11 Tips for Paying for the Perfect Car

Given the significant difference between the average monthly payment on a new car ($550) and a used car ($393), even experienced car buyers and those with means should think carefully before they head to the dealership. 

New or used, it doesn't really matter. These tips can help anyone find and pay for the perfect ride.

Before going to the dealership

• Review your financial situation and set a monthly budget. Make sure your budget includes all of the costs of owning or leasing a vehicle, including taxes and gas. Always check on the cost of insurance for the vehicles you’re interested in, because some (such as four wheel drive and convertibles) have higher premiums.
• Determine what you can reasonably afford to pay for a down payment and for a monthly payment, then research which vehicles are in your price range. Research the vehicle cost, as well as value of your trade, on free online pricing sites such as Edmunds.com. Dealerships have to make a profit, but it doesn’t have to be excessive. You’ll typically negotiate a price in between the sticker price and dealer invoice, but rebates and dealer cash may get you a deal below invoice.
• Check your credit report. You can obtain a free copy annually from each of the three major credit bureaus by visiting www.annualcreditreport.com or calling 1-877-322-8228. Dispute any errors with the credit reporting agency and settle outstanding debts before you apply for any financing. Correcting errors or taking steps to improve your overall credit score will take time.
• Research your financing options. With off-site financing, the buyer gets a loan from a bank, credit union or other financial institution. With on-site financing—also known as dealer or indirect financing—a buyer gets financing through the dealership instead of directly from the bank.

When shopping at the dealership

• Stay within the price range you can afford. Don’t get tempted by flashy showroom models if they fall outside of your predetermined budget. Never communicate to the dealer what you want your payment to be—the dealer will work the deal backwards, which is not to your advantage.
• Understand the value and price of optional products such as extended service contracts, credit insurance or guaranteed auto protection. Know the difference between a factory-backed vs. third-party warranty. If you don’t want these products or you don’t have room for them in your budget, don’t sign up for them.
• Always ask for a Carfax or AutoCheck report for used vehicles.These reports can reveal vital information about the used car, including whether it has a salvage title (it has been declared a total loss by the insurance company) or if the odometer has been rolled back.
• Read the contract carefully. You’ll find additional legitimate costs, such as sales tax, a license fee and a documentation or “doc” fee. Doc fees vary from dealer to dealer. Watch out for “advertising” charges or other fees that seem strange. Make sure all of your questions have been answered before you sign.

After driving your new car home

• Make your payments on time. Late or missed payments incur late fees and appear on your credit report, which can affect your ability to get credit later on.
• If you financed the auto, be aware that the dealership (or a bank, finance company or credit union that purchases the contract from the dealership) holds a lien on the title until you pay the contract in full.
• Talk to your creditors if you experience difficulty making your monthly payments. Explaining your situation and the reason your payment will be late will help when working out a payment schedule.

David Copeland can be reached at (865) 766-3028 or david.copeland@pnfp.com.