Buying a Car – The Basics

The Basics of Buying A Car

When you buy a car – the first thing you see is the list price, or the sticker price, but there’s a lot more to it than just that number.

Getting a good deal, or at least not being taken advantage of, requires you to have a little more knowledge about the extra fees, and the ways that some, not all car salesmen try to take advantage of uninformed buyers.

In this post we’ll go through what you need to know about the absolute basics of buying a car, and give you a couple of easy tips that will help you close the deal.

Don’t Ever Accept Sticker Price

The first part of the cost of a car is obviously the actual price.

Quick tip – the price you see on the corner of the windshield: no one expects you to pay that.  The markup is huge and they just put that number up there so that you feel like you get a good deal when you negotiate that down a little.  Then they try to tack on all these extra fees so that you end up paying more than the sticker price anyway.

A good rule of thumb – which of course depends on the car, options, location, etc. – is to offer about 10% less.  So for a $30,000 car, 10% is $3,000, and the maximum you should pay is $30,000 – $3,000 = $27,000.

Another must is to check out  the blue book price before you get ready to have that serious buying conversation.  It tells you what you should expect to pay for any new car – Kelley Blue Book

Tax, Title & Tags

The second part that makes up the cost of a new or used vehicle is the tax, title & tags.  These are mostly unavoidable costs, but they vary quite a bit by location.  The key thing is that you go into the car buying process prepared, understanding that these fees exist.

Carmax has a pretty nice calculator here that will help you figure out what you should expect to pay in your state.

The one fee that dealers add on to this list is the dealer preparation fee.  This could be dangerous, because the dealers can charge whatever they want.  I’d suggest that you at least ask them what they charge for this directly so that they can’t just quietly slip whatever number they feel like into the invoice.

See an example of what you’d pay for a $31,000 car in New York below.

Tax, Title & Tags Estimate

Fees cost about 10% of purchase price in New York

Auto Financing – Monthly Payment is NOT the Most Important Thing

This is where the car dealers can take you for several thousand dollars if you’re not careful.

A common technique they use is to get you to focus on the monthly payment.  Then they can extend the term of the loan and jack up the interest rate behind your back so that your monthly payment sounds nice, but you end up paying several thousand dollars more by the time the car’s paid off.

We’ll get into auto financing in more detail in a later post, but the key takeaway here is to make sure that you pay attention to the details.  Look up what a good APR (Annual percentage rate) for auto loans is, and do some quick math to figure out how your APR and loan term translate into real dollars.

The best deal would be to pay cash, because then there’s no interest, but not all of us have an extra $30k lying around.  The point is if you need a loan, at least be willing to understand what you’re paying for and try not to get taken advantage of.

Hopefully, at the absolute minimum, you can now head to the dealer a little bit more informed about the basics of buying a car.  Instead of buyer’s remorse, you’ll drive away ecstatic, confident in your negotiation skills and looking great in that new ride!

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