New or Used?
When you're in the market for a car, the first step is deciding whether to buy new or used. If money is no object, you'll probably go for new. If you want to minimize the costs, you may decide to buy used. If it's important to you to have a new car or you're concerned about the potential problems with a used car, you may decide to buy the best new car you can afford even if money is tight. Either way, you can reduce your costs substantially if you arm yourself with the information included in this chapter.
No matter how many times you do it, buying a new car is a heady experience. You drive around with a grin on your face for days, sniffing that special smell that permeates new cars. Will you still be smiling when you make your monthly payments? How about when it's time to trade the vehicle in for a newer model? Will you experience trade-in shock?
As gratifying as it is to buy new, you can save a lot of money by buying a car that's one to three years old. That's because cars depreciate dramatically in the first two years — as much as 30 to 40 percent. The car that you paid $20,000 for just two short years ago may be worth only $12,000 now. If you plan to keep it for eight or ten years, it's a moot point, but if you like to trade cars every few years, it could cost you a lot of money.
According to Edmunds.com, most new autos lose 20 to 30 percent of their value once they've been sold. Buying a used car can get you most of the value of a new car at a discounted price. To buy used, you should look for autos that are roughly two years old for optimal value.
If the cost is important to you, consider a vehicle that's one to three years old. Ask your dealer to notify you of models you're interested in that are coming off leases. Dealers are very picky about their leased cars and charge for anything over and above normal wear and tear. People who lease are more likely to take good care of the car to avoid these charges.
Mileage on leased cars tends to be lower, too, because they have mileage restrictions. In contrast, former rental cars are not a good buy because they're ridden hard and usually have high mileage for their age. When you buy a used car from a dealer, be sure to haggle over the price. The dealer's profit margin on a used car is considerably greater.
The used cars of today are not the same as the used cars of yesterday. In general, today's cars are built better. Dealers and manufacturers now offer warranties on used cars that are in good condition, so you don't have to buy new to get quality. The deciding factor in choosing new or used is how much money you want to pay or can afford.
Do a Background Check
There's always a chance with a used car that you're buying somebody else's problems. Once you've identified a used car you're interested in, play it safe and check out its history to make sure you're not buying a lemon.
In just seconds, Carfax.com will check its database of over two billion records and produce a report that reveals hidden problems that may affect the safety or resale value of the car. You may find that the car was turned in under the lemon law, salvaged after being totaled in an accident or flood, or used as a taxi. The report may reveal that the odometer was rolled back.
To use this service, all you need is the vehicle identification number (VIN) of the car, usually found on a metal plate inside the windshield. The cost is $24.99 for a single report or $29.99 for unlimited reports for 30 days. Go for the unlimited option if you'll be shopping a number of used vehicles. The service is really worth the price — it could save you thousands of dollars and many headaches.
Treat the trade-in and purchase of cars as two separate transactions — don't reveal an interest in trading in your old car until you've negotiated a satisfactory price for the new one. Otherwise the dealer will make you believe he's giving you a good deal on the new car but will low-ball your trade-in, or will give you a good trade-in price but up the price of the new car.
Trade In or Sell It Yourself?
You can really get fleeced when you trade your car in. You almost always come out ahead by selling your old car yourself. If you want to trade the car in, discuss the possibility only after you've already negotiated the best possible price for your new car.
Tell the dealer that you're not sure what you'll do with your old vehicle and you'd rather just focus on buying a new one. If you then decide to get a quote for a trade, you know there's no shuffling going on between the price of the new car and the trade-in amount.
