Advertiser Disclosure

Auto Loan

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, 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.

iStock

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.

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]

TAGS:

Advertiser Disclosure

Auto Loan

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.

iStock

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

TAGS:

Advertiser Disclosure

Auto Loan

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
Getty Images

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.

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.

Anthony Giorgianni
Anthony Giorgianni |

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

TAGS: