The Smart Consumer’s Guide to Buying a Car

Lemonade – now that’s something you can make from lemons. Citrus of the car variety? There’s not much else you can do but suck on the bitter taste of being taken for a ride.

Purchasing a car is likely one of the largest expenditures you’ll ever make, and one you’ll probably do again (and again). With practice, you’ll learn to negotiate the marketplace. Until then, follow our smart consumer’s guide to buying a car. Once you’ve pulled out of the lot, you’ll be puckering up all right…with a lip-smacking thank you.

Step 1. Search for your ideal

When it comes to cars, everyone has a type. Some like sporty sedans. Others go for the exclusive luxury type. We might say it’s what’s under the hood that counts, but come on – who doesn’t love a leggy interior?
The thing is: while we all have a type, a car will never be your soul mate. Before you start test-driving the field, determine your ideal car. What kind of mileage are you looking for? How many seats do you need? Are you a city driver or a rural driver?

Step 2. Determine your target price

You’ve laid eyes on the right make and model: now research the invoice price to determine the car’s value to the dealer. Add three percent to that number and keep it in your back pocket—the dealer's cost is often less than the invoice price because of factory-to-dealer incentives, that's why a good target price is approximately 3 percent above the invoice price. You’ll need it when you get to Step 4.

This is also the time to figure out if you can handle your ideal car financially. While the bells and whistles may be enticing, you need to make sure that the payments and maintenance fit into your budget and financial goals. If your heart is set on a pricier model, you may need to delay your purchase to give yourself some time to save. The more you save, the less the financial blow of the purchase when the time comes—wouldn’t it be nice to make the purchase in full and avoid monthly payments??

Step 3. Gauge the insurance

The price of insuring your new vehicle is just as important as its cost. Auto insurance premiums are based on several factors, including the car’s sticker price, reputation (i.e., its safety and repair record), your reputation (a.k.a., driving record), and where you live.

This preliminary research might also determine the range of options and features you select, such as anti-lock brakes, daytime running lights, and an anti-theft device – all of which could save you money on insurance.

Step 4. Date, don’t commit

Before you propose a price, visit more than one dealership. Your goal is to find one that you can negotiate with – a dealership with the most attractive incentives, including roadside assistance.

Remember that 3 percent you tacked on to the price in Step 2? Here’s where that comes into play. Knowing an appropriate price ahead of time allows you to better negotiate the price based on the approximate cost of the vehicle to the dealer, rather than try to bargain down from the sticker price. Keep in mind that this will vary depending on the car model.

And don't discuss the trade-in price of your old vehicle, not yet. You don’t want to undersell your old car in your rush for a new one.

Step 5. You’re ready to commit

You found the right car, the right dealer…now commit to the right financing option. You could:

Arrange financing ahead of time with a bank, credit union or auto club that offers the most favorable interest rate.
Obtain a loan with the manufacturer to yield the best rate.

Negotiate a loan through the dealer, which will probably charge the highest interest rate.

Though you’ve got car keys in your eyes, keep your guard up until they’re in hand. The dealer will try to sell you on extras at this point, including extended warranty, a service contract, rustproofing, and more. These extras can be expensive and are often overpriced.

Step 6. Drive away

And drive with care. In Step 3 you gauged your insurance, now it’s time to keep your premiums down. You can do this by driving safely to avoid accidents; driving responsibly within speed limits; and sending payments in on time every time.