i’m thinking about buying a new car what do i need to know?
TRANSCRIPT
I’m Thinking About Buying a New Car What Do I Need to Know?
Buying a car can be daunting.
To help navigate this potentially confusing process, we’re going to follow Ti�any, a recent college graduate, through the process of �nding and buying a new car.
Step 1: What are your needs
For instance, Ti�any might dream of speeding down the highway with the top down in her new convertible; or she might want a pickup truck to hook up her horse trailer and take her horse to the country for a trail ride. But before Ti�any goes o¬nand buys the car of her dreams, she �rst needs to consider:
What kind of car do I need for everyday driving?
Step 2: What should you buy?
If, for instance, she’ll be using her new car for commuting then she may want a vehicle that’s cheap on gas. If she doesn’t want to be at the mechanic’s shop too often, then she’ll probably want a reliable vehicle, which may mean new rather than used. If she frequently carpools or takes road-trips with friends then she’ll probably want a good rear seat for passengers.Other items to consider include: standard safety features, technological enhancements, such as navigation, iPod input or built-in WiFi, as well as size of the vehicle.
Step 3: Prioritize your needs
If good mileage is important then Ti�any can research what vehicles get the highest gas mileage. Doing some online research will give Ti�¬any a good starting point for determining which models are good on gas, meet her other needs, and are within her price range. Then she can make a short list of vehicles that match all her needs.
Step 4: New or used?
While Ti�¬any will save money by buying a used vehicle, she’ll need to consider whether or not the headaches of buying used—higher mileage, more wear and tear on the vehicle, possibly higher repair bills and unknown problems—is worth it. One way to do this is to check out a car’s reliability by going onlineto Consumer Reports, JDPower or MSNAutos. What Ti¬�any learns is that not all cars are built well—even the same make or model of cars can have years with more problems than most.
Step 5: Consider price
Whether Ti�any buys new or used, she should also keep in mind that all cars depreciate. That means she’ll want to consider how much she pays now and how much the car could be worth down the road.For example, if she bought a six-year-old Toyota Corolla for $7,000, she could potentially sell this same car in four year’s time for $3,000. However, if she were to buy a �ve-year-old Mercedes Benz E-class for $25,000 and then drove it for �ve years, she may only be able to sell it for $6,500—meaning a loss of $18,500 in depreciation during that time.
Step 6: Lease or buy?
A lease is like a long-term rental. Ti�any would agree to use the car for a speci�ed number of months and for a maximum number of miles. At the end of the lease, she’d return the vehicle, pay any end-of-lease fees and walk away. The monthly lease payments will typically be less than monthly �nancing payments, for the same vehicle. That’s because Ti�any is only paying for the depreciation on the vehicle while she drives it, whereas �nancing payments are loan payments based on the full-value of the car.A lease will work in Ti�any’s favor if she drives less than 25,000 per year (most lease agreements only cover 25,000 miles per year) and if she wants to drive a new vehicle every couple of years.
Step 7: Calculate your budget
Since Ti�any is earning $60,000 at her new job, she can spend up to $21,600 per year, or $1,800 per month, on debt payments. If Ti�any were paying $1,100 in rent and $200 in student loan repayments that would leave her a budget of $500 per month for her new car. If Ti�any were to buy her car outright, that $500 per month budget would then be used to pay for gas, maintenance and insurance. If she plans on leasing or �nancing, she would need to include those costs into her maximum monthly car budget.
Step 8: Save money on car/truck insurance
One option she could explore is to call her broker and �ndout how much she’d save if she were to bundle her car insurance with her home or tenant insurance.Another option is to consider increasing her deductible. The deductible is the portion of a loss a policy-holder is required to pay before insurance kicks in and pays the balance. A higher deductible means Ti�any will pay more towards a claim or the cost of a repair. But by assuming more responsibility in the event of a claim, Ti�any is rewarded with lower annual insurance rates.
One �nal way Ti�any can save money is by keeping her car insurance rates low by avoiding tickets. Even one or two tra�¬ic tickets can prompt an increase in insurancepremiums.
Step 9: Picking the perfect car
This is when her research will really pay o�. By �nding out which cars have better mileage, cost more to insure and are more reliable, she can save some serious cash.For example, by choosing a Subaru crossover rather than a Buick SUV, Ti¬�any will save at least $200 per year on gas. If she avoids buying an Acura, her annual insurance payments could drop by as much as 20% with some insurance companies.And if she doesn’t buy one of the top 10 most stolen cars, she could further reduce her annual insurance costs. “When it comes to cheaper auto insurance, family-friendly four doors are usually your best bet.
Step 10: Start online to �nd a deal
All dealerships will let her build her ideal car online before she even sets foot in the showroom.Building her dream virtual vehicle will help Ti¬�any determine the features and possible �nancing that would best suit her needs—and give her a target that will help her negotiate the best deal at a dealership. Checking with dealerships around the area may also give Ti�¬any bargaining power with her local dealer.
Step 11: Private sales
The goal is to �nd a well-maintained car ingood condition at a reasonable price. Ti�any’s cheapest option is to try and �nd a vehicle through a private sale—either from an individual or through independentused car lots. Taking this route will require a lot more due diligence. Ti�any will need to ask the seller a number of questions, such as when did they buy the vehicle and if they are the �rst and only owner? She’ll need to con�rm the current mileage and whether or not the vehicle was involved in any accidents or had any major repairs.
However, she should consider paying for this inspection even if the vehicle is lessthan 10 years old—because a full vehicle inspection by an independent licensed mechanic will provide details on whether or not the vehicle is mechanically sound or requires extensive repair work. If the private-sale vehicle passes inspection, Ti�¬any will want to see the maintenance records, if available, before negotiating a �nal sale price for her “as-is” vehicle.
Step 12: Buying pre-owned certi�ed
Typically dealer pre-owned vehicles are priced higher but usually have better maintenance records since they are often one-owner trade-ins or lease returns.Also, the dealership will thoroughly check out and �x any mechanical issues before releasing these vehicles for sale. Just remember, though, that even a certi�ed used vehicle can come with problems, so Ti�¬any will want to con�rm the dealer’s warranty on the car and make sure she reads and understands what is covered. The dealer may ask Ti�¬any if she wants to buy an extended warranty on her pre-owned vehicle. The value of this extra protection needs to be weighed with the extra cost. For instance, if it costs Ti�¬any $5,000 for an additional three-year warranty on her car but it would only cost her $2,500 to replace the motor should the drive-train break, the extra warranty protection may not be a cost-e�ectiveoption.
Step 13: I bought it! Now what…
After all her research, Ti�¬any �nally settled on herperfect car.
But when she arrived at the dealership to drive it away she was surprised to learn she wasn’t allowed. That’s because no one can operate a vehicle withoutvalid insurance.
To get valid insurance, all Ti¬�any needs to do is call her independent insurance broker as soon as she is ready to buy a car. The broker can process the paperwork and con�rm valid insurance coverage before Ti�any gets behind the wheel of her new car.
Step 14: Enjoy!
Ti�any is super-excited about her new car and is glad she went througha thorough process of evaluation prior to purchasing. Stay safe on the road, Ti�any!
