Buying a car
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5 things to know before buying a car

Buying a car

When you’re ready to shop for a new or used car, doing some research before heading to the dealership can save you big bucks. What do you need to know when buying a car to get the best deal? Here’s the scoop.

    1. What you owe on your current car

Your current car depreciated since you bought it and the retail value for trade-in might be lower than what you now owe on your car. That’s important to know, especially if you plan to trade in your car, says Diann Moorman, an associate professor of financial planning, housing and consumer economics at University of Georgia. It’s possible you’ll have to pay off the remainder of your car or roll the amount you owe into the next loan. Getting less for your old car than you owe can be a tough pill to swallow. 

    2. Loan information

Knowing what kind of loan you qualify for before negotiating on a car will help your bottom line. That way, you have loan options and don’t have to rely on the dealer to provide the loan. “A lot of times, if you’re going to a dealership, the choice of lender is out of your hands,” Moorman says. “The finance officer at the dealership will plug in your information and look at what banks will consider giving you a loan.”

Getting a loan like this will generally cost you more than getting a loan on your own because as a middleman, the dealership gets paid for the work it does finding you the loan, she said. You can get preapproved for a car loan on your own before shopping for a car. You’ll find the best loan terms and know the payments are affordable when you do it yourself. Also, you’ll better understand what car price you can afford, and use that knowledge to negotiate the actual price of the car versus the monthly payments.

    3. The dealership’s purchase price

If you’re getting a new car, the dealership is required to put a sticker on the window listing the MSRP (manufacturer’s suggested retail price). “That’s the markup price,” Moorman says.

Instead, you want to find out the dealer’s cost, known as the invoice price. You can find it online at a site such as Edmunds.com and use that figure as a starting point for negotiation. The figure may not account for dealer holdback, an additional percentage or amount the dealership makes by selling each car or by meeting a quota for that time period.

By digging around online, you may be able to find this information and use it to your advantage when negotiating, said Moorman. At least know that, if the dealership says they’re selling you the car at their invoice price, they’re still making money from dealer holdback.

    4. Rebates

There are other discounts to consider as well. Rebates are common in the car industry, and you may want to ask the dealership about them. Manufacturer rebates come in many forms, including directly to the consumer or to the dealership. “Either way, it’s money off the price of the vehicle,” Moorman says.

Before shopping, research consumer rebates, like those for first-time buyers, loyalty rebates for customers purchasing another car from the same manufacturer they’ve bought from previously, and even rebates from manufacturers rewarding customers for switching their loyalty to another car company. You can find rebate information at sites including Edmunds.com, Kelly Blue Book and in some car advertisements.

    5. How much does a new car really cost?

To understand the total price of the vehicle, consider how much you’re paying with interest. “Consumers think about monthly payment,” Moorman said. You should realize that the more months you’re making a payment, the more you’re paying in interest overall. If you’re trying to lower the total car cost, look for a car and a loan you can pay off with fewer years of monthly payments.

Buying a car is an expensive purchase. But you can save money in the process by doing research in advance and coming prepared when it’s time to negotiate with the dealership.

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