WHAT YOU NEED TO KNOW

Buying a Vehicle

The Car Buying Process

1. Identify Your Needs and Wants What do you need to do with the car? How much will you drive? (Consider fuel

efficiency.) Do you plan to haul a number of people or gear? Will you take the car off road? What features would you like to have on the

vehicle?

Questions to Ask Yourself

DECIDING ON THE RIGHT PURCHASE

What level of quality do I want? (low, medium, high)

What level of quality do I need?What types of service and repairs does the

dealer offer?Should I wait until there is a sale on the type

of car I want?

More Questions to Ask Yourself

DECIDING ON THE RIGHT PURCHASE

Should I buy a new or used car?If I buy a used car, should I buy it from a dealer or

from a private party?Should I choose a car with a well-known name even

it costs more?Do I know anyone who owns the type of car I want?Are the warranty and service contracts on the car

comparable with the warranties and service contracts on similar cars?

What do consumer magazines say about the car?

The Car Buying Process

2. Decide what you can afford. Before you shop, decide how much you can

afford.

General Guideline: You can afford no more than 20% of your income after you pay for all your regular monthly expenses

Questions to Ask Yourself

DECIDING TO SPEND YOUR MONEY

Do I really need this item?Is it worth the time I spend making the

money to buy it?Is there a better use for my money right now?

The Car Buying Process

3. Identify and Research your choices.

Select several types of cars that would meet your needs and wants.

Look for articles about cars…Consumer Reports

Compare the features of the models.

Note the pros and cons for each model

The Car Buying Process

4. Decide whether to buy new or used.

Cost is a major factor in this decision.

Things to consider: A new car is more expensive. A used car may require more repairs.

The Car Buying Process

5. Decide how you will pay for it. Find out how much money you will be qualified to

borrow before visiting the dealership.

Preapproval is the process of getting a car loan prearranged through your bank or credit union.

To get preapproved, fill out an application. Based on your information, the bank will decide how much to loan you.

The Car Buying Process

6. Check Insurance Rates. Check out the rate on your vehicle choices.

A car rated as a ‘sports car’ will likely mean higher insurance costs than for those vehicles that are rated higher for safety and other features.

Types of Auto Insurance Coverage

Liability (40–50% of premium)• Bodily injury coverage• Property-damage coverage

(e.g.,to another person’s car)

Collision (up to 30% of premium)

• Pays for the physical damage toyour car as a result of an accident

• Limited by deductible

Comprehensive (about 12% of premium)

• Pays for damage caused by vandalism, hailstorms, floods,theft, etc.

Medical• Covers medical payments for

driver and passengers injured in accident

Uninsured motorist• Reimburses you for bodily

injuryin accidents caused by uninsured drivers

Towing and labor

Rental reimbursement• Pays a specific amount per

day to rent a car while yours is being fixed

How Insurance Rates are Set

Personal characteristics

• Age

• Sex

• Marital status

• Personal habits (e.g., smoking)

• Type and frequency of vehicle use (e.g., commuting)

Geographic location (often classified by zip code)

• “Rural” usually lowers rates, “urban” usually raises rates

Driving record

• Accident with death, bodily injury, or property damage in excess of $400 may trigger surcharge on premium for 3 years

• Number and kind of moving violations (and total of associated points)

• Number of years insured with the company

Vehicle characteristics

• Damage, repair, and theft record of type and model of car

• Age of car

The Car Buying Process

7. Search for available vehicles. Search online for cars available from dealers and

individual sellers in your area.

Many areas offer a free print publication such as Auto Trader.

Make a list of the available vehicles that match your criteria, including their features and prices.

The Car Buying Process

8. Test drive the vehicles. Sometimes descriptions are different from the

actual car.

Compare the ride, handling, braking, features, and cost.

Listen for noises that might indicate a problem.

Check the dealer’s reputation before buying.

The Car Buying Process

9. Check the history of the a used vehicle.

A vehicle identification number (VIN) identifies each vehicle manufactured and sold in the U.S.

Use the VIN and enter it onto the online search tool CARFAX. You will get the history of the car.

The Car Buying Process

10. Get the vehicle checked mechanically.

Hire a mechanic to have it inspected.

The Car Buying Process

11. Determine a Fair Price. Decide what price you think is fair. Kelly Blue Book Value publishes a popular pricing

guide for all models and years.

Sticker Price: manufacturer’s suggested retail price is shown on the price of tag of the car’s window.

Invoice Price: The price the dealer paid for the car.

The Car Buying Process

11. Negotiate the Price. Make up your mind that you will not be pressured into

paying more than you think is fair.

You can use a car buying service that allows you to choose the vehicle features you want, and a professional car buyer takes over the price negotiation for you.

12. Be aware of Dealer Add-Ons: Services that add little or no value to the car such as

cleaning the car, checking the tires, dealer preparation, etc.

Buying a Used Car

BEFORE you begin shopping… Decide how much you can afford to spend. Decide which car models and options interest you. Research the reliability of the model car you want. Find out where the nearest repair facility. Find out whether parts are readily available. Find recent prices used car “blue books”. Shop for financing. Factor in the costs of the loan and the cost of the

maintenance.

Buying a Used Car

WHILE you shop… Find out the reputation of the dealer. Find out what type of warranty comes with the car. Find out what type of service contract comes with the

car.

Where to Buy a Used Car

New Car Dealers: Provide quality used vehicles. Service department available. Higher prices than other sources.

Used Car Dealers: Specialize in previously owned vehicles. Limited warranty. Vehicles may be in poor condition.

Where to Buy a Used Car continued--

Private Parties May be a good buy if vehicle was well maintained. Few consumer protection regulations apply to private

party sales.

Other Sources Auctions, Sales by government agencies, auto rental

companies, and on the Internet. Most of these vehicles have been driven many miles.

Shopping for a New Car

Decide which car model and specific options.Find out the invoice price and the true cost to

the dealer.Decide how much you are willing to pay the

dealer above the invoice price.Make your offer to as many dealers as

possible.Compare the final sales price with other

dealers and buying services.Compare financing costs from various

sources.

Shopping for a New Car continued--

If you already have a car, find out its value independent of the dealer’s trade-in offer.

Try to sell your old car yourself (dealers give better deals without a trade-in).

Decide whether you need a an optional service contract or credit insurance.

Financing Your Car

1. Financial Institutions Banks, credit unions, and insurance companies

offer vehicle loans.

Loans are often for 36, 48, 60 or 72 months.

Longer terms mean lower monthly payments, but a higher interest rate.

Compare rates and terms before selecting a loan.

Financing Your Car

2. Car Dealers Most new-car dealer offer financing.

They may offer you better terms on certain models at particular times of the year.

Finance companies make loans through dealerships.

Financing Your Car

3. Leasing a Car Similar to an apartment lease.

A written agreement that allows you use the property (the car) for a specified period of time.

You don’t own the car.

Leasing a Vehicle

Advantages

• Smaller initial outlay than down

payment when buying on credit

• Monthly lease payments may be

less than monthly finance

payments

• Lease agreement provides

detailed records for business

purposes

• Oftentimes, all service charges

related to maintenance are

included in lease, so there is no

additional outlay of money for

regular maintenance

Disadvantages

• No ownership interest in the vehicle

• Must meet requirements similar to applying for credit

• Additional costs occur (such as for extra mileage, certain repairs, ending lease early)

Discussion of Leasing vs. Buying

• You must decide which option makes the most sense for your situation.

• Do you have cash available for a down payment?

• How much of a monthly payment can you afford?

• How long do you plan to keep the car?

Consumer Protection

1. Lemon Laws Exist in many states that protect consumers from

the consequences of buying a defective car. LEMON: A car with substantial defects that the

manufacturer has been unable to fix after repeated attempts.

2. FTC Used-Car Rule Requires that dealers fully disclose to buyers

what is and what is not covered under the warranty.

Maintaining a Vehicle

Costs of Owning a Car1. Fuel/Gasoline2. Depreciation: a decline in the value of

property due to normal wear and tear.3. Interest on the Loan (if buying on credit)4. Car Title and Car Registration

1. Car title: legal document that establishes ownership of the vehicle.

2. Car Registration: license tag fee

5. Maintenance and Repairs (Oil, other fluid, tires)6. Accessories: GPS systems, paint features, wheel

covers, etc.

Maintaining a Vehicle

Extending the Life of a Car1. Maintain Fluid Levels2. Perform Routine Maintenance3. Keep your car in a garage: Protects from theft,

vandalism, and weather.4. Preserve the Exterior5. Preserve the Interior