they’re simply no longer the hottest thing on the market and are priced accordingly. Especially in December, dealers may be willing to sell them at a loss because these cars are only getting older, taking up space and decreasing in value.

Walk away
While it can be annoying to spend hours at one dealership, not come to an agreement and walk away feeling like you wasted your time, you should be willing to walk away. Otherwise, you might waste a whole lot more time in the form of working a ton of hours to pay off an overpriced car.

Car price negotiating tips for the more timid

No matter how much the salesperson smiles at you, remember: Buying a car and getting a loan is all business, and you need to do what’s best for you.

Call ahead to set an appointment
You can call the dealership ahead of time and request an appointment. Some dealerships will even let you request the type of person you’d like to have as your salesperson. You could specifically say you would like to work with a person who is not pushy. And if you do get a pushy salesperson, ask for another or go to another dealership — you are not tied to a salesperson or a dealership.

Another benefit of an appointment is to request ahead of time the specific car or cars you’d like to see. This way, you won’t have to wait for an available salesperson if the dealership is busy. You can breeze past any salespeople that may be waiting by the door, and the cars you want to see may be lined up and waiting for you. It could make things more efficient, putting less pressure on you.

Take printouts or screenshots
Printouts can be useful as a tangible reference. Screenshots also make things easy to access (rather than searching and finding something online again). Both put prices in black and white. And, this way, if the salesperson asks, “Are you sure that’s what you saw?” you can say yes and show them.

Break up the process
You do not have to do everything in one day. Even if the salesperson tells you the car you like might be sold tomorrow, there are thousands of cars out there and it’s probably better to wait and choose another car rather than make a choice under pressure that’s not right for you.

Test-drive a couple of cars and then take lunch to talk about the vehicles with a friend. Or sleep on your options for a night and go back the next day or the day after that. As a general warning, do not wait weeks on end as the car is more likely to sell and any sales specials are likely to change. If you do find yourself putting off the purchase for that long, then it may not be the right vehicle or the right time for you to buy.

Car price negotiating tips for the more aggressive

If you like negotiating and you smile at the thought of playing hardball, here’s how you could negotiate car price.

Make a low offer
In most negotiations, you end up meeting somewhere in the middle. So “the middle” might be lower if you start very low. Don’t worry about insulting the salesperson by making a low offer. Once you name a price as the buyer, that price usually only goes up, not down.

If you ultimately want to pay no more than $17,000 for a car that’s priced at $20,000, don’t offer $17,000 off the bat. Offer $11,000 and see what they do. After a couple of rounds of “this price,” “no, this price,” they might end up saying yes to a lower price than what you aimed for.

But don’t expect the dealer to sell you a $20,000 car for $11,000. Just as you have many other dealerships as potential sellers, they have many other customers as potential buyers. If you are completely unreasonable, you won’t have to threaten to get up and walk away because the dealership will invite you to leave. Again, if you’re armed with a car’s current value from an industry guide such as KBB or NADA, you will be able, at the very least, to aim a bit below that price.

Negotiate with two dealers at once
An aggressive car negotiating tactic you might use is to be at one dealership talking with a salesperson while having another dealership on the phone. Doing this, you can play the two dealers off each other and get immediate answers. If you put the caller on speaker, Dealer A will be able to hear Dealer B give you a price and will likely feel compelled to beat it.

How to negotiate car price for new cars

The MSRP is the standard price on new cars. It’s the number you may hear in radio car ads: “Krazy Kevin is selling all new cars for $100 below MSRP!”

MSPR is not what the dealer paid for the car. The invoice price is what the dealer paid for the car and even then there is a “holdback” in the invoice if you know where to look. The holdback is a reserve profit, so a dealer could sell a vehicle at invoice and still make money. Contrary to what they would have you believe, dealers will not need to eat their shirt if they sell a car to you at a price under invoice, although a salesperson might have to eat their pride.

  • If a salesperson tells you the car is below MSRP and that it’s such a good deal, ask what the holdback is and ask to see the invoice.
  • If the car is in demand and priced above MSRP, then use some of the negotiating tactics in the “For everyone” section.

In both cases, look up the rebates on the vehicle, which could bring the price down even more. And for information on the specifics of what’s negotiable and what’s not when buying a new car, check out this story on dealer fees from LendingTree.

How to negotiate car price for used cars

A used car doesn’t have an MSRP. It also won’t have rebates (which come from the manufacturer) because the manufacturer isn’t selling the used car — the current owner is. But there are still ways to figure out the fair value and to get a deal whether you buy a used car from a dealer or a private seller.

Determining a used car’s price
To know what a fair market price is on a used car, consult industry guides such as KBB and NADA. (See the above section on looking up current values.) Sellers will sometimes say they bought the car for more than its current value, but that’s not your problem. Just because they overpaid for the car doesn’t mean you need to overpay for the car.

Of course, the guides are just that: guides. They assume the car is in “good” condition, but the car may be in worse condition. Look for any signs of damage, rust or excess wear and tear on engine belts or upholstery that you could point out to make the case that the car is not in “good” condition. It would be labeled in “fair” condition and thus worth less than the posted price and the guide price.

When you are ready to finance your used car, check out our story on the six best used car auto loans and definitely research financing before you go to a dealership — here’s why.

At a dealership
Used cars are usually the most profitable type of car at a dealership because dealers can buy them for cheaper than market value and sell them for over market value. The best way to avoid paying the inflated price is to know the market value. Use KBB or NADA and ask for a free copy of the vehicle history report to see if the car was in an accident, a factor that might be cause for a lower price.

Also be aware the dealer will try to sell you an extended warranty on the used car as it’s another big way the dealer can make money. Odds are, you won’t need it. But if you’re interested, you can check out LendingTree’s ultimate car warranty guide.

The dealer will also try to make money off your auto loan. No matter where you apply for an auto loan — at your bank, credit union or online lender — apply directly through them, not the dealership. If you apply to your bank through a dealership, the dealership may be able to raise the APR above what the bank charges. Applying to your bank cuts out the middleman. When you get to the dealership, you can still apply through the dealer to see if they can beat that rate. But if you don’t have a loan offer that you got directly from a lender, you might be convinced to pay an inflated rate because you wouldn’t know what APR you deserve. A good way to potentially see several APRs you deserve is to fill out an online form at LendingTree, which cuts out the dealer as the middleman.

LendingTree
APR

Up to
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

From a private seller
Private sellers may find it difficult to sell their cars because they probably don’t have experience selling or access to a deep pool of potential customers. Plus, time spent selling might mean time off work to meet would-be buyers. Because of these things, you can almost always get a car from a private seller for less than you could from a dealership.

Again, use a KBB or NADA guide, but with the setting on “buying from a private seller,” not “buying from a dealer,” as the value will be lower. If you’re serious about the car, consider getting a vehicle history report or having your mechanic inspect it before you make an offer. If you find anything, such as a history of accidents or major repair needed, use that as a reason to lower your offer.

And if the person seems reluctant to sell for the price you want, mention you have the money or the offer ready now. If they don’t take it, they’ll have to wait and repeat the process. List everything they may have to do: post another ad and wait until someone else expresses interest; arrange a meeting time and test drive; and allow time for an independent inspection and negotiation, all the while missing work and (another) family dinner. But you’re offering them the money now.

The bottom line when negotiating car price

A car is typically one of the most expensive purchases a person makes in their lifetime. Be aware that a vehicle is a tool, not an investment, in most cases. Unless it’s an expensive classic car that will only appreciate in value with age, your car isn’t going to be paying you back. So if you can’t negotiate an affordable price on a certain vehicle, look for a less expensive one and try again.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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The People You Meet at a Dealership

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The parade of people you encounter when buying a car may feel like a confounding tactic meant to throw you off balance — but it’s one that car buyers can also use to their advantage.

You might meet multiple sales staff members and managers, from the first person who calls you about a car to the person who finally hands you the keys. We’ll introduce you to each one, what they want, how they go about doing their jobs and how you can best respond to get the best deal on the lot.

The salesperson who calls you on the phone

You could get a call if you filled out an online form because you were interested in a car. Or, you could get a cold call, a sales call made to you without your permission. While the first might be welcome, most people find cold calls extremely annoying — and “most people” could refer to both you and the caller.

Who they are. The person calling could be a dealership salesperson or an employee at a call center (also called a business development center), which may be part of the dealership or a third party company.

What they want. If the person is a call center employee, their goal is to bring customers to the lot. If the person calling is an auto salesperson, they don’t just want you to come in, they want to sell you a car directly.

How they do it. Both call center employees and car salespeople will use charisma to convince you to come and look at cars. Because call center employees usually receive an appointment-based commission — they may get paid for each person who visits the dealership, whether you buy or not — they might disregard any concerns you may have about credit requirements.

Auto salespeople are paid for selling cars, not getting people in the door, so they may ask more questions to figure out if you are worth pursuing. They don’t want to waste their time on customers who can’t afford a vehicle. If they think you can afford a car, they want to make sure that you ask for them specifically. They may repeat their name often or have you write it down as they have lots of competition, even from other salespeople within the same dealership.

Response tactics. If you simply don’t want them to call, say so and tell them to take your number off the call list. If you are interested in what they’re saying, ask for more information and find out if they’re a call center employee or a car salesperson. If you want, you could set an appointment, but before you go to the dealership, make sure you do your own research on prices or any sale the person described. If you’re serious about getting a car, definitely get an auto loan preapproval before setting foot on the lot. Read more on why you should get an auto loan preapproval here.


The regular car salesperson

That stereotypical guy with slicked-back hair in a plaid suit waiting around like a vulture for you to pull up in the parking lot? He still exists, though he may have upgraded to a polo shirt and slacks. This is the most common job at a car dealership.

Who they are. They are usually very good at dealing with people — however, they are usually not experts in cars, and are probably even new to the industry. There is extremely high turnover in auto sales, due to high stress and long hours.

What they want. They want you to buy a car, but much of the process is out of their hands. They don’t set the prices and, like you, they’re at the mercy of a lender’s decision. If they spend five hours with you and you don’t buy for some reason, they may not get paid for their time or risking their lives on a test drive. They want things to go quickly and smoothly to maximize their chances of selling the most cars. And more to this point, they usually want to build a relationship with you in hopes of future business with you or your family and friends.

How they do it. They’re charming or, rather, they try to be. Each salesperson strikes a balance between being helpful (sometimes to the point of subservience) and being an authoritative figure. Even if they’re new to the industry, a salesperson will probably know more about the car-buying process and prices than you do. Don’t feel bad — it’s their job, while you might only buy a car once every seven years.

Salespeople may negotiate on a car price or monthly payment with you; the level to which they are allowed to negotiate depends on the dealership. No matter who sits down with you to talk about money, a common tool is a sheet called the “four square.” This worksheet breaks down four aspects of a car deal.

An old trick is to discuss everything but the car price in the four square. Instead of writing price negotiations in the price box, the salesperson might write reasons why the price is set, such as “leather seats” and “good gas mileage.” At the end of negotiations, the salesperson may write out and ask you to initial or sign something along the lines of “I agree to buy the car today if the monthly payment is less than $600, with a $5,000 trade-in and $1,000 down.” Notice that the price of the car isn’t mentioned.

Response tactics. Don’t let them get away with distracting you from negotiating on the price of the car. A big and most common mistake is focusing on the monthly payment — focusing just on the payment makes it easier for the dealership to keep the car price high and slip other things into your payment. Instead, focus on the car’s price. Look at the monthly payment only after you get the car’s price — if you get a good price on the car, the monthly payment will follow.

Tip: Don’t be afraid to write on the four square yourself. If the salesperson tries to make you focus on everything but the car price, redirect them. Circle the car price that’s written on the four square and put a down arrow next to it. Say that the price needs to go down before you talk about anything else.

The mercenary car salesperson

These are your typical fast-talkers, paid-on-commission-only salespeople who are drastically aggressive, even when saying “yes, ma’am.”

Who they are. They are experts at making money in car sales. They’ve been in the industry a while and take no prisoners. They can cover a few car dealership job positions and function as a salesperson, closer and finance manager (positions we’ll go over next).

They’re generally not dealership employees, but part of another business that a dealership hires to come in and drive up sales for a short period of time. This makes any social repercussions from their work easy to avoid for both them and the dealership, as they usually do this type of work on the road, far from home, and the dealership can tell any disgruntled customers that person doesn’t work for them anymore.

What they want. Because they are usually straight commission, they’re driven to make a profit, and a large profit at that, on one deal. They probably aren’t interested in networking to build a relationship with you and eventually sell a car to your friends and family.

How they do it. The faster everything goes, the less time you have to think. They will try to hurry you through everything from picking a car to a test drive to signing on the dotted line. Remember, a car deal isn’t just about the car — it’s also about the financing and related products, everything from special wax to warranties, GAP waivers and service contracts. They may also use a four square — and before you realize it, a large portion of your money isn’t even being spent on the car itself.

Response tactics. Slow the process down. Tell them they can go help other customers while you think about something. When discussing monthly payments, tell them to explain everything that the payment includes — that way they can’t slip in a warranty or something similar you don’t want. And if they’re too aggressive, find a manager to ask for a different salesperson or go to a different dealership.

The closer

If a salesperson can’t get a commitment from you to buy a car, they may do a T.O., or a “turn over” to the closer; this is usually the sales manager. It’s the next step up from a salesperson in the hierarchy of a car dealership.

Who they are. Savvy negotiators who climbed their way up from being salespeople; they have years of experience and function as operational leaders in the dealership.

What they want. Their first order of business might be to prevent you from walking away. Their last order of business is to have you agree to buy a car at a certain price or monthly payment. They want you to make a commitment to buy.

How they do it. Establishing a rapport with you is important. You might have spent hours with the salesperson and things didn’t go smoothly (or they probably wouldn’t be there). They know that you see them as a random new person walking in to discuss your personal finances — which is to say, they need to quickly convince you to trust them enough to listen — and maybe spend several thousand dollars.

Response tactics. Look at the logic of what they’re saying. The best way to respond is to have other options. If they tell you, “This is a great price for this car!” show them the car’s value as stated in an industry source like the National Automobile Dealer Association’s guides, a free online resource. If they tell you, “This is the best APR you can get!” show them another loan offer or go get one from your bank or credit union to see if that’s true — it could mean thousands off the total cost. If you’re concerned about multiple hard credit pulls damaging your score, know that you can shop around for the best APR without being penalized; getting multiple loan offers within a 14-day window will not hurt your credit any more than getting one loan offer.

The finance manager

A finance manager’s expertise is to increase the total amount you’re paying for the car deal, one way or another. They can also be called the business manager, the F&I manager (finance and insurance) and, inside the dealership, “the spinner,” because they spin the paperwork around on the desk for everyone to sign. It’s considered one of the cushier types of jobs at a car dealership, as it requires a personal office and a lot of sitting inside, instead of walking around outside in whatever the weather is.

Who they are. They are usually experienced car salespeople who climbed the ladder and went through a certification program. They are on par with sales managers, but specialize in negotiating on two levels — with both lenders and customers.

What they want. They want you to spend more money, largely by convincing you to buy add-ons such as warranties, service contracts and GAP, which helps their bottom line. They also want the lender to give a finance offer that will let the dealership make the most money.

How they do it. They use the same principles as magicians — they show and hide things very selectively. If you agreed to buy the car for a payment under $600, the finance manager might tell you something along these lines: “I have good news! I convinced the bank to lower your payment. They had it at $630 but I talked them down to $615 and that’s with a warranty. Sound good? Sign here. Now there’s also a pre-paid maintenance plan we offer…”

What they aren’t saying in this example is that without the warranty, your payment is actually $580 — and they definitely wouldn’t tell you they increased your APR. So if you agreed to the $615 payment plus the maintenance plan, that’s an extra $54 a month for 72 months — you just paid the dealer nearly $4,000 for things other than the car. We break it down below:

Response tactics. Much like you did with the salesperson or the closer, don’t just say “OK” to a monthly payment. Ask what the payment includes and then talk about the total price for each thing. You should not be required to buy anything in order to get a loan or a better deal on a loan. If they say otherwise, tell them to show the requirement to you in writing.

If your APR is over what you think it should be, tell them to “drop the points and take the flat.” When a dealer makes money by increasing your APR, it’s called making points (APR points). But a dealer can still make money by taking a flat rate from the lender instead of making points. Of course, to know what APR you deserve, you should get preapproved loan offers from other lenders before you go to the dealership to shop for cars.

The general manager

If a dealership is a kingdom, the general manager (GM) is king — this person is at the top of the hierarchy of a car dealership.

Who they are. They are in charge of the entire dealership, from the janitors to the managers. They are ultimately responsible for dealership profitability and are held to that by the owner(s). They may have started their careers as a salesperson.

What they want. If you as a customer meet the GM (unlikely, though it does happen occasionally) one of three things could be happening. They’re making rounds to raise customer satisfaction scores, acting as a sales manager to keep their skills sharp and retain the respect of the managers by doing some “floor work” — or there’s a huge problem that needs their attention, in which case expect a quick decision and quick result.

How they do it. Depending on what their mission is, how they accomplish it will vary, but quickly and with authority generally applies.

Response tactics. If you believe the dealership flubbed, make your case. GMs want happy customers and are usually busy, so they may side with you quickly. If they don’t, know that you have other options — there are other dealerships to try.

The service writer

After you buy a car, this is the main person with whom you’d interact if you take your car back to the dealership for servicing, from oil changes to complicated repairs.

Who they are. This person interacts with you if you go for an oil change or car repair. They put the appropriate orders in and deal with any warranty companies — in fact, they may literally run back and forth between the mechanic bays and the customer waiting area.

What they want. They want you to be happy so you’ll continue to come back for servicing and so you may buy more accessories or services from them. There are often bonuses and prizes for service writers who sell parts, accessories and future services to customers.

How they do it. The shadier service writers might tell you that you need parts when you don’t, or that you must have a more expensive part when a cheaper one would do just fine.

Response tactics. Look up what the part costs online. Manufacturer parts (such as Toyota, Ford, Chevy parts) can be three times more expensive than aftermarket parts (ones not made by the manufacturer). If you doubt something needs to be fixed or they refuse to use a less expensive part, get another opinion by taking it to an independent mechanic with a good reputation.

People behind the scenes

There are some people behind the scenes you probably won’t officially meet at a dealership, but may impact you nonetheless.

  • Porters. They may drive off in your trade-in car or bring your new car up to you. In the service drive they could take your car to the mechanic bay and back to the customer area. They drive cars to and from different car lots.
  • Detailers. They clean cars inside and out both as basic upkeep on the cars that are for sale and as a final cleaning after you decide to buy the car, before you receive the keys.
  • Finance director. This person is the head of finance managers. They could step in if there’s a complication with car title paperwork if you need your new car registered out of state or your trade-in has an out-of-state title or registration.
  • General sales manager. This person trains sales staff and is the head of sales managers.
  • Internet sales manager. This person is usually the head of the internal dealership call center, if it has one, and works with the marketing team to post the vehicle details and photos you see online.

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Jenn Jones
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Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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4 Situations When You Should Consider a Car Lease Buyout

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If you’re nearing the end of your lease, you’re probably thinking about what to do with your car now that it’s not quite so new and shiny, and how much you’ll have to pay if you decide to keep it. One option is to buy the car. But is that to your best advantage?

We’ll break down what a lease buyout is, four situations in which it is — and isn’t — to your advantage, and how the process works.

What is a lease buyout?

A lease buyout is when you decide to purchase the vehicle you have been leasing instead of turning it in. There are two main ways to do this:

  1. Finance the remaining value of the car.
  2. Pay cash for the remaining value.

The good news is, you don’t have to haggle over the amount — every lease contract contains the set price at which you can buy the car at lease-end, if you want.

Because you’re “buying out” the manufacturer for the right to the car, it’s called a lease buyout. In most leases, the person who does the leasing has first dibs on whether they want the car. The leasee decides to buy the car or turn it in and the manufacturer accepts the choice accordingly.

Taxes and fees. Note that if you do buy the car, you may have to pay sales tax and state fees, just as you would if you bought any car. Yes, you already paid taxes on it when you first leased the vehicle, but you did not own it then, and the owner on the title and registration was the leasing company, not you. In a lease buyout, the title and registration will change, meaning you might have to pay such expenses (again), depending on your state. However, you could wind up paying the same fees if you get a new lease or purchase a different car altogether.

When to consider a car lease buyout

Here are some factors that may make buying your leased car worthwhile. These factors range from cold, hard cash considerations to “warm and fuzzy” feelings you may have developed for your vehicle.

If it’s worth more than the buyout price

When you first sign the lease, you agree in the contract what the vehicle will be worth when your lease is up. This is also known as the agreed-upon price at lease-end. It is the guaranteed price you can buy the car for if you want. It is also an estimate of the car’s value in the future. When it actually comes close to lease-end, look up the value of the car. Common sites to research car value include Kelley Blue Book, the National Automobile Dealers Association’s Black Book and Edmunds. If it’s worth a lot more than what you can buy it for, then you would be getting a great deal — paying less than what the car is actually worth.

If you incurred high fees

If you go over your mileage limit, you could find out how quickly a few cents per mile adds up. The same can be said of wear-and-tear charges. If the manufacturer is going to charge you for excess mileage and wear-and-tear damage to the tune of a few thousand dollars, you may be better off buying the car in order to skip the fees.

If you found a third party to do the buyout

One way to skip all types of fees and not buy the car yourself is to do a third-party buyout. You could advertise the car for sale or find a friend who wants to buy it and then that person does the lease buyout through you. Some manufacturers will facilitate a third-party buyout. And, depending on your state, you may be able to buy out your lease, turn around and sell it within a few days and not have to pay the taxes. If you decide to do this, be sure to check with your state’s Department of Motor Vehicles, your leasing company and a dealer or manufacturer to be clear about the laws and processes you have to follow.

If you fell in love the car

So far we covered financial reasons to do a car lease buyout, but there may be emotional reasons as well. It’s not uncommon for drivers to become attached to their vehicles. You’re probably in your car at least twice a day, every day. You may have memories tied to the car, and your life quite literally depends on it functioning well. If you need a car anyway, why not buy the car you love?

When to avoid a car lease buyout

You do not have to buy out your leased vehicle. A huge part of why people like to lease is the fact you have the choice to turn it in and walk away if you want to. Here are three reasons you might want to say goodbye to your leased vehicle.

If the car doesn’t match your needs

Maybe you moved to Chicago and need a car that can better handle both the snow and the tight city parking. Or, you started a company and need extra room to transport clients and business supplies. You don’t have to do an auto lease buyout. Get a different vehicle that fits your needs and can handle what’s going on in your life, not only now but for the foreseeable next few years.

If it isn’t affordable

Buying your leased car may not be affordable. Leasing is appealing in the first place because it offers relatively low payments and APRs when compared with purchasing a car. If the vehicle is still worth a lot on paper, the purchase payments for a buyout could be higher than the lease payments. Don’t forget that taxes and state fees could add on the price of the buyout. You are technically buying a car, it could be subject to sales tax and other fees, depending on your location. It may be cheaper on a monthly payment basis to lease another vehicle. And it could be smarter overall to turn in the car and get an older used car.

If it’s worth less than what your contract says

The car’s buyout value is set at the beginning of the lease and usually can’t be changed. However, this value was a prediction. It may turn out that the car model you have develops expensive problems down the road and is worth much less than what was predicted. If the car value has declined to the point it being significantly less than the set buyout value, you would be overpaying to buy out the car.

If it had major damage

Another way the car could be worth less is if it was damaged while you leased it. If it got hit in a car accident or a storm, it will be considered less valuable because it was damaged, even if that damage was repaired. The negative impact on its value (and thus its price) only affects the owner — in a lease, you’re not the owner, ergo, don’t buy it and become the owner.

How the lease buyout process works

If you know you want to do a lease buyout, call your leasing company two to three months prior to the lease ending. They might call you around the same time period to discuss all of your lease-end options. Tell them you decided to do a car lease buyout and confirm with them the process for ending your lease. They should guide you through it. You’ll have to pay the agreed-upon price at lease-end, which is in your lease contract, plus any taxes or fees that your state may charge. The total amount of what you’ll need to pay is called the payoff.

  • If you pay with cash. You may be able to transfer all the funds necessary to the leasing company and then wait for your title and registration in the mail.
  • If you finance the remaining amount. If you decide to get a loan to finance the car, you should get loan offers one month before the lease officially ends. Be careful with the timing; most loan offers are only good for a month. After the expiration date, you’ll have to apply again.
  • How to look for a lease buyout loan. A lease buyout is technically a different loan than a regular auto loan. So, make sure you apply for the right type of loan from the lender. You might be able to finance with the same company you’re leasing from. But don’t apply to just one place — apply to several so you can choose the best one with the lowest APR (you won’t hurt your credit applying to multiple places instead of one within a two-week period any more than you would if you applied to one).

Once you have your loan or your cash, talk to the lessor and follow the process to complete the buyout. You may have to go to the DMV, the dealership or your lender to sign paperwork to finalize everything. Then you can officially claim the car as yours.

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Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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White House Considers Rollbacks to Service Member Protections in Auto Lending

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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The Trump administration is siding with lenders against the protections — or limitations, depending on your perspective — that service members have under the Military Lending Act (MLA), according to White House documents obtained by NPR and The New York Times. The lending industry has long chafed at the limits on APR, finance charges and insurance products they could sell to service members. A large point of contention is a common, but little understood, product offered to military and civilians alike known as GAP.

What is GAP?

In the automobile realm, GAP (guaranteed asset protection) refers to two products: GAP insurance and a GAP waiver. If your vehicle is totaled, both cover a “gap” between your auto insurance payout and what you owe on car.

This is because when a vehicle is totaled (whether by a car accident, by a huge storm or by a thief stealing it), your regular full-coverage auto insurance pays only a portion of what the car is worth at that time, not what you owe. After all is said and done, you could still owe thousands to your auto lender and have to continue to make payments on a car you can’t use, while you might need to get another car.

This is where GAP steps in — both types of GAP work to pay off the lender so you don’t have to. For this reason, it may be an understatement to say it’s valuable to consumers. For the same reason, it’s valuable to lenders because they’re more likely to get the entire loan paid off.

But here’s where the two products differ: A GAP waiver is usually financed into an auto loan and because it is financed, it falls under the MLA; in fact, the MLA rule only applies to a GAP waiver when it is included in an auto loan. The MLA does not apply to GAP insurance because the price of GAP insurance would never be included in a loan.

Because both products are called GAP and one can fall under MLA rules while the other one doesn’t, there’s a lot of confusion. Lenders and dealerships are also being called out because GAP waivers are more expensive (but offer more protection than GAP insurance) and many people only see the huge price difference.

Here’s a side-by-side chart:

 How much coverage?Does it cover the auto insurance deductible?When is it most useful?What’s the price range?Where can you get it?

GAP waiver

100% to 150% of the car’s actual cash value (ACV)

Yes, usually up to $1,000

When what you owe on the car loan is greater than what it’s worth

$299 to more than $1,200 for the whole loan

Your lender or the car dealership

GAP insurance

25% of the car’s actual cash value (ACV)

No

When what you owe on the car loan is equal to what it’s worth

Usually less than $100 for a year

Your current auto insurance company

What are the current protections?

The Department of Defense (DoD) ruled in 2016 that the current MLA protection does not allow service members to include a GAP waiver as part of an auto loan if the total amount borrowed (including GAP) means that the whole loan is for more money than what the car is worth or if the Military Annual Percentage Rate (MAPR) is over 36%.

The reason for inventing the category of MAPR in 2006, and putting the limit on it, is not just to limit the APR, but to also limit the amount charged for any add-on products. MAPR is different from APR because it counts the price of the GAP waiver and similar products as a fee — this means that the price of GAP can radically increase the MAPR above 36%, thus making the contract count as illegal predatory lending. MAPR acts as a way to impose overall cost control without making hundreds of rules to limit and monitor every small aspect of lending.

The MLA rule in question, and subsequent DoD interpretations of it, appears to state that going into debt to prevent debt is a catch-22 and should just be avoided. But the rub comes from the fact the lending industry has long taken advantage of service members. In fact, the Consumer Financial Protection Bureau (CFPB) has secured more than $141 million in refunds and compensation for military service members since 2013 from lenders who violated MLA protections. Additionally, auto dealerships, where many people buy GAP, do not have the most stellar reputation of having reasonable prices.

The price range of GAP waivers can be dramatic. It is loosely based on how much you borrow, but dealerships and lenders sell it for anything from $299 to more than $1,200. If you don’t know that you can negotiate on the price or get it for cheap at another dealer or lender, you might be convinced to pay four times the amount.

Reasons for rolling back the protections

The lenders’ argument is that GAP would be most useful to protect both the consumer and the lender in an in-debt situation. Three credit union trade groups, the National Association of Federally-Insured Credit Unions, the Defense Credit Union Council and the Credit Union National Association, petitioned the DoD in early 2018, asking it to reconsider — that this protection, in financial reality, is a limitation that prevents the service member from getting protection.

The National Automobile Dealers Association (NADA) agrees. For all civilians, GAP (and products like GAP) are not considered fees on an auto loan, but separate products as all consumers can think about and voluntarily choose to purchase or finance as they wish.

What would the change mean?

There are two potential changes on the table. The first is for the MLA to not include GAP as a fee. This would mean service members could finance GAP in auto loans more easily, because the price for it would not be subject in the overall loan conforming to the MAPR 36% rule. The second change is that the Consumer Financial Protection Bureau (CFPB) would stop actively monitoring the loan market for predatory lending on active duty service members and their dependents.

Both are a bad idea, according to Tom Feltner, director of research at the Center for Responsible Lending, who said the fact the industry is pushing for new loopholes and new exemptions to the MLA is troubling.

“I think it is very concerning that they are shifting enforcement onto service members and their families,” Feltner said. “The supervisory process is fundamental,” and if monitoring stops, then “it is incumbent on the service members to report the violations themselves.”

What happens next?

As of Aug. 15, almost half of the U.S. Senate urged that the CFPB not weaken protections for military service members. The DoD conducts both the rulemaking and any additional guidance on the MLA in conjunction with appropriate organizations, including the CFPB and the Federal Trade Commission. Even if these two changes are shot down, Feltner said it looks like the CFPB will continue the rollback of consumer protections in general.

Whether or not these changes occur, servicemembers should educate themselves and always pay close attention to the fine print and costs when making any type of financial decision. And as is the case with all potential policy changes, you may want to contact your representatives in Congress to let them know your opinion on the matter.

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Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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What Car Should I Buy? 5 Questions to Ask Yourself

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Have you ever seen a piece of furniture you really wanted to buy and then realized, dang, that won’t fit in my car? Have you ever stood at the pump watching the numbers go up and wished you had a car that was better on gas? Vehicles have different purposes and strengths — but while it may be an enticing idea to have a different vehicle for every function, few people can afford it, so getting one vehicle that’ll accomplish most of what you need is the goal.

Whether you spend your weekends transporting construction lumber or half a soccer team, or you want a vehicle that’ll haul butt down the road, we list the major vehicle types and their primary objectives, plus the questions you’ll need to ask yourself when looking for a new car.

What car should I buy?

What kind of driver are you?

Vehicle type

Example

Prioritizes transporting people over things

Hyundai Sonata, Audi S3

Needs to haul large things

Ford F-150, Toyota Tacoma

Only needs to transport self and one other adult

Honda Civic Coupe, Ford Mustang

Needs room for multiple adults and some stuff

Subaru Outback, Volkswagen Golf

Transports multiple adults and is eco-conscious

Toyota Prius, Chevy Volt

Keeps vehicles for a long time and drives a lot

Land Rover Discovery, BMW 328d

May face bad weather and needs room for five adults

Nissan Rogue, Infiniti QX50

Needs room for five adults and some stuff

Audi Q7, Chevy Tahoe

Transports seven people or large things

Chrysler Town & Country, Nissan Quest

Likes to feel the wind in their hair

Mazda Miata, Fiat 214 Spider

Transports multiple adults

Kia Soul, Honda Fit

Wants sporty looks and performance to match

Acura NSX, Ferrari Portofino

Wants to impress people with a smooth ride

Cadillac Escalade, Porsche Cayenne

Eco-conscious

Tesla Model 3, Nissan Leaf

Before you choose a car, ask these five questions:

When you step on the car lot and see all those glittering vehicles, you’re probably asking two questions: what looks the coolest and what can I afford? While these are perfectly legitimate questions, you don’t necessarily want to end up with a 12-year-old Maserati; there are other things to take into account.

How do you intend to use the vehicle?

What do you transport — people, pizzas, packages or just your awesome self? If you only need to transport yourself (and maybe some pizza) for short commutes in the suburbs, then a small, zippy car might suit you best. If you help take the whole team to a game or have a bunch of stuff for work, a minivan or truck would work better. But if your job involves impressing clients with your ride’s smoothness, power or price tag, a luxury vehicle might be your style.

Distance. If you travel for work, or even just for pleasure, you may want a larger vehicle with room to stretch. You’ll probably also want a gasoline-powered vehicle, as gas stations don’t always sell diesel and electric vehicle charging stations are relatively sparse. And if you’re planning to travel at high speeds, make sure that the car is well-insulated for sound — especially if you’re looking at a convertible — so you won’t hear the wind and the road.

Passengers. If you need to take five kids to sports practice every other day, a coupe is obviously not going to cut it. But if you don’t anticipate transporting lots of people (or animals) very often, going small could not only be convenient, but also economical — smaller cars generally cost less and usually have better fuel mileage.

Young passengers will need safety seats no matter the type of car; larger cars make it easier to not only install them, but to take the child in and out without gymnastic contortions. And if you’re transporting teenagers, adults or large animals in the backseat, a larger vehicle might be more comfortable for all involved.

Stuff. Real estate agents who need to transport yard signs, contractors who need to transport tools and artists who need to transport supplies may need vehicles to fit not only the amount of stuff they have, but the size and weight of it. A framed painting canvas might not be voluminous, but it may be 6 feet long.

Awe factor. Impressing others can be a legitimate vehicle purpose. You may want to impress (prospective) clients when you pick them up from the airport in a luxury car, or impress (upon) your friends (and frenemies) by leaving them in the dust in a performance car or a jacked-up truck.

What’s the weather?

The type of weather you face should have a large input on the type of vehicle you get. However, it shouldn’t make you overly confident in adverse conditions. Just because you have all-wheel drive, doesn’t mean you should go down an icy freeway without caution.

Rain

If you expect slippery roads, consider a vehicle that’s more physically balanced, like a sedan or an SUV. A coupe, which is heavy in the front from the engine and light in the back, could make you more prone to loose steering control on turns or curves and have you fishtailing across the lanes. “Fishtailing” is when your back wheels have little to no traction and the rear of the vehicle swings uncontrollably, either side-to-side or to an extreme on one side. The same thing can happen with a performance car or a pickup (with an empty bed) for the same reasons.

Snow and ice

Colder climates probably mean your car will be exposed to snow, ice and all of the downsides that come with them — slippery and bumpier roads due to expanding and contracting pavement creating potholes. You might consider a vehicle with all-wheel drive (AWD) or four-wheel drive (4WD).

  • Four-wheel drive (4WD): This is also called 4×4 and is usually offered on SUVs, trucks and wagons. It is the best type of drivetrain to handle the worst conditions, on- and off-road through deep snow, water or mud. The Jeeps you may see in videos climbing near vertical cliffs have 4WD, although we don’t recommend you getting one and trying it out immediately. The driver usually turns the 4WD on and off, according to road conditions.
  • All-wheel drive (AWD): This is usually found on crossovers and luxury vehicles. It is designed to help the vehicle keep traction in light to moderate conditions without the driver turning it off and on.

In addition, consider getting a car that’s not white or gray, especially if you have to park on the street at home or for work instead of in a driveway or parking lot. The color might make your car blend into the wintery environment, so it’s harder for other drivers, including snowplow drivers, to see it. The ice from the salty roads will also be harder for you to see on your vehicle. And if you can’t see it, you might be less inclined to wash your vehicle as often, leaving the salt to eat away at the car’s clear coat and paint.

Hot and cold

If the summer heat is considerable in your area, look at cars with colors that reflect heat (mostly light colors) instead of absorb it (mostly dark colors).

But it doesn’t necessarily have to snow and ice for it to be cold where you live — if temperatures often drop, you might not want a cloth-top convertible or select trims of Jeep Wranglers, as they may not be well insulated to keep you warm in the winter.

What’s the geography?

Where will you use the vehicle? The type of landscape in your town can help determine the type of vehicle you want. Whether you live in the mountains, the jungle or even just a concrete jungle, you’ll want a vehicle that can best handle the terrain you face daily.

City. If you often drive in a city, you may want a compact sedan, a coupe, a Mini or a small electric vehicle — you’ll be better able to squeeze into parking spots, navigate sharp city corners and save on gas with all of the stop-and-go driving you’ll probably do. Most cities manage their urban roads with infrastructure to handle rain and snow, so you might not need a large AWD or 4WD vehicle to help you plow through the weather.

Country. If you have to go long distances to get anywhere, you probably want to be able to take all of your stuff with you, and the roads you face may be less well maintained. A larger vehicle with AWD or 4WD might be the most useful.

Mountains. A lot of cars can handle going up, down and around mountain roads. However, it especially takes a toll on electric vehicles. Using power to climb a mountain, to brake descending a mountain and to brake and accelerate on twists and turns drains a battery, greatly reducing your expected driving range.

What is most important to you?

People value different things depending on their lifestyle. Maybe you just totaled your car and you’re really interested in safety features for your next one; perhaps you go on long trips and a cushy seat and top-notch sound system are important. We broke out some categories to help guide you when you’re asking yourself what you care about in a vehicle.

Safety. The Insurance Institute for Highway Safety crash tests vehicles each year to see which brands are the safest. Kia had the most 2018 award winners with nine models — 32 models were named as “top picks” over the last five years. Volvo and Lexus do well in the luxury categories, having won 23 and 20 top picks, respectively, over the past five years.

Luxury. If you want your car to feel like a 5-star hotel room on wheels, you’ve got plenty of choices, from BMW to Rolls Royce. Many luxury cars also cross into other categories with extremely good safety ratings (Volvo), performance (Porsche) and off-roading (Land Rover).

Speed. Enzo Ferrari once said that he designed engines; the rest of the car just happened to be attached. If you like to do autocross on the weekends to get your blood pumping, or you just like to know you’ve got the ability to go faster than anyone and everyone on the street, performance cars will cost you a pretty penny, but some people believe they’re worth every cent.

Off-roading. If the thrill of crashing through brush in the backwoods, carefully gunning up a sheer cliff face or getting neck-deep in muddy water interests you, off-roading might be your thing. Serious off-roading requires 4WD (not just AWD) and some vehicles have special off-road designations. Jeep has Trailhawk trims and “trail rated” badges, and some Land Rover models have specific settings for sand, mud, rocks, gravel, snow/ice and wading through water.

Technology. You can still get a brand new Kia Rio with windows you have to roll up and down by hand, but you could also get a Tesla that can largely drive itself and has a touchscreen that takes up the whole center of the dashboard — most people, though, get something in between. The National Highway Traffic Safety Administration takes particular interest in crash avoidance technology, such as automatic braking and blind spot sensor warnings, and says this type of technology may offer significant promise for increasing safety.

Reliability and value. Kelley Blue Book, Consumer Reports, J.D. Power and Edmunds are some of the top industry experts on the subject. Spoiler alert: Toyota consistently ranks at or near the top of the rankings across these four sites.

How much can you afford?

When comparing cars to your budget, the easiest thing to look at is the price of the car. But don’t forget that taxes will add to that monthly payment, plus you’ll also be paying for fuel, insurance and maintenance, and parking if you live in a big city.

Figure out your budget before looking at cars. Most people know how much they make each month, but fewer know how much they spend. Do not head straight to a dealership — you don’t want to fall in love with a car that’s way out of your budget and then become disappointed, or worse, find out after the purchase that you can only really afford it if you lived under a bridge.

Look at how much you spend versus how much you make. Do this to figure out how much you can afford. If you spend everything except that $5 needed to keep your bank account open, then you’re going to have to take a closer look at your spending. You’ll have to decide if getting a car is worth giving up something, such as going out for food and drinks often. If you don’t spend everything, how much do you have left over? And out of that amount, how much do you want to spend each month on everything that a car costs?

Determine how much of your car budget will go to the car. So now you’ve got your monthly budget amount of what you can spend on having a car — but how much of that is for the car versus the car insurance versus taxes and everything else? Admittedly, this is trickier to answer. However, here’s a handy rule of thumb: the more expensive the car, the more expensive everything else will be, taking a bigger the bite out of your budget and leaving less for the car payment itself. The reverse is generally true, too: the cheaper the car, the cheaper everything else will be.

  • See what car insurance will cost. If you’ve never had car insurance before — or if you have a long history of speeding — your insurance will be more expensive. Ask the insurance company for quotes on different cars to get an idea if auto insurance will cost you $50 a month, or $200, so you can plan accordingly.
  • Think about taxes and fees. Depending on your state and the dealership you go to, taxes and fees can vary. According to Nicolas Ortiz, a San Antonio-based insurance professional who formerly worked as a dealership finance manager, the total of most taxes and fees for almost every state range between 8% and 10% of the car’s price tag.
  • Maintenance and gas cost. Be aware gas prices are on the rise and you’ll need to change your car’s oil about every four months, which can cost $20 (regular oil for a low-mileage, mass market car) to $300 (top synthetic oil for a luxury car). 4WD vehicles also require extra maintenance.
  • APR loan cost. The APR on a loan is how much it costs you to borrow money. If you would have to take out a payday loan with 200% APR in order to get a car, don’t do it. That means you’ll pay double the price of the car. Most states limit car loan APRs to below 25% — and that’s still considered high. To see what type of APR you qualify for, you could fill out an online form at LendingTree and potentially get up to five auto loan preapprovals, including APR offers.

What’s left over is the amount of your budget that can go toward paying for the car itself. For an example, let’s say you have a total of $340 to spend on a car each month. You did your research and found out auto insurance will be about $80 a month, taxes are 9%, maintenance/gas costs average out to $30 a month and you have an auto loan preapproval with 5% APR. That means you’ll probably spend about $140 to pay for the things you need for the car, which leaves about $200 for your monthly car payment.

How to get a total price based on monthly budget. This is the easy part! There are tons of auto loan calculators that help you figure this out. This LendingTree auto affordability calculator lets you put in your monthly payment, APR and how long the loan is, and tells you the car price you can afford. This will be the car price tag you should be seeking.

If you want to learn more about budgeting for the car that suits you best, you can check out other MagnifyMoney stories: How Much Car Can I Afford, The 20/4/10 Rule and The Best Auto Loans: 2018 New & Used Car Loan Rates.

Disclaimer: This article may contain links to LendingTree, which is the parent company of MagnifyMoney.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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Auto Loan

How Much Car Can I Afford?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

From “Krazy Kevin” selling used cars on radio commercials to the fancy video ads from the car manufacturers, we’re surrounded by people telling us beautiful cars are available to buy and they can help us get into one.

But you don’t want to buy a car and then only eat ramen until it’s paid off — or have it repossessed. So, when and how do you figure out what you can afford?

Setting a car budget you can afford

When?

Figuring out your budget before you go car shopping is important, so you know under what price range to be looking. Having a number in mind before looking at vehicles could save you a lot of stress.

“If you don’t know what you can afford, that would be dangerous,” said Patrick Holmes, a financial services officer at State Employees Credit Union and a member of the National Association of Personal Finance Advisors in Charlotte, N.C. “I would not go to the dealership first thing because you’ll probably walk out with a $20,000 car when you could only afford $12,000.”

How?

In order to figure out what you can buy, first look at what you’re already buying. “Figure out your month-to-month expenses first.” Holmes said. Almost everyone knows how much they make each month, but few people really know how much they spend in the same time period.
When you get your check, you have two basic options on what to do with the money: Spend it or save it.

See how much you spend by adding up your fixed expenses, like rent, insurance, phone, internet and credit card bills. Then figure out how much you spend on more variable expenses, like food, clothing, entertainment, etc. Try keeping a spending journal, using a budgeting app or reviewing your bank and credit card account statements to get a sense of what you do with your spending money on a monthly basis.

Based on how much you have left over (and how much you want to continue saving), you’ll know how much you have available to spend on a car payment. If you don’t have much left over, you’ll need to make some changes to your spending (or find ways to earn more money) before trying to fit in a car payment.

How much?

Just because you can spend money, doesn’t mean you should spend it all. Once you decide what you can spend on a car, look at what you should spend. After all, you want to be able to have extra cash on hand in case something on the car breaks or you want to take a vacation. The classic rule is to keep your total transportation costs to under 10% of your monthly income. If that’s not possible, it should definitely be under 20%.

Know the 20/4/10 rule

This is the classic and more frugal guideline for car buying. The 20/4/10 rule is to put 20% down, have an auto loan for 4 years maximum and keep total transportation costs under 10% of your income.

Based on this rule, if the car you want is $20,000, you should give $4,000 as a down payment. If you only have $2,000 as a down payment, you should be looking at a $10,000 car. What’s left over after your down payment, the 80%, is what you get an auto loan for, which, according to this guideline, shouldn’t be more than four years (48 months) long. Whatever you do, it definitely should be under seven years (84 months) long. The last part of the rule is that the total monthly cost of the car (including using the car) should be no more than 10% of your income. You can read more about the 20/4/10 rule here and play around with an auto payment calculator here. Disclaimer: This post contains links to LendingTree, the parent company of MagnifyMoney.

Budgeting beyond the sticker price

So you figured out what you should spend monthly for a vehicle. That amount will need to cover not just the car, but gas, auto insurance, taxes and more. A vehicle is likely to cost more than the neon numbers plastered to its windshield. In this section, we’ll tell you the other costs that come into play with buying and owning a car that often aren’t posted upfront.

Government and dealership fees

When you buy a vehicle, you generally have to pay government fees, including license and registration. A dealer will usually go pay this for you, which is a great convenience because you won’t have to go to the DMV or tax assessor’s office during normal business hours to fill out paperwork and wait in line to submit it. However, the dealer does not do this for free — it charges administrative and processing fees to do this for you. They often are several hundred dollars and non-negotiable.

State and local taxes

Most states charge a sales tax, and your municipality might have one, too. And you probably won’t get away with going to a sales tax-free state to buy your car. Nicolas Ortiz is an auto adjuster and insurance agent for USAA in San Antonio where he also worked in two auto dealerships as a finance manager. He explained that when you buy a car from a different state, you have to pay the taxes for the vehicle based on the state in which you live. “You pay all applicable taxes and fees to the state where you’re registering the car.” Ortiz said.

Most of these charges are percentages, meaning the lower the price of the car, the less you’ll pay. Still, don’t expect to get off lightly. Ortiz explained to MagnifyMoney, “In my experience, if a state has lower fees, it will have a higher sales tax and vice versa. Expect to pay 8% – 10% of the [vehicle’s] sales price in taxes and fees.”

Recurring costs

Gas, car insurance and oil changes are all types of recurring costs. These costs highly depend on which type of car you have and how you use it. If you have an older car and a long work commute, you may have to budget a lot for gas, but it may be cheap to insure. A newer car with great gas mileage will probably cost you less in gas and maintenance, but more in taxes and insurance.

Don’t forget that if you work in a city, you may have to pay to park your car in a lot or a garage close to work. Remember to also account for anything you might add to your loan that you’ll also be paying for monthly, such as GAP insurance or an extended warranty.

Other potential costs

It’s a good idea to set aside money each month for an unexpected car expense, like repairs or traffic tickets (though you should do your best to avoid those). Keep in mind repairs aren’t limited to old cars. For example, the car’s age doesn’t matter much if you run over a nail and need a new tire. Even if a repair is covered by insurance, you may still have to pay a deductible.

Looking at more than just the monthly payment

When you add all of these monthly costs up, it could be tempting to wash your hands of it and say your budget is done. But when you go to actually pick out and buy the vehicle, the best way to stick to your budget is not to focus on the monthly payment.

It’s really easy to justify increases in monthly payments: you may think of a $40 payment increase being equivalent to a nice meal once a month, and you can afford that, can’t you? Turns out, $40 a month for four years, even without interest, is almost $2,000. (To avoid costly errors like this, you could read up on the common car loan mistakes many people make.)

Look at the totals of what things add up to, take the time to shop around for cars, car loans and even car warranties, and don’t be afraid to negotiate. You can shop around for your auto loan on sites like LendingTree to make sure you’re not paying more than you have to in interest.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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3 Mistakes People Make When They Need a Car Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Car Loan

Does your heart drop into your stomach at the thought of buying a car? The stress of making such a major purchase and, dare I say, negotiating, can tire people out so much, they’re ready to say yes to anything at the dealership in order to get their new car and get out. Knowing the common mistakes people make can help you avoid them — the mistakes, not necessarily the salespeople. So here are the major ones.

Not doing your homework on vehicle value

Don’t just check out the closest place to you when searching for the car you want. Look around for prices, and don’t forget to look up what your trade-in is worth, if you have one. Here we’ll talk about the mistakes people make in not looking up prices for new, used and trade-in vehicles.

Not comparing price on new cars

While it might be tempting to go to that one dealership down the street instead of hopping online to check out the prices of a few dealerships around town, you could lose money doing so.

If you know the car you want, look up what dealers in your area are selling it for. Dealers everywhere advertise how far below MSRP they price their vehicles. MSRP stands for manufacturer suggested retail price, which is largely based on production costs.

The window stickers on cars have to show the MSRP and break down the costs that go into it, including all optional equipment (and how much it costs) that comes with the car. So if you find a model you really like, you can check out the window sticker to see the price variations on different trims for that model. The same type of car may be a few hundred dollars cheaper in a different color.

Once you find an ad for a low price on the vehicle you want in your area, you could either go to the dealership with the lowest price, or take the ad showing the lowest price to the dealership that’s most convenient for you, and ask them to meet or beat it.

Not checking auto guides on used cars

While used cars don’t have an MSRP, there are three industry standards you can use to determine their value: the automotive guides Kelley Blue Book (KBB), Edmunds and the National Automobile Dealers Association’s guide (NADA). Dealers and lenders use them to determine vehicle price and worth.

If the price listed in one of the guides is below the car’s sticker price, then the car is overpriced. Show the dealer or seller that you did your research. The car should be priced around what the guide states is the fair market price based on location and condition. If the seller doesn’t agree to offer you a price near that figure, find another vehicle or another seller.

Not looking up the value of your trade-in

Similar to a used car, you can find the value for your trade-in on an automotive guide. Most guides have a range of values that tell you what you can reasonably expect to get for the car depending on the car’s condition and to whom you sell it. You can usually get more for your trade-in if you sell it yourself.

If you’re up to selling it, you could post it for sale on sites like Facebook Marketplace, Craigslist and Autotrader. Of course, you then have the hassle of replying to prospective buyers and arranging times to meet so they can see and test-drive the vehicle.

Most people prefer to trade in their old vehicle at the dealership, which often offers you a price that is less than what the car is actually worth. In effect, you’re paying the dealership to handle the hassle of selling your car for you.

Just make sure you don’t pay them a whole lot. Look up the value of your trade-in before you go, so you’ll know what it’s worth and the person or dealer buying it won’t get away with underpricing it.

Focusing on the car over the car loan

As shiny and pretty and good-smelling as a new or new-to-you car may be, remember, you’re not just paying for the vehicle, you’re paying for the loan on it. Here are mistakes people make in financing their cars.

Only talking to one lender

Know what APR you can get before you go kick some tires. Having multiple loan offers before you shop around for a car has a couple of advantages.

The first advantage is that you’ll be able to pick the best loan offer. If you just get one loan offer and go with it, you won’t know if you could have received a much better APR with a different lender. Each lender has its own requirements. You may qualify for different APRs depending on the lender.

With an online marketplace like LendingTree you can fill out a short online form and compare rates from up to five auto lenders. It’s important to note that some lenders will do a hard pull on your credit and that this is normal in the auto lending space. Remember that multiple hard pulls will only count as one, so it is wise to have all of your hard pulls done at one time.

LendingTree
APR

As low as
3.09%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

By shopping around, you can easily avoid a major way dealerships make money. Dealers can often increase the APR on a loan you get through them. For example, the dealer might be able to charge you 7% APR, with 5% going to the lender and the 2% on top going to the dealer. If you don’t talk to multiple lenders and see what you can get, you won’t know you actually qualify for 5% APR and you’re likely to say yes to the 7% APR.The second advantage of comparing offers is that you’re able to plan your budget more accurately. With a loan offer in hand, you’ll know how much you can borrow, what your APR is and thus what price range you can consider when looking at vehicles.

If you do have poor credit, your APR will probably be a significant part of what it costs for you to get a car. There are ways to find a car loan with bad credit, so plan and budget for it, so it doesn’t surprise you. No matter what you think your credit is, you should check it before you apply for loans, which you can do for free on LendingTree.

Refusing to talk finance with the dealer

Some people will bring a loan offer to a dealership and refuse to talk with the dealership financing office. This is mistake. Not asking the dealership to beat a loan offer means you could be leaving money on the table.

The dealership wants you to finance through them. Lenders often give dealerships a finder’s fee for each customer who gets a loan from them through the dealership. Unlike the first way dealers can make money on a loan (by increasing your APR), this way works to your advantage, as the dealer will want to beat the loan offer you have, because the lender they partner with will often pay them for it.

Overall, the dealer might not be able to beat your loan offer. But whether they can or can’t, by asking them to beat it, you’ll know you got the best deal.

Focusing on monthly price

Many people’s main considerations when buying a vehicle is down payment and monthly payment. Those are the two biggest factors because it’s the easiest way to understand how the loan and the car impacts their financials directly. However, if you focus on monthly price instead of total price, you’re giving the dealer the opportunity to hide extra products in there.

For example, if you tell the dealer you want a monthly payment of $321, and it turns out the loan with the car you want comes to $290 a month, the dealer can turn around and say, ‘Hey, I have great news, you can have a $321 car payment that includes an extended warranty! Sign here.’

All of a sudden, you just spent $1,500 on an extended warranty, which you may not know much about or even want.

There are many “add-ons” available at dealerships, including extended warranties and insurances such as GAP, life and disability. All of these things can be useful depending on the person and the vehicle. But don’t simply accept them. A monthly payment increase of $20 might not sound like much, but over six years, plus the APR you’re paying to finance it, certainly adds up. You can negotiate these products prices, so talk about how much each costs overall, not monthly.

Rolling over negative equity

If you have a trade-in car, the first thing you should do after consulting an automotive guide to find how much the car is worth is to find out how much you owe. If the car is worth less than what you owe, you have negative equity.

The most popular way to handle this is to add the difference, or “roll over” the negative equity, to your new loan. Financially, this isn’t a great idea. You’re less likely to get a good deal on your new loan because the loan is for more money than what the new car is worth. This can also get you stuck in a trap in which every time you want a new car, you’re stuck with the negative equity from the car before it.

There are a few ways to take care of negative equity, and here are some recommendations on what to do if you’re trapped in a bad car loan.

Ignoring your budget or not having one

If you know you can only afford $321 a month in a car payment (not including car insurance), don’t let someone persuade you to take on a $400 a month payment. If the loan you qualify for on the car you like can only be as low as $400 a month, that means you need to find a different car to like. You don’t want to be skipping meals in order to pay for it, or not be able to make the payments and have it repossessed.

In order to confidently decide what you can afford, you first need to figure out your budget. A good rule is that all of your bills (rent, insurance, car payment, etc.) should be about 50% of your income. So look at your income and the bills you already have to see the margin between what all your bills add up to and the 50% amount of your income. That difference is a car payment you could comfortably afford.

The common rule of thumb about auto finance is that for every $1,000 you finance, your monthly payment goes up by $15, depending on your interest rate. Say the car you like costs $20,000, and taxes bring the cost up to $22,000 (taxes, tag and license fees can add up to 10% of sticker price, depending on the state). That rule of thumb would tell you to budget roughly $330 for a monthly payment ($15 x 22 = $330). Or you could do the longer math: Most car loans are for 72 months (6 years), and if you figure your loan APR will be 5%, then your monthly payment would be $355. Obviously, the rule of thumb is just that — a guideline. Doing the exact calculation or using a loan calculator can help you budget more precisely.

Doing things too quickly

Car buying can be a large and stressful event, so it’s understandable why you would want it over with quickly. However, you shouldn’t treat the process as you would ripping off a bandage.

Not walking away

If you’re unsure about a car or an auto loan and want time to think on it, take the time to think on it. Leave the dealership and take a break. Make sure you’re making the right decision for yourself, and don’t feel terribly pressured into making one quickly.

A salesperson might tell you the car want today could be gone tomorrow if you leave without buying it. That’s true, that specific car could be sold. Yet manufacturers make thousands of vehicles a day and people trade in used cars all the time. You can always find another to suit your needs, which would be better than getting stuck in something you don’t completely like or can’t afford.

Being rude to salespeople

Ultimately, the people at the dealership are the people you’re relying on to provide a service. This article has covered what some of the more unsavory people at dealerships can do, but it does not account for the hard work and true customer care many dealership employees do put into helping car buyers.

Many of the veteran salespeople in the car business are there because they enjoy and specialize in helping you make one of the largest financial decisions in your life. If you’re uncommonly rude to them, you might discover that it takes longer to do everything, and that it may be harder to negotiate on price — basically, it’s in everyone’s best interest to practice common courtesy. Take advantage of a good salesperson’s expertise, and don’t allow the others to take advantage of you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at jennifer@magnifymoney.com

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