So even though it is not the smartest thing to do, you are dead-set on buying a brand new car. Before you do, you do know it makes more sense to buy a late-model used one, right? You know your new car smell costs you thousands of dollars in depreciation the minute you drive away from the dealer, right? RIGHT? Oh forget it, you are going to buy new anyway. Well, there are a few things you might want to know and keep in mind since I have not convinced you to look at used cars. This will be a multiple part post, each one dealing with different “sections” or things to do before, during and after buying a new car. If you have any specific questions, go ahead and leave a comment and I will do my best to answer you. And here we go…
The first thing you should do is to check your credit report so you know your FICO score.
People with higher numbers pay less in interest, and you want to make sure you are one of those people. I once had a car dealer run my credit and tell me my score was about 100 points less than it really was, so I would have to pay a higher interest rate. I was much younger and dumber then and I believed him. Don’t make the same mistake. You can get a free credit report at AnnualCreditReport.com, the only REAL site that is authorized to give you your free, federally mandated credit report 3 times per year. Of course, this is taking into consideration the fact that you might not be paying cash. If you are, kudos to you!
Now that you have your credit score, you know what you are dealing with.
If you have a high score, good for you, you will qualify for lower interest rates. (Scores over 680 normally get the lowest rates) If you do not have a high score, you might want to work on that for a while before shopping, as you will get ripped off interest-wise. Since you need to borrow money, you might want to get pre-approved from your local credit union for a loan at a low interest rate. I have been a member of a credit union since college and we borrow for any big expenses from them. And no, you do not have to be a teacher or a member of some trade or business, there are plenty of credit unions out there that will accept anyone. Plus, they are not for profit so you can feel good about that. You can find credit unions you can join near you at CUNA.org. You will want to make sure you know how much you are willing to spend on your new car, and be sure to borrow the amount you need for the car, the tax, the tags and registration and so on. Once you are pre-approved, it is like shopping with cash, which makes things way easier at the dealership, as you do not have to deal with their finance department. (There are exceptions to this, like when manufacturers run low financing offers, etc..but most people never qualify for these and they are usually only for 3 years.)
I am assuming you know what cars you are looking to buy and their general price range by now, since you had to get pre-approved for a loan.
But now it is time to dig in to the manufacturer price maze and figure out what you really should be paying for a car instead of MSRP. Every car has an invoice price as well as the MSRP, along with dealer holdbacks, incentives, etc etc, and the numbers can get kind of confusing. But still, if you want the best deal, you have to be willing to work it!
In Part Two later this week, we will start looking at the invoice prices, figuring things out on a spreadsheet and getting to the point where you KNOW what you should be paying for your new ride. But until then, make sure you have your credit score figured out and start looking for a credit union to get your loan from. Stay tuned as Part Two will be coming up soon!