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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, 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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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.

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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 [email protected]

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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.

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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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