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Understanding Extended Car Warranties

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Extended warranty
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When you buy a car, having a manufacturer’s warranty that covers certain repairs and services can give you extra peace of mind. If that manufacturer’s warranty is a good idea, wouldn’t a longer warranty, or “extended warranty,” be even better?

Possibly. Whether buying an extended warranty is right for you depends on a number of things. Before you decide to buy one, make sure you understand what extended warranties really are, and how they work.

What is an extended warranty?

An extended warranty is not a warranty as defined by federal law, according to the Federal Trade Commission. Manufacturer warranties come with the car and they don’t carry an extra fee.

“Extended warranties,” on the other hand, always cost extra. They are actually service contracts, under which the provider promises to perform, or pay for, certain repairs or services.

What does an extended car warranty typically cover?

An extended car warranty, or vehicle service contract, covers certain types of repairs in addition to or after the manufacturer’s warranty ends. They generally cover:

  • Mechanical breakdowns. Different types of breakdowns may be covered for different periods of time or numbers of miles.
  • Other specifically covered services and problems. For example, some contracts offer services such as free oil changes, if specified. (Some dealer incentives that include oil changes are not part of the extended warranty.)
  • Extra coverage with more comprehensive plans. With certain plans, you may be entitled to towing services, a rental while your car is in the shop, or travel insurance.

What does an extended warranty not cover?

Extended warranties generally don’t cover predictable care and servicing of a vehicle. For example, warranties may not cover:

  • Running costs such as windshield wipers, brake pads and other regular maintenance, unless specified by your contract. Tires are generally not covered by extended warranties; however, most tires are protected by some kind of tire manufacturer warranty if they wear out prematurely, according to Edmunds.
  • Your warranty deductible. You may have to pay $100 per visit or per part, for example.
  • Problems due to lack of maintenance. Neglecting to check or change the oil, for example, may void your warranty.
  • Diagnosis costs. If a mechanic must tear your engine apart, only to find out the problem is caused by non-covered parts, you may have to pay for the parts and labor.
  • Problems caused by “normal wear and tear.”
  • Anything not listed as covered. The Federal Trade Commission (FTC) advises that if an item isn’t listed, you should assume it’s not covered.

When should you consider an extended car warranty?

An extended car warranty can be a good idea in certain circumstances; for example if:

  • You need a predictable budget. An extended warranty can protect you from covered major repair expenses. Be aware that the warranty won’t cover everything, however.
  • You understand what is and isn’t covered by the contract. Take time to read the fine print, before you sign.
  • You can meet all the contract requirements. Extended car warranties come with rules about regular maintenance. You may be required to have free services done at the dealership, or by approved companies.

Under the Magnuson-Moss Warranty Act, enforced by the FTC, your contract cannot be voided because you or another mechanic performed routine maintenance and repairs on your car that would not be free under your contract.

When should you skip an extended car warranty?

  • When the service contract overlaps with your manufacturer’s warranty. Manufacturers’ warranties on new cars generally offer coverage for at least three years or 36,000 miles, whichever comes first. Your extended warranty probably does not offer you benefits until the manufacturer’s warranty ends, according to the FTC.
  • When a nontransferable contract may last longer than you own the car. Some contracts cannot be transferred, or they require a fee in order to transfer the contract when you sell the car.
  • You live far from the service location. Some contracts only offer service that is included in the contract in a certain location. If you bought your car out of town, or if you later move, that might be inconvenient or impossible.
  • If you are pressured to buy the extended warranty. Some dealers may give you the impression that you are required to buy the contract or that you can’t get financing without it. According to the FTC, you are generally not required to buy an extended warranty either to purchase a car or to get financing for it.

Shopping around for extended car warranties

Make sure you know these things before you sign:

  • Who provides and administers the service contract? Dealers sometimes make it seem you can only buy extended warranties from them, and that they are providing the service contracts. Service contracts can actually be provided by the dealer, the manufacturer, or a third party. They may be handled by an administrator.
  • Who is obligated to fulfill the contract? Find out who backs your contract if the provider or administrator goes out of business, and if the contract is backed by an insurance company.
  • Who is selling you the warranty? If you got a robocall about the warranty on your car, be careful. The FTC describes phone pitches for extended warranties as often “high pressure,” and says they may demand personal information. Some calls are actually scam artists trying to get your Social Security number, bank account number, and other information.

Factory warranties vs. third-party warranties. While an extended manufacturer warranty is only available from the manufacturer, you can shop around for your own extended warranty. You could also call dealerships in your area to compare going rates. At the very least, you’d be armed with a few quotes before buying your new car though you could add an extended warranty at any time, as long as the car is within limits of age and miles. AAA offers extended warranties as may other motor clubs in addition to private companies.

Negotiating an extended car warranty

Negotiating to purchase a car doesn’t stop with determining the cost of the car you’re purchasing and how much you pay for an auto loan. You may also have room to negotiate the cost and benefits of your extended car warranty.

Get your best deal on a warranty the same way you got a deal on your car. Know as much as possible before you get there, including whether you are even interested in a service contract. Don’t necessarily take the first price you hear. And be willing to say “no” if the deal doesn’t sound like it’s in your best interest.

Alternatives to buying extended car warranties

An extended warranty isn’t the only way to handle car expenses or unexpected repairs. Consider these alternatives for managing your risk:

  • Budget for car service and repair expenses yourself. Car maintenance is expensive. Buying a service contract doesn’t make the expenses go away — you just pay for them another way. Work toward maintaining enough in your savings to pay for both predictable expenses (such as tires) and less predictable expenses (like transmission trouble). You might start your savings fund with the money you don’t spend up front for an extended contract.
  • Buy a more dependable, easy-to-fix car. Some cars are in the shop more often — and cost more every time they go there. Ask your mechanic which cars he recommends. You could also check out recommendations from organizations such as Consumer Reports or research ratings from government agencies such as the National Highway Traffic Safety Administration or Insurance Institute for Highway Safety.

After you pay for a warranty

Keep an eye out for written confirmation of your service contract. It shouldn’t happen, but the FTC says some dealers take the money from extended warranty sales and neglect to forward the payment to the administrator or third party, leaving the buyer without coverage.

Be sure to maintain your car as required under your contract, and keep your receipts. For one thing, your contract may be void if you don’t. More importantly, a well-maintained car is less likely to need major repairs. The only thing better than having a big repair bill covered by a contract is to not have your car break down at all.

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.

Sally Herigstad
Sally Herigstad |

Sally Herigstad is a writer at MagnifyMoney. You can email Sally here

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How to Get a Car Loan with Bad Credit

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements 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 bad credit? Not to worry, there are plenty of opportunities to get an auto loan, even with a less-than-stellar credit history. Finding a reputable lender offering good terms can be tricky, though. With a low credit score, you’ll likely pay a higher interest rate and there could be extra fees. Here’s what you need to know about choosing a car loan when you have bad credit.

How to tell if you have bad credit

If you’ve applied for credit cards or a loan and been denied, there may be a problem with your credit. A subprime credit score generally falls below 669, according to the credit reporting bureau, Experian. With a FICO score below this level you may not be eligible for credit products with the lowest interest rates and fees.

The FICO credit score ranges are as follows:

  • 800-850: Excellent
  • 740-799: Very Good
  • 670-739: Good
  • 580-669: Fair
  • 300-559: Poor

Every lender has its own approval criteria. There are many factors in addition to your FICO score that go into the loan approval process, including debt-to-income ratio, your employment status, and whether you have an established relationship with the lending institution where you are applying for the loan.

If you have bad credit there are a variety of outcomes that could happen when you apply for an auto loan:

  • Your application may be denied. If you are denied for credit, the lender has to provide you notice in writing that explains the reasons for the denial. Federal law entitles you to a free copy of the credit report the lender used to make their decision.
  • The lender may require you to provide a large down payment or get a cosigner to be approved for an auto loan.

It’s important to know your rights if you think you have bad credit. You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months. Visit annualcreditrreport.com to see what’s in your credit file. If you have accounts in collections, judgments, repossessions, foreclosures, or late payments, your credit suffers.

What you may not know is that lenders from different industries use different versions of your credit score to assess your creditworthiness. Auto lenders, in particular, pay special attention to your payment history on other auto loans.

Auto lenders look at your FICO Auto Scores which are different from your simple FICO score. It begins with your base FICO score. This is the score that you see when you check your credit.

In addition to the base score, auto lenders also look at how likely you are to pay back an auto loan, based on your previous vehicle debt history. The FICO Auto Score gives lenders information like:

  • Late payments on previous or current auto loans
  • Repossessed vehicles
  • Personal bankruptcy that included car loans
  • Collections on auto loans
  • Auto loans or leases you have paid off and settled

FICO Auto scores range from around 250-900.

Unfortunately, your free credit report doesn’t provide FICO credit scores that auto lenders use to determine whether they’ll approve your application. For access to FICO Auto Scores, you’ll need to purchase a different report called the FICO Auto Scores for $59.85. You should choose FICO Auto Score options 2,4,5,8, or 9 to get a clear idea of what auto lenders see on your report.

Types of auto financing loans for those with bad credit

Most car buyers require some sort of financing to purchase a vehicle. Before shopping for a car, carefully explore your options for financing so you can get the best possible interest rate and terms.

Credit unions and banks: Most banks can offer you a preapproval without being a member there, but you’ll need to be a member of most credit unions to get preapproved for a loan. If you are already a member or have a relationship with a bank, check with them to find out if they offer auto loans for bad credit. They may have programs to help their credit-challenged customers and since you already have a relationship there, they may be able to help you find a better deal. You can also comparison shop rates at other banks and credit unions. You can check out a list of recommended auto loans and banks, here.

Lenders that offer financing for those with bad credit include USAA and Navy Federal Credit Union. Capital One and Exeter Finance offer subprime loans as well.

Dealers: Many dealerships work with car shoppers who have less-than-great credit. It’s smart to go into a dealership’s finance and insurance (F&I) office armed with other financing options so you can negotiate the best possible loan terms. Talk with the F&I manager about manufacturer incentives, discounts, and rebates that could help lower the price of the vehicle.

Finance specialists at car dealerships may inflate the value of a vehicle to help subprime borrowers get approved. They also may add percentage points to the interest rate offered by the financing company in exchange for a kickback of part of that extra profit. This is known as a “markup.” While it’s technically legal, it’s a grey area and you should pay close attention if you think that a dealer is marking up your rates or value. It’s important to seek preapproval and research financing options separate from a dealership to maximize your options. Negotiating the terms of your loan is just as important as negotiating the price of your car.

Online lenders: Shopping around online can be a good way to find a better auto loan rate when you have bad credit. Be sure to limit the timeframe to less than one month, though. Each time a lender pulls your credit they can choose to do a hard or soft inquiry. Hard inquiries can lower your credit rating further while soft inquiries do not. There are many online lenders specializing in auto loans for bad credit, so pay close attention to the fine print to get the best deal and protect your credit.

Online lenders like RoadLoans offer loans for subprime borrowers.

Subprime auto financing companies: Be especially cautious when exploring this option. This type of lender may offer to finance 125% of the car’s market value, meaning borrowers will immediately owe much more for their car than it’s worth. High-interest rates, prepayment penalties, and origination fees can drive the debt up even further. Subprime auto lenders like Westlake Financial offer these kinds of loans.

Use an auto loan calculator to determine how much money you can spend on a new or used car. It will help you incorporate important details like sales tax, title and registration fees, and your trade-in value.

Five tips for securing financing with bad credit:

  1. Preapproved loan: Getting preapproved for a car loan online will give you leverage at a car dealership and make shopping for your vehicle simpler. You’ll know your interest rate and terms and can determine whether you can afford the monthly payments plus ongoing costs of ownership like insurance, maintenance, and registration fees.
  2. Consider a cosigner: If you are sure you can afford the payments and you have a cosigner with good credit willing to take the risk of adding their name to your debt, you may have a chance of getting an auto loan with better terms by applying with a cosigner.
  3. Pay in cash or part cash/part credit: If you have the cash to buy a car outright, doing so could save you hundreds, if not thousands of dollars in fees and interest. Making a large down payment may also help you negotiate a better interest rate on your auto loan.
  4. Negotiate with the dealer: Once you get preapproved for an auto loan you can negotiate better loan terms with the dealer and get them to compete for your business. They may have some flexibility with the interest rate or terms of the loan, so bring your preapproval document and ask if they can match or beat that offer.
  5. Wait to buy and build your credit: If waiting is an option and you can put off purchasing a vehicle for a few months, do so. Bring past due accounts up to date and make all payments, on time, going forward. If possible, reduce your total credit utilization to below 30% of your total available credit across all of your cards to increase your credit score.

How to rebuild your credit

While bad credit won’t necessarily keep you from getting a car loan, you’ll pay less in fees and get a lower interest rate if you work to rebuild your credit before applying for an auto loan. There are certain things you can do even while you look for financing that will help you improve your credit scores.

Your payment history is a crucial part of your overall credit picture. Make sure you pay your credit card bills and make all loan payments on time every month. Over time, making every payment on time will improve your credit score.

Credit utilization ratio on revolving accounts is the percentage of available credit across all credit cards that you’ve used. According to MyFICO, this number determines 30% of your credit score.

Reducing your credit utilization ratio by paying down your credit card balances to less than 30% of your total available credit across all your revolving charge accounts will help your credit score in a shorter amount of time. Credit card companies typically report to the credit bureaus once each month, so it may take a few weeks for you to see your new lower balances reflected on your credit reports.

Check your credit. Get in the habit of getting your free credit reports from each agency and check them carefully for mistakes. Removing inaccuracies could help raise your FICO scores.

Register for Experian Boost to see if your bank participates in this program. You may be able to raise your Experian credit scores by allowing the credit reporting bureau to access information about your payment history with utilities, rent and your phone bill.

Consider a secured credit card. If you need to build a positive payment history, consider getting a secured credit card. This type of credit card works to help people who don’t have a credit history or who have had past credit problems build a positive payment history with the credit bureaus. Applicants are required to provide collateral in the form of a cash deposit. The credit limit of the card equals the amount of the deposit. The card works just like a regular credit card. Secured cards charge interest on purchases, like any other credit card.

Look for one that doesn’t charge an annual fee and transitions to an unsecured account automatically after a set amount of time when you make all payments before their due date. With a good payment history, the bank may increase your credit limit on a secured card without requiring an additional deposit.

The Capital One® Secured Mastercard® has a low refundable security deposit of $49, $99, or $200. The DCU Visa® Platinum Secured Credit Card has a lower APR than most secured cards at 13.75% Variable.

Make on-time payments. After you get auto financing, be sure to make every auto loan payment before the due date. This will help you avoid late fees and penalties and it will boost your credit scores over time, making it easier for you to get approved for low interest and low fee credit products in the future. This type of loan will also help add diversity to your credit file, which helps boost your credit scores.

What is the best auto financing option for you?

Unfortunately, there isn’t a one-size-fits-all answer for auto financing when you have bad credit. While credit challenges don’t typically prevent someone with a steady income from getting financing, it’s crucial to consider the total price of the car including financing costs to determine whether you can afford to buy a new or used vehicle, or whether you can afford the lease payment on the car you want.

Use an auto loan calculator to help evaluate various scenarios. Proceed with caution. Not every bad credit auto financing offer is in the best interests of the borrower. In fact, many drive consumers with credit problems deeper into debt and cause further harm to their credit scores.

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.

Rachel Morey
Rachel Morey |

Rachel Morey is a writer at MagnifyMoney. You can email Rachel here

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Seven Steps for Getting a Great First Car

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements 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.

First car
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When it’s finally time to buy your first car, you’re likely going to be excited about being behind the wheel of your new ride, but also a bit uneasy. After all, buying a car can be complicated. How do you know which car to get? Will it fit into your budget? Should it be new or used? How do you make sure you’re not paying too much?

Here are seven steps to follow to ensure that you’re getting the best vehicle you can without going broke, whether you’re buying a new or used car or from a dealership or individual.

The most important thing to remember is to take your time, says Brian Moody, executive editor of the car buying and selling website Autotrader. “This isn’t something you should do in one day,” he said. Remember, if a dealer or individual pressures you to make a decision, you can always go elsewhere.

1) Figure out how much car you can afford.

When purchasing your first car (or any car for that matter) it’s always smart to follow the 20/4/10 rule. That means you should put at least 20% down, finance it for no more than four years, and keep your monthly vehicle expenses, including the monthly payment and insurance, at just 10% of your net income, advises Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC). Ronald Montoya, senior consumer advice editor for the automotive website Edmunds.com, says it’s still reasonable if you put down as little as 10% and go for a five-year loan, although he calls the 20/4/10 rule “ideal.”

Beyond that, examine your monthly net income and expenses to figure how much you’re comfortable paying on a loan while still having something left over to put into savings.

Next you need to figure out what your credit report and FICO score looks like. You can pull one free credit report every 12 months by going to annualcreditreport.com. Once you have an idea of what kind of information lenders will see on your credit report and you’re sure it’s accurate, check your credit score with the major credit bureaus like Experian, TransUnion and Equifax. Unfortunately, getting your credit score is not free so you will need to pay to access it.

One thing to note, auto lenders use more than just your FICO credit score to determine whether or not you are worthy of a loan. You want to pull your FICO Auto score to see exactly what lenders will use when you apply for an auto loan. Doing this work ahead of time will give you more leverage when it comes down to the negotiating process and make you a more informed consumer.

Once you have a good understanding of your credit report and credit score, examine current new and used-car loan rates for loans of up to four or five years. Longer term loans, while popular for their lower monthly payments, generally have higher finance charges. When coupled with little or no down payment, they increase the risk that you could be upside down on the loan at the end of the term. This means that you could owe more to the lender than your car will be worth on the market. One additional factor to consider when you are upside down on a car loan, is that if the car is stolen or severely damaged, your insurer may not cover what you owe to the bank.

To get an accurate interest rate estimate, you’ll need to know your credit score. If you don’t, there are many ways to get it for free, though you will need to pay to access your auto credit score. Once you have compared rates and know how much you can afford to pay monthly, you can use a specialized online loan calculator like this one to figure out how much you can borrow. Just enter the interest rate, number of months and monthly payment.

You also can explore your loan options with local and online lenders. Montoya from Edmunds recommends getting preapproved for an auto loan, which can save you time and money once you’re ready to buy. McClary from the NFCC recommends that you don’t overextend yourself financially. “There’s this tendency to go for the max and to get the most out of what you can qualify for in the financing. You have to resist that temptation,” he said.

2) Research a vehicle.

There are lots of online resources to assist you in choosing a car, among them Autotrader, Cars.com, Consumer Reports, Edmunds.com and TrueCar. Depending on the site, you’ll find car reviews by professionals and owners, road test results and prices for both new and used vehicles. Many car sites also show you actual new and used vehicles for sale. All of this will help you find a reliable, top-rated new or used vehicle that fits into your price range.

To find the right vehicle for you it’s important to be practical about your needs. “You want to think about how you will be using the car most of the time,” Montoya said. He says that you shouldn’t pay extra for a vehicle that’s too big or has features you don’t need. Remember to look at gas mileage, reliability and safety. Also examine the duration and scope any warranty coverage, which, in the case of a used car, you should verify is transferable to a new owner.

When deciding whether you should buy a new or used car, consider that used cars can save you a lot. The average used car transaction price is just over $20,000, compared to $36,000 for new vehicles, according to Edmunds.com. But with a used car, you’ll likely spend more on maintenance and repairs, especially if there’s no warranty.

Once you’ve settled on a few models, you can research them more carefully and compare them. If you’re buying new, check the manufacturer’s website for the various trims and equipment options. While there, look at the latest incentives, including rebates and low-interest financing.

3) Locate a car.

Now that you’ve narrowed your choices, you can locate a vehicle to test drive by visiting local dealers and checking websites such as Autotrader, Edmunds.com, and TrueCar. These sites show you vehicles in your area and can help you narrow your search. You’ll also find used cars being advertised by individuals on Craigslist and elsewhere. For first-time buyers it’s easiest to purchase through a dealer, who likely will have inspected the vehicle and done some reconditioning, say Montoya. Consider shopping first at a franchised dealer, one that sells the same model new since they will be experts in keeping their model of used cars in tip-top shape.

One caveat to keep in mind about buying a used car from a dealership is that you could end up costing you a bit more than it would if you bought a used car from an individual. That’s especially true if you opt for a certified used vehicle, also known as a CPO, or certified pre-owned vehicle. These usually come with a service contract and an extended warranty that covers the cost of some repairs. Car pricing websites such as Kelley Blue Book can show you how prices differ among private sale, dealer and dealer-certified used vehicles.

4) Check out the car.

The best way to assess a vehicle is to take it for a test-drive, preferably on roads you know, advises Moody. How does it feel? Is it quiet? Are the seats comfortable? What about the visibility? How easy is it to use the car’s infotainment system, a common feature in today’s vehicles. There’s a lot to consider, so take your time. “You can’t make a $30,000 decision in 15 minutes,” Moody said.

If you are looking at buying a used car, you also should inspect the vehicle carefully inside and out. There are many online resources, including at Consumer Reports and YourMechanic and our own checklist, that explain what to look for. It’s a good idea to bring someone (who knows about cars and car buying) and ask about the car’s history, including whether it’s ever been in an accident and, in the case of a dealer, whether it was a trade-in, auction purchase, returned lease or anything else.

Once you have narrowed your choice down to one or two specific vehicles, you should run a VIN check and vehicle history report on the chosen cars, to check if there are any hidden issues.

Ask for a Carfax or Experian AutoCheck vehicle history report, which can tell you if the car has been in an accident, stolen, repurchased under a state lemon law program and more. Some dealers post history reports with their car ads.

If you are buying a car from a private party, ask the seller for a history report, or get the VIN number of the vehicle and order one yourself. If the seller supplies a report, consider contacting Carfax or Experian by chat or email to verify it hasn’t been altered.

As an extra precaution, there are two other types of history reports you can request on your own, the free VINCheck report from the National Insurance Crime Bureau and another from the federal National Motor Vehicle Title Information System, which is available at no charge from yet another buying website, Carsforsale.com.

Be warned, history reports can miss a lot, so you’ll need to have the vehicle inspected by an independent mechanic who should check not only for mechanical issues but for body work and other signs the car has been an accident, flood or other mishap, says Rosemary Shahan, president of the California-based Consumers for Auto Reliability and Safety. She recommends it for certified used cars that supposedly have gone through a multi-point check, too. Expect to pay $100 or more for a thorough inspection, and ask for a written inspection report.

Before moving forward with a final decision on which car to buy, call several insurance companies to find out how much it will cost to insure the vehicle, including collision and comprehensive coverage if you’re buying a new car or if it is being financed.

5) Negotiate the deal.

Once you’ve settled on a particular new or used car and taken a test drive, it’s time to negotiate the price. If you’re buying from a dealer, he’ll likely ask you how much you want to spend each month. “I like to tell them zero,” said McClary. He says the dealer’s goal is to divert your attention from vehicle price so you’ll end up paying more than you otherwise would. One common mistake, especially among first-time car buyers, he says, is assuming that because a payment fits into their budget, it’s a good deal. For a new car, the negotiations will include the cost of any added options.

To negotiate like a pro, you should be well-informed. First, visit several car pricing sites, such as TrueCar, Edmunds, Kelley Blue Book, and NADAGuides, to find a good price based on the exact model, trim line, add-on options and, in the case of a used vehicle, the condition and number of miles on the odometer.

When negotiating a new car, contact several dealers and get “out-the-door” cost quotes for the vehicle you want. This means that you get a total cost including any extras, add-on options and warranties. Once you have a few numbers, you can play the dealers against each other to get the price lower. Fortunately, you can do that by phone, text or email, so you won’t have to do a lot of running around.

Comparing prices for a used car is more difficult because there likely aren’t others that are exactly the same as the one you’re considering. “You want to find other cars that are close to it,” said Montoya. If you can’t get a price that you think is fair, it may be time to consider another model, make or a different used car.

This is also the time to get the car checked out by a mechanic of your choosing. For a used car, make sure any agreement is contingent on a thorough inspection by your own mechanic, which should be completed before you sign.

If you’re buying from a dealership, you’ll likely be offered add-ons such as paint protection, rustproofing and undercoating for a new car, or an extended warranty for a used one. Many add-ons aren’t necessary. Some add-ons you can buy for much less outside the dealership, and you won’t have to pay finance charges on them as you would if you included them in the deal, says Montoya. Extended warranties can be a bad value and unnecessary, especially if you’re buying a reliable car and take care of it as the manufacturer recommends. Along with carmaker plans, many dealers sell expensive coverage from independent companies. Those plans often have many fine-print exclusions and may be difficult to use, so be wary.

6) Decide on financing.

Unless you can pay cash, you need to decide how you’ll finance the vehicle. For a private sale, you’ll be using the loan you’ve already researched with a lender. With a dealership, you’ll have an additional option to choose dealer financing or, in the case of a new car and some certified-used vehicles, special low-interest financing from the manufacturer.

Remember that dealers often mark up their best rates, so be prepared to negotiate the rate as well as the car price. Since you did your homework prior to shopping you will be well-equipped to make a good financing decision.

If you’re considering manufacturer financing, find out whether it’s in lieu of a cash rebate. If it is, figure out whether you’d come out ahead by opting for the rebate and then financing at a competitive rate elsewhere. Compare the total costs both ways. You can use an online low-APR versus cash back calculator to help you do the math.

Another financing option is leasing. You can lease a new or used car (in limited cases). A lease is attractive because you can get the same vehicle for a much lower monthly payment than with an equivalent loan, though you don’t own the vehicle at the end of the lease. “You can get in a cycle of just throwing money away,” said McClary. Leases also have fees, restrictions on the number of miles you can drive and finance charges that are higher than those of an equivalent loan, among other drawbacks. Be sure to check for any unresolved safety recalls on the vehicle, new or used. A dealer that sells that make of car can address them for free.

7) Verify the deal.

Get everything in writing, including anything that a dealer has promised to do after the purchase. Be sure that any agreed-to-recall repairs are included in the paperwork before you sign. When leaving a deposit with a dealer, use a credit card. That way, if the deal sale doesn’t go through as promised, you can contest the charge with your card issuer.

For a used vehicle, insist on seeing the title and ensure that all the information listed checks out. With a private sale, you’ll need it to register the car once you take possession of it. Your lender can advise you. A dealer will typically register the car for you.

When it’s time to pick up your car, do a final walk-around inspection before accepting delivery. If it’s a new car that has been ordered for you or that you otherwise haven’t driven, says Moody, consider taking a test drive just to make sure everything is okay.

By following these seven steps, you can be sure you will find a great deal on a great first car.

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Anthony Giorgianni
Anthony Giorgianni |

Anthony Giorgianni is a writer at MagnifyMoney. You can email Anthony here

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