Buying A Brand New Car

But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.

buying a brand new car

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"The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.

So Reed says having that preapproval can be a valuable card to have in your hand in the car-buying game. It can help you negotiate a better rate. "The preapproval will act as a bargaining chip," he says. "If you're preapproved at 4.5%, the dealer says, 'Hey, you know, I can get you 3.5. Would you be interested?' And it's a good idea to take it, but make sure all of the terms, meaning the down payment and the length of the loan, remain the same."

So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't want to. Keep it simple. One thing at a time.

"Concerning the extended factory warranty, you can always buy it later," says Reed. "So if you're buying a new car, you can buy it in three years from now, just before it goes out of warranty." At that point, if you want the extended warranty, he says, you should call several dealerships and ask for the best price each can offer. That way, he says, you're not rolling the cost into your car loan and paying interest on a service you wouldn't even use for three years because you're still covered by the new car's warranty.

Gap insurance promises to cover any gap between the purchase price of replacing your almost-new car with a brand-new car if your regular insurance doesn't pay for full replacement if your car gets totaled. Van Alst says gap insurance is often overpriced and is fundamentally problematic. If you still want the product, it's best to obtain it through your regular insurance company, not the dealer.

"We're actually living in a golden age of used cars," says Reed. "I mean, the reliability of used cars is remarkable these days." Reed says there is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that, he says, are definitely worth considering. "You know, people are buying good used cars at a hundred-thousand miles and driving them for another hundred-thousand miles," says Reed. "So I'm a big fan of buying a used car as a way to save money."

He acknowledges that which car you buy matters and that it's a good idea to read reviews and ratings about which brands and models are more or less likely to run into costly repair problems down the road. He says some European cars are famously expensive to maintain.

NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car buying. Many said they were shocked by how much money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, "40 years of owning vehicles and our total transportation purchases don't even add up to the cost of one of the financed ones these folks are talking about."

When you're shopping for a new ride, sometimes all you want are the essential details delivered quickly and easily. We've condensed our more comprehensive eight steps to buying a new car into a few essentials. Here we go:

It's not well known, but you can often arrange to have the vehicle delivered to your home or workplace. This option allows you to sign the paperwork in a relaxed environment, skip the trip to the finance and insurance office, and avoid many car-buying pitfalls. Wherever you finalize the deal, call your insurance company and let your agent or customer service representative know that you'll need coverage for your new ride.

While the process of buying a car might seem overwhelming, especially since there are more options than ever before, there are strategies to help you find the right vehicle while keeping you from taking on unnecessary debt.

With prices so high, shoppers also need to keep a close eye on their budget. "There is no point in test driving a car if it turns out you can't afford it," said Tom McParland, who runs the vehicle-buying service Automatch Consulting and writes about consumer issues and the automotive industry for Jalopnik.

The Covid pandemic has muted depreciation, however, and prices for used cars are growing faster than for new. As the price gap narrows, buying new becomes more appealing because the vehicles are in better condition, plus, they have a full warranty and can be financed at a lower rate.

Usually, getting a new car will increase your rate because it'll be worth more than your old car. Note that other factors may impact your car insurance rate if you're starting a brand-new auto insurance policy. But even if your rate increases, you may be eligible for a few car insurance discounts.

You don't have to transfer your insurance to your new car right off the bat. Since most insurers offer a grace period for updating your policy with your new vehicle, your dealer will typically just need proof of insurance before they throw you the keys. Even if you don't have auto insurance, you can start a policy before buying your car if you know the vehicle identification number.

When buying a new car, your insurance carrier will provide a grace period between 7 to 30 days to update your policy with your new ride. For example, Progressive allows 30 days, which means if you have a claim within that period, your new car is still covered in the same way your previous vehicle was.

When buying a new car, your insurance carrier will provide a grace period between 7 to 30 days to update your policy with your new ride. For example, Progressive allows 30 days, which means if you have a claim within that period, your new car is still covered in the same way your previous vehicle was.

There are also a few downsides to buying a new vehicle that you will need to keep in mind. For many consumers, buying a used car makes better financial and practical sense. Before making a decision, consider the cons of buying a new car below.

Believe it or not, your vehicle loses value the moment you drive it off the lot. If you tend to change cars often or balk at the idea of potentially being upside down in your auto loan, you may be better off buying a certified pre-owned vehicle that has already depreciated while it was with its previous owner.

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Has this ever happened to you...You buy a brand new car. But instead of hitting the open road in your new "dream machine," the vehicle is spending all of its time and your money at your local auto repair shop. If so, Illinois' Lemon Law may be able to help.

First you must choose between buying a new car and buying a used car. A new car may cost more but will come with a longer warranty and no history of abuse or neglect. However, new cars depreciate (lose value) almost immediately when they leave the new car lot, which means that if you can find a well-cared-for used car, it might be a good bargain.

Get preapproved for an auto loan so that you can walk into the dealership knowing how much you are comfortable spending. Sometimes, the dealer is willing to beat the deal you have in hand. Dealers may have access to captive lenders, banks set up as financing arms for specific automotive brands, which can offer better interest rates than you could find on your own.

If you are serious about buying the car, ask if you can take it to a mechanic for an inspection. Credible sellers should not balk at this. Consider any pushback to this request a red flag. A visit to the mechanic may cost you $100, but it could help you avoid buying a lemon and will give you peace of mind that the vehicle is roadworthy.

I don't know what it is, but there's something really exciting about being the first person to own a car. Maybe it's because brand new cars come with the latest technologies, extremely low mileage, and that new car smell you just can't duplicate. Plus, there are no animal crackers stuck between the seats from the previous owner's three-year-old.

But while there are benefits to buying a brand new car, it might not be the smartest financial choice. At the end of the day, you have to decide whether to buy brand new or used. However, before you think a car with only 10 miles is the better deal, here are three arguments for never buying a brand new car. (See also: 10 New Car Costs the Dealer Is Hiding From You) 041b061a72