Do your homework before buying a car

Q: I’m need a new car soon and know it’s going to be a major purchase for me. I know I have many options and don’t want to lease. To get the best value, what should I be looking for as I’m deciding which car to buy? – S.D., California 

A: You’re right — a car purchase is a major expenditure. Over your lifetime, you’ll spend a lot of money on your cars. If you take the time to do some homework before you buy — either a new or used car — you can drive away more confident and happier. 

KNOW WHAT YOU WANT

First things first. Decide on the size and type of car, whether it will be new or used, and the features and options you want to suit your particular lifestyle and needs. Do you want

• Automatic transmission or stick shift?
• Four-wheel drive capability?
• How many people need to fit in the car?
• How much trunk space?
• Will it fit in your garage or parking space?
• What features do you want or need, such as a sunroof, sound system, power seat adjustments, a special lift or steering, alternative fuel power, etc.?
• Does the car play a role in your image or status, at your work?

If you are going to keep the car for five to 10 years, try to anticipate how your lifestyle may change so you can meet your future needs. For example, if you are going to have a child in a few months, then you probably want a car with at least a back seat.

As you narrow your choices to maybe three or four car types and models, be aware that some vehicles are similar to others made by a “sister” company. You could compare the minivan offerings from Dodge and from Chrysler, a top-of-the-line fully equipped Toyota with the Lexus, or a Honda with an Acura.

DO YOUR HOMEWORK

Auto technology continues to advance with each year of production, making this one of the most exciting times to be in the market for a car. Some cars can go 100,000 miles before they require a tune-up; synthetic oils allow cars to go many miles between oil changes; hybrid cars can get 40 to 50 miles plus per gallon while some alternative fuel cars don’t use any gasoline; new tires can get over 80,000 miles, if you drive your car reasonably; safety features are superior across the various makes and models; the instruments panels, stereo systems and other creature features make cars fun for the entire family.

Follow these steps to make a good financial deal and get the car that’s right for you.

1. Reviews. Read car reviews and road test results in magazines and on Web sites such as www.auto.com and www.car.com. Investigate the car’s safety, reliability and maintenance ratings such as those found in Consumer Reports magazine. You also may be able to locate consumer satisfaction surveys and information about how well the car is selling. A slow-selling vehicle or one with a high sales volume will be a better deal than a hot-selling car or one that is in limited production.

2. New or Used. With the reliabilities of both new and used cars getting better and better, consider buying a new used car. The price may fit your pocketbook much better, and you won’t experience the severe new-car depreciations.

3. Price. Knowing the car’s invoice price (the cost to the dealer) is a key to making the best possible deal. Once you know the total of the dealer’s costs, add a fair profit of 3 percent or so for the dealer to determine the target price you are willing to pay to purchase the car. Base your negotiations on the invoice price, though for a hot-selling car you may have to pay the retail, or sticker, price.

Be aware that sometimes even the dealer’s invoice price is not a good benchmark. Some manufacturers’ invoice prices actually include an amount, called a “holdback,” that goes to the dealer, so invoice price doesn’t necessarily reflect the dealer’s true cost. You may actually be able to negotiate a price lower than the dealer’s invoice.

Also watch for manufacturer’s rebates, income tax credits and other direct to consumers financial incentives that can save you money.

Before you research price information, make notes about the features and options you are considering. Then begin searching for the invoice pricing on each of these. You can find the car’s current invoice and manufacturer’s suggested retail prices from Web sites such as Edmund’s (www.edmunds.com) and Kelley (www.kbb.com).

Many automobile clubs sell invoice price reports. Another reliable source is the Consumer Reports New and Used Car Price Service (800) 258-1169), which provides reports containing the invoice and sticker prices for all options and packages, as well information on rebates, factory-to-dealer incentives and holdbacks. The report also gives information on how to negotiate the best deal. The fee for these reports is $14 for a new car and $12 for each additional new car report and $12 for a used car report.

4. Insurance. Research the insurance costs for the cars you are considering. A high insurance premium for your first-choice car might sway you to consider another model. Ask your current insurance company for quotes, and also get them from at least two other companies.

5. Test Drive. If you are considering different cars, try to arrange all the test drives for the same day or on consecutive days. Let the dealer/owner know that you are not going to buy the car today. When you are on the test drive, pay attention to how the controls feel, how it accelerates, brakes, handles, and the overall quality of the ride. Listen for road noise, and try out the sound system and other features.

6. Trade-in Value. If you are going to trade in your used car or sell it yourself, find out its current wholesale value. Two widely used resources are Kelley Blue Book (www.kbb.com) and Edmund’s (www.edmunds.com). You also will find this information in books and magazines, but Web sites probably provide the most up-to-date information.

7. Financing. If you are not going to pay cash, then investigate the interest rates you can get from banks or your credit union. Apply for your loan early, before you go shopping, as it might take a few weeks to get approved for a loan. When the time comes to buy the car, compare the dealer’s financing terms with the loan you can get from your own sources. Dealers sometimes can beat other financing because car manufacturers will offer financing subsidies.

8. Used car checkup. If you decide on a new used car, be sure to research the car’s history from a service like AutoCheck (www.autocheck.com) or CarFax (www.carfax.com) and get a second mechanical opinion on its condition.

9. Warranties. The dealer may want to sell you an extended warranty, and you will want to negotiate this price down significantly. You can prepare yourself by knowing the fine-print terms and costs for warranty coverage from companies such as www.warranty-comparison.com. This may or may not be an insurance cost you want to incur.

This information is brought to you by The NAEPC Foundation and Noverus, your financial and estate planning partners. © Copyright NAEPC, The NAEPC Foundation, Noverus and Valentino Sabuco, CFP^®, AEP®.