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Buying A Car What You Should Know

Buying A Car What You Should Know. Buying a car is exciting, but it is usually the second largest investment you will make in your life, so B uyer Beware! The single most important piece of advice useful for buying a car is: Make a budget first. Car Buying Decisions. Buy or Lease?

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Buying A Car What You Should Know

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  1. Buying A CarWhat You Should Know • Buying a car is exciting, but it is usually the second largest investment you will make in your life, so Buyer Beware! • The single most important piece of advice useful for buying a car is: • Make a budget first

  2. Car Buying Decisions • Buy or Lease? • Most people buy because leases are better for short term ownership, really old people like leases • New or Used? • New is nice, but most new cars lose 8-20% of their value as you drive them home • Car, SUV, or Truck? • This is all about what you want to use them for, not how pretty they are • Vehicle Size? • Once again, this should be based on use

  3. New Cars • New cars are priced using several different prices: • Invoice Price = what the dealer pays the manufacturer • This is usually slightly more then the cost of making the car • The manufacturer manipulates this figure by offering ‘dealer incentives’ or ‘rebates’

  4. New Cars • New cars are priced using several different prices: • MSRP = Manufacturer Suggested Retail Price • This is what the manufacturer suggests that the dealer sell the car for • MSRP includes costs for factory installed options • AC, CD, GPS, AWD, Leather

  5. New Cars • New cars are priced using several different prices: • Sticker Price is what you see in the window • The dealer adds ‘prep fees’, ‘dealer markup’, ‘tax and license’, advertising costs • Includes costs for dealer installed options • Tires and/or wheels, chrome trim, tinted glass, alarms, stereos • These are items you may or may not want • These items are where the dealer makes much of their profit

  6. New Car Prices • Example: • Invoice MSRP • Price 22,000 25,000 • Factory options 3,000 5,000 • Destination Fee 500 500 • Dealer Options -------- 1,500 • Dealer Prep -------- 500 • Total Cost 25,500 32,500 (sticker)

  7. New Car Depreciation • Depreciation is how much value the car loses: • For a new car: • When you drive it home it changes from new (retail price) to used (wholesale price) from the dealers perspective • Example: • 2002 Ford Taurus • Retail 19,035 • Wholesale 15,390 • Loss 3,645 (19.1%) • 1 Yr Later 14,665 • Loss 4,370 (22.9%)

  8. New Car Depreciation • Depreciation is how much value the car loses: • Typically a new car loses 8-12% value while being driven home • This can be as much as 35%, ouch! • After the first year, many cars lose an average of 10-20% per year • This means after 5-7 years the car is basically no cost to you, if you can keep it running reliably, do it

  9. Used Cars • Used cars are nice because: • They don’t lose their value as fast • They have their first dent, so you don’t have to baby them • They cost less • If they were going to have major breakdowns, they probably already did (80,000 miles seems to be the magic number for mileage when repairs start)

  10. Used Cars • Used cars are not nice because: • Nothing smells as nice as that new car • They don’t have the latest gadgets • Somebody else might have abused them (wrecked?) • They all have some wear and tear (seats especially) • They are closer to that major breakdown (80,000 miles seems to be the magic number for mileage when repairs start)

  11. Used Cars • Suggestions for buying a used car: • Have your own mechanic do a full inspection • Show me the CARFAX • Never sign an ‘As Is’ agreement • You normally have 30 days to back out of the deal regardless of what the dealer says • Be pre-approved for financing, from your own bank, before you go to the dealer • Look for a car, 2-6 years old, with less than 60,000 miles • You want to pay less than half full price for a car with more than half the good miles left in it

  12. Doing The Deal • Choosing a car involves a lot of options. Do as much homework ahead of time as possible • Car, SUV, Truck, Motorcycle, Hybrid • Color, trim level, options, body style • Engine size and type • Maker – Ford, Chevy, Dodge, VW, Audi • Tires and wheels

  13. Doing The Deal • Make sure before you go into the dealer that you know absolutely; • What is the maximum you are willing to spend? • What are the monthly payments you an afford? • What features or options do you have to have? • DO NOT WAVER FROM THESE AMOUNTS!

  14. Doing The Deal • Dealer Financing: • Ford Motor Credit Company makes more money than Ford Motor Company • Be Careful • New car loans are very short term (2-5 years) so dealers get away with charging outrageous interest

  15. Doing The Deal • Dealer Financing: • Higher interest rate but lower total cost • Example: (always take the cash) • 2.9% dealer finance or 3,000 rebate, 5.9% financing? • Interest 2.9% 5.9% • Price 20,000 20,000 • Trade-in 2,000 2,000 • Rebate 0 3,000 • Financed 18,000 15,000 • Term 60 months 60 months • APR 2.9% 5.9% • Monthly pay 322.64 289.29 • Total Cost 19,358.65 17,358.49

  16. Doing The Deal • Dealer Financing: • Example: • 22,000 loan (not terribly large) • 8% APR (not terribly large) • 48 months (not terribly large) • 537.00 per month (terribly large)

  17. Doing The Deal • Words of advice: • Always make sure the details discussed, free chrome bumper, arewritten into the final contract • Make sure your loan interest rate is set in writing before you sign • Do not agree to any extras like undercoating, extended warranty, or car alarm system, after the price has been set • These after deal deals have the biggest profit margin for the dealers

  18. Buyer Beware! • Look out for: • Spot Delivery • You can take the car home right now and we’ll finish the paperwork tomorrow • Oops, sorry but we have to raise your interest rate • ADM (Additional Dealer Markup) • Rust-proofing, undercoating, VIN etching, dealer prep, extended warranty • None of these are necessary or are set costs, refuse them • Credit Reports (even when paying cash) • Your credit score goes down every time it is checked • Total Amount Financed is Wrong • Down payment, rebate, discount, trade-in somehow mysteriously disappear when financed amount is calculated

  19. Buyer Aware! • Suggestions: • Get a copy of your credit report and take it with you • Determine the maximum amount you will spend, period • Check the manufacturers web site for rebates and incentives the dealer may not tell you about • Visit Kelly Bluebook and figure out price of your car beforehand • Print out pricing guidelines for your car from the manufacturers web site • Shop for loans from several agencies • Always try to lower the amount you finance • Ask the dealer to take away charges and fees, and lower prices on add-ons • Don’t feel sorry for the dealer

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