How to Buy a New Car and Get the Best Deal

You’re preparing to buy a new car. That’s exciting, but it may also be a little stressful. That’s especially true if this is the first time you’ve purchased a new car. You may worry you won’t be able to negotiate a good deal and get the car you want for a price you can afford.

At Addition Financial, we spend a lot of time talking to current and prospective members about buying cars. After all, buying a car is a rite of passage. It’s natural to have concerns and to want as much information as possible about how to buy a car before you start negotiations. We’re here to help.

Assess Your Finances

The first thing you should do is assess your financial situation and figure out what you can afford to spend each month. A good rule of thumb is you should plan on spending 20% or less of your take-home pay on automobile-related expenses.

Keep in mind that expenses should include:

• Your car payments
• Gasoline
• Car insurance
• Registration and inspection fees
• Routine maintenance
• Repairs and tires

You’ll need to keep your car payment low enough that you have money left over for everything else. Be realistic to avoid blowing through your monthly budget.

Get Pre-Approved for an Auto Loan

The next step is to get pre-approved for an auto loan. While there are some advantages to getting a loan through a car dealer, you’ll be in the strongest possible negotiating position if you go in with a pre-approval in your pocket.

The pre-approval process is simple. We walk our members through the application process, so they can know ahead of time how much they can afford to borrow. Having that knowledge makes it easy to negotiate a good price.

Research Cars

The next step is to research cars to narrow down your choices. Here are some of the things you should take into consideration.

1. The purchase price of the car plays a big role. You want a make and model you can afford with the loan you’re pre-approved for.
2. Look at the resale value of the car. If you need to sell it – or if you want to trade it in for a newer model in the future – it’s good to know you can get a decent price for it. All cars lose value, but some hold onto their value longer than others.
3. Check out other metrics that may affect your long-term costs, including EPA fuel economy ratings and insurance rates. While your age and driving record are the biggest factors in how much you’ll pay for insurance, some cars cost more to insure than others.

Arming yourself with some basic knowledge about the models you’re considering will help you make the best possible choice.

Check Your Current Car’s Trade-In Value

If you’ll be trading in your current car when you buy a new one, you should check the Kelley Blue Book value to figure out how much you can get for it. The higher the value, the less you’ll have to borrow for your new car.

However, don’t stress out if your current car isn’t worth much. Even taking a little bit off the amount you borrow by trading in your old car will be helpful and can reduce your total interest payments on your new car.

Choose Your Purchase Time Wisely

If you need a new car immediately you may not have much flexibility in terms of when to shop. However, if you can wait a little while, you may want to consider shopping at a time when dealerships want to make sales. Here are some examples:

• The end of the calendar year
• The end of the month
• Holiday sales
• End of model year
• Model redesign or discontinuation

Any time that dealerships are eager to move inventory, you can get the upper hand. They’ll be eager to make a deal and that means you can get a better price than you would at other times.

Lowball Your First Offer

One of the biggest mistakes first-time buyers make is not understanding that buying a car is a negotiation, not a straightforward transaction. There is always wiggle room in the price.

The cardinal rule of negotiation is to start with a low offer. A good rule of thumb when negotiating car prices is to start with the manufacturer’s invoice price plus any options or packages and the manufacturer’s mandatory destination charge. Do not include any rebates, which should be considered part of your down payment.

The usual way it works is that the salesperson will come back with a much higher offer. Don’t panic. Instead, offer an incremental increase – no more than a few hundred dollars – and wait for a new counteroffer. You may need to go through several rounds of negotiations before you agree on a price.

It’s also a good idea to be prepared to walk away from a negotiation if you need to. If a salesperson senses you’re prepared to leave, that “impossible” price you requested may suddenly be available.

It might be intimidating to think about buying a new car, but it doesn’t have to be. Armed with the information we’ve included here, you can begin and end your negotiations from a place of strength and confidence.

To learn more about Addition Financial’s flexible auto loans, please click here.