10 Tips for Buying a New Car

A new vehicle is one of the most significant purchases of your life. When in the market for new wheels, it pays to research and review all relevant information before signing on the dotted line.

Whether you pay upfront and in full or finance through an auto loan, you should be aware of all aspects of your vehicle purchase including your budget, loan terms, warranties, and fuel economy.

The following tips for the car buying process will help you get the best deal and avoid problems.

1. Consider Your Budget and the Total Vehicle Cost

Choose a vehicle that aligns with both your needs and budget. Consider your overall financial situation and establish a monthly payment range you are comfortable with. The total monthly cost for your new vehicle should not exceed 15% of your total monthly income after taxes.

Most consumers will need to finance a new vehicle purchase or take out an auto loan. To do this, you will need a down payment. Although minimum down payment requirements vary by lender, the general guideline is 10% to 20% of the purchase price of the vehicle. You may be able to make a smaller down payment if you have a strong credit history.

Paying more upfront can be beneficial. Not only will a higher down payment allow a more affordable monthly car payment, but it can also prevent you from going “upside down" on your auto loan, which means you owe more money on your loan than the current market value of the vehicle. The first few years of vehicle ownership, when depreciation rates are the highest, are when this is most likely.

There are several costs that go into the total purchase price of a vehicle:

• Base price of the vehicle
• Sales tax (some states and counties impose additional motor vehicle taxes or excise taxes)
• Vehicle registration fees
• Interest rates if you finance your vehicle purchase

You will also have to factor in car insurance premiums when calculating your total monthly vehicle costs.

Don't leave any cost savings on the table. Ask about any current discounts or sales. Some dealerships and manufacturers offer promotional rates, rebates, and other incentives.

Finding a balance between the down payment, total purchase price, and monthly payment will help you make an informed decision that meets your budget.

2. Consider Fuel Economy and Mileage

A vehicle that gets more miles per gallon is better for your wallet and the environment. The more miles per gallon a vehicle gets, the less you need to spend on gas. Hybrids and electric cars are even more efficient.

These government web pages will help you comparison shop:

• Use the Green Vehicle Guide to find the most fuel-efficient vehicles with the cleanest-running engines.
• Fueleconomy.gov by the U.S. Department of Energy and the U.S. Environmental Protection Agency provides fuel economy resources and information. Consumers can compare vehicles' miles-per-gallon ratings as well as find tips on improving mileage and saving on gas expenses.
• Use this tool on Fueleconomy.gov to compare fuel costs for different vehicles.

3. Check Out the Seller or Dealership

Research and choose a trustworthy dealership. A few ways to gather information include:

• Check with your state or local consumer protection agency
• Look for complaints and reviews through the Better Business Bureau (BBB)
• Visit the dealership in person to scope out cleanliness, customer service, and organization

Dealerships make money by buying vehicles from manufacturers at wholesale price, and then selling to you at retail price. Some dealerships can sell a vehicle at a lower price than MSRP (manufacturer's suggested retail price, or “sticker price"). They can also choose to sell it for more, which is sometimes the case for in-demand vehicles.

Reputable dealerships should provide clear information about pricing, financing options, and any additional fees.

4. Take a Test Drive

If you are unable to test drive in less-than-ideal conditions, ask the seller how the vehicle performs in snow, heavy rain, or wind. A few ways to maximize your test drive include:

• Drive at different speeds and check for smooth right and left turns
• Make sure the vehicle doesn't pull to one side on a straight stretch
• Pay attention to the vehicle suspension, or how it feels over large bumps
• Drive up a steep hill to test for acceleration
• Note how the vehicle reacts to different types of braking

5. Handle Trade-Ins Separately

This may help you get the best deal on your purchase. Get a written price quote before discussing a trade-in or dealer financing. You are not obligated to tell the dealer you have a trade-in. Even if you plan to trade in your old vehicle, you can say you're still deciding.

It can hurt your ability to negotiate on price if the seller knows they will have to apply the trade-in value to your new vehicle purchase.

6. Shop in Advance for Financing

It can also be beneficial to secure your own automotive financing from a local bank or credit union, rather than going through the manufacturer or dealership. Research and compare loan terms and interest rates from different lenders instead of defaulting to direct financing from the dealership or manufacturer.

Some borrowers may get more favorable loan terms, like lower monthly payments and better interest rates, by financing their car loan outside of the dealership. When researching loan options, look at the total finance charges and the Annual Percentage Rate (APR), not just the monthly loan payment.

7. Read the Fine Print Before Signing

Car dealerships have a reputation for being high-pressure sales environments. Buying a vehicle is a significant and expensive commitment. Take your time with the paperwork and do not let the seller rush you through the process.

Carefully review and understand every document before signing. Pay special attention to the following details:

• Vehicle information: Confirm the vehicle make, model, and VIN (Vehicle Identification Number). Mistakes in these details can lead to complications later when you want to sell the vehicle, or if there is a recall.
• Terms and Conditions: Review the sales contract and financing agreement thoroughly. Ensure you understand the specifics, including the purchase price, interest rates, loan terms, and any fees.
• Unwanted Add-ons: Look for include optional add-ons or services you did not agree to.

8. Consider Gap Insurance

Whether you lease or buy, consider purchasing gap insurance. Gap insurance pays the difference between the worth of the car and what you owe if it is lost or stolen.

9. Consider Leasing Instead of Buying

Leasing offers lower monthly payments and less hassle when it's time for a new vehicle. Lease agreements also offer the benefit of driving a new car without the long-term commitment of ownership.

However, lessees need to be even more mindful of depreciation, as it directly impacts the lease payments. The difference between the vehicle's initial value and residual value at the lease end determines most of the monthly payment.

Similar to financing the purchase of a new or used car, lease agreements require monthly lease payments. While depreciation is the primary factor for the monthly payment, other considerations can influence the payment amount:

• Your credit score
• Whether you make a down payment
• Money factor and interest rate (a lower money factor often means lower monthly payments)
• Mileage allowance
• Capitalized cost (the total amount financed through the lease—a lower capitalized cost usually results in a lower monthly payment)

Most lease terms (duration of the lease agreement) are two to three years. At the end of the term, the lessee has the option of returning the leased vehicle or purchasing it at a predetermined residual value. The residual value is the expected value of the vehicle at the end of the lease term.

One of the most unique aspects of a car lease is the mileage limits. Lessees and lessors agree on a specified number of miles they can drive annually without additional charges. If you exceed the mileage limits, you can expect additional fees at the end of the lease.

The leased vehicle will undergo a thorough inspection at the end of the lease. This inspection looks for excess wear and tear and mileage. Most lessors require a security deposit at the beginning of the lease, which may be refundable depending on the vehicle's condition at the inspection.

The leasing company may also charge a disposition fee for handling the return. This fee covers the costs associated with inspecting and preparing the vehicle for resale.

One of the cons of leasing is the repercussions of early termination. Ending a lease early typically results in penalties, including an early termination fee and other charges.

If you decide to lease, compare various lease deals and carefully review the terms of the lease contract, just as you would for a new vehicle purchase.

10. Ask Questions About the Warranty

Your new vehicle should come with a manufacturer's warranty. Ask the dealer to explain the warranty in-depth, taking note of the duration and coverage. These warranties typically cover the engine and transmission (or powertrain), but may also cover emission systems, corrosion, tires, and roadside assistance.

The dealership or seller will likely offer you an extended warranty at an additional cost. Typically extended warranties are service contracts, meaning they may cover repairs or breakdowns for a specific amount of time or mileage.

Extended warranties are always offered at a separate cost, even if that cost is included in the vehicle financing. The dealership should be able to give you specific information about the plan and what vehicle components it covers.

Additional Tips and Resources

See FindLaw's Buying a Car section for additional information on buying a car, auto financing, lemon law, and more.

Car Purchasing Issues? Talk to an Attorney

Buying or leasing a vehicle doesn't often require an attorney. However, there are situations where it may be in your best interest to get legal help. You have legal options if you've been subjected to auto fraud or purchased a lemon. Even if you just want to learn more about getting out of a financing agreement or terminating a lease early, an experienced attorney can guide you through the process.

You can talk to a consumer protection attorney in your area for next steps.