Buy the Right Car, the Right Way
A Consumer’s Guide to Buying a Used Car
Buying a car is a big decision. Cars are so vital to our daily lives. Most people depend on them to get to work, and many workplaces won’t hire you if you don’t have reliable transportation. That means an unreliable vehicle can actively threaten your financial future. Of course, repossession is also incredibly destructive, so you want to make sure you’re not making poor financial choices while attempting to score your next ride.
That’s why the team here at King of Cars has put together this guide.
We want to make sure you have an outstanding car buying experience.
What you should know about buying with cash, or a pre-approved bank loan:
There are three ways to buy a car—either you’ll have cash ready to go, you’ll be pre-approved at a local bank or credit union, or you’ll obtain financing through the dealership (buy here pay here). Each method of payment comes with its own pitfalls. Here’s what you need to know.
How can you get the best deal when paying cash?
If you’re paying cash or have your own financing already make sure you let the dealership know, then make them a fair offer on the car of your choice. We recognize this runs counter to a lot of the information that’s out there, but…hear us out.
Mark-ups on vehicles aren’t as high as they used to be. The Internet puts a whole lot of information at customer’s fingertips, so both parties only have so much negotiation room to begin with.
However, you’re under no obligation to tell us that you have cash or a pre-approval when you come in. You can focus on negotiating the price of the car first and foremost. You can even test drive the car first to make sure that you’re talking about the car you actually want to buy. This is in fact the best way to handle it if you’re afraid that the knowledge you’ve got cash to pay might influence the dealership to charge you more for the car.
Of course, you have to know what “fair” is so make sure you do use the Internet to find out what the average sales price of the vehicle is. Don’t request thousands of dollars off the asking price unless you can back that request up with some solid research from the Kelly Blue Book or Edmunds.com.
What’s the best time of month to buy a new car?
You’ll almost always get a better deal if you purchase your car during the last week of the month. The sales reps are trying to “make their month” at that point. They’re working to meet their quotas or obtain their bonuses, and so they will be a lot more willing to work for you and with you as you seek to craft a deal you can live with.
Sometimes dealerships will run sales or other events near the end of the month. If you’ve got a little time—that is, you don’t need to trade in that old car of yours right now—then you can even wait until the dealer announces one. After all, some months are better than others. Sometimes our sales reps have met their quota by the 15th of the month, and on those months you wouldn’t have much of an advantage.
When should you mention your trade?
It’s always best to mention your trade-in at the very end of the process. That means you’ve picked out your vehicle and you’ve negotiated the price. When all the numbers are set in stone you can have your trade appraised.
You want the trade appraisal to be separate from the car deals. Otherwise, it’s easy for the dealership to play with the numbers in a way that gets them more money but still looks good on paper. Raising the price of the car by lowering the value of the appraisal is a very common game.
What you should know about financing the car in-house, or working with a “buy here, pay here” dealership:
Most dealerships do offer in-house financing. Your first step is to find out the dealership’s finance requirements. In particular, you need to know what documentation the dealership requires, whether they will only finance local customers, and whether or not approvals are based solely on your credit score. This allows you to come prepared when you come to the dealership, and it gives you some sense of how much bargaining power you’ll have when it comes to negotiating the terms of your loan.
How much will my monthly payments be?
Since monthly payments have the biggest impact on your day-to-day budget it is natural that you’re going to be focused on them first and foremost. However, we usually can’t determine what your payments will be until we’ve received a completed financing application. You’ll also need to choose your vehicle of interest, and we’ll have to determine the terms of the contract. All of these items have an impact on how much you’ll pay every month.
Note that you should focus on the price of the car itself before you focus on the amount of your monthly payment. It’s good to know what you can afford, but you have to think about the full amount you’ll be paying as well.
How much will my down payment be?
Down payments are usually determined by the make, model, and mileage of the vehicle you choose. You should plan on offering a down payment of $1000 to $6000, depending on the vehicle. Your trade-in value can often be applied to the value of the down payment, but it’s smart to have at least $1000 on hand when you come to shop for a car. You can also take a look at the asking price. Your down payment is generally going to be at least 20% of the asking price.
How is my interest rate determined?
Most dealerships are going to charge the maximum interest rate they can get away with. A buy-here, pay-here dealership is providing a unique service to help credit-challenged individuals get behind the wheel of a car. Most banks or credit unions turn down such customers. We’re happy to help, but we’re taking on more risk by doing so. The interest rate helps to offset that risk.
You can try to negotiate your interest rate of course, so long as you’ve something to negotiate with. For example, bringing in a larger down payment may allow you to shave a couple of percentage points off of your interest, which can save you hundreds of thousands of dollars over the life of the loan.
Don’t forget to think about TT&L!
Remember, purchasing a car means paying for more than the price of the car. You’ll also have to think about tax, title, and license fees, which must always be paid in addition to the down payment. If you don’t have the funds at the time of the sale these fees can often be rolled into your loan, but remember: this will raise your monthly payments. In addition, you’ll end up paying a lot more for TT&L if you handle things this way, simply because you’ll be paying interest on a larger loan.
How to choose a used car
Start by searching our website. If you’re paying cash, you can just look for vehicles that are within your budget. If you’re going through your bank or credit union you can just search the amount you’ve been pre-approved for (though leave some room for TT&L if you don’t want to pay that amount out of pocket).
If you’re going through our in-house financing program then you want to search for vehicles within your down payment budget. That’s usually going to be about 20% of the asking price, which means you should expect to pay $2000 on a $10,000 vehicle.
Comparing the retail valuations of the vehicle with the dealer’s price can help you determine whether or not the asking price is fair. However, remember these valuations are really only guides.
If you’re paying cash or are pre-approved for a loan you can use them to do a little negotiating, but you should be aware they can’t tell you anything. Prices go up or down depending upon whether the vehicle is in demand and whether or not the vehicle is rare, or common. In addition, different dealerships offer different levels of service which can ultimately impact the price that you pay.
Why did the dealership try to make me buy a car that was different from the one I wanted?
This usually happens if you’re looking at vehicles which are worth more than the amount we can lend to you. This is also going to happen if your debt to income ratio is too high to allow you to comfortably pay the notes on the vehicle. We’ll always try to put you into a car you’ll love, but finances do present some unique challenges and limitations that we have to work within.
If the dealer suggests a car you can always ask to see the others in that price range if you don’t like what he’s suggested.
Remember: you should always, always test drive the car!
You should always test drive and inspect the vehicle before committing to a purchase. Start by walking around the vehicle. Check the tires. Look under the hood. You don’t have to be a car expert or a mechanic to make a note of cracked hoses, leaking fluids, or odd smells.
When you’re driving the car turn off the radio so you can make note of any strange sounds. Look for problems with the steering. If the ride seems especially bumpy it could be a sign that the suspension is wearing down. A noisy or smelly muffler is also a very bad sign. If indicator lights come on during the course of your drive make a note of it. You have the right to discuss these issues with the car dealership, and you can ask the dealership to fix them.
If you do ask for repairs, make sure any promises are documented in writing before you take delivery of the car. These promises should be written into a document called a “We Owe” document. Read it thoroughly. Make sure everything is on it.
Note that you should never use these mechanical issues as a way to negotiate the price. It sounds counter-intuitive, but if you present this information to the dealer when you are negotiating the price of the car he’ll work the price of fixing these issues into the deal and you will end up paying for them. You want to negotiate a price, and then make the sale contingent upon these repairs so the dealer ends up paying for them. This is the dealer’s merchandise: make sure he’s selling you good merchandise before you fork over your hard-earned cash. If the dealer is trying to make you a bad deal, walk away: there are other car dealerships in town.
Ask for the vehicle history report.
Chances are you’re not enough of an automotive expert to truly catch every issue that’s hiding under the hood from a quick test drive. Fortunately, most reputable dealerships provide you with a free vehicle history report from one of the two most trusted providers, which are CARFAX and Auto-Check. A reputable dealer will have already made price corrections based upon this report. If an automobile has been in a previous accident, for example, then the price of that car will be lower than a one owner vehicle of the same make and model.
Everything you need to know about warranties:
Warranties are quite misunderstood, and that misunderstanding causes quite a few customers to be unhappy with their purchases. Let’s clear the air with a few important points.
How much should a warranty cost, on average, for a used car?
Warranties aren’t free or automatic when you’re dealing with a used car. After all, the car is used! In addition, the prices vary. The two factors that impact the price are the terms of the warranty, and the amount of items covered.
If you get a 12 month, 12,000 mile powertrain warranty that covers your engine, transmission, and drive axle you can expect to pay about $1300. This amount can be rolled into your car loan.
Warranties are somewhat negotiable. Most of the time, a dealership has locked in rates with the provider of the warranty. You can always ask—it’s always good to try.
You can also ask if there are different warranty plans available. If you’re willing to pay a little bit more you could get a better warranty that the dealer would not necessarily offer to you by default.
What to watch out for when purchasing a warranty:
Make sure you understand exactly what your warranty covers and when. You should also be aware that many warranties come with deductibles, just like insurance plans do. This can be quite a shock if you expect to walk into the dealer service center and receive every one of your repairs for free!
You should also be sure to ask about value options. Many warranties come with roadside assistance, rental car assistance, locksmith coverage, and more. Sometimes those extra services can be even more valuable to you than the warranty itself can be, making them well worth the price of the warranty itself.
How long does King of Cars offer their own dealership warranty?
Our dealership provides a free 3 month, 3,000 mile limited warranty on every qualifying vehicle. Now that you know warranties generally aren’t free at all you’ll definitely understand what a great deal that is! We can talk about extending your warranty or upgrading your warranty to include additional coverage. Depending on your specific concerns that upgrade could be money well spent.
What is gap insurance, and why do I need it?
Many dealers will require you to purchase a gap insurance policy, especially if they are financing the car. Sometimes, they will in fact purchase one on your behalf, and then roll that coverage into your loan.
But that’s okay, because you actually want gap insurance. Gap insurance covers the gap between the difference owed to the lien holder (whomever is financing your vehicle) and the amount the car is actually worth in the event you get into a total loss accident.
For example, let’s say your payoff amount is $20,000. The insurance company writes us a $16,000 check, because that’s what the car is actually worth. You don’t want to be on the hook for the additional $4000, especially since you no longer have a car to drive. With gap insurance the $4000 gets paid, and you’re in a position to shop for another vehicle.
And gap insurance is cheap, especially when you think about the fact that you aren’t likely to have $4000 handy if you get into this situation.
It is possible to get rid of gap insurance once you have positive equity. If that $16,000 car has an $8000 payoff then there’s no need for gap insurance. The dealership would take $8000, you’d take $8000, and you’d have all the resources you need to get on the road again. Of course, you don’t need gap insurance if you’ve purchased the car with cash.
Purchase a car with trustworthy professionals at the King of Cars dealership in Pasadena, TX.
Why do we feel so confident presenting you with all of this insider information? We don’t play games when we sell you a car, that’s why! We treat you with respect and work with you to make sure you’re happy to become a lifelong customer. We’re also realists—we know you might visit other dealerships while you’re buying a car, and we want you to be armed with all of the information you need to make a great deal.