Car Buying Guide - FAQ
Be sure to visit our How
To Buy A New Car page to learn the best negotiating strategies
for getting huge discounts on new cars. And see our New
Car Buying Tips page for more money-saving advice plus free
discounted quotes on new cars, loans, leases, insurance and more.
When is the best time to buy a new car?
The best times to buy a new car are at
the end of the month, the end of the quarter and the end of the year.
Dealers and their salespeople are rewarded for meeting sales goals during
those time periods, so the sale of a few more vehicles could result in
their getting a huge bonus that is based on all the vehicles they sold
before the end of that time period. In these situations, dealers and
salespeople are so motivated to close a sale that they will let some new
cars go with little-or-no profit in the deal.
Is there a "three day right to
cancel" when buying a car?
No, there are no laws giving you a
"three day right to cancel" or any kind of cooling-off period
that would permit you to return a car that you bought. However, if the
dealer puts that language in your contract (most dealers won't), then it
might be possible. Just remember: if something you want is not in writing,
you're probably not going to get it.
Is the dealer invoice price the real
dealer cost on new cars?
The dealer invoice price is NOT the real
dealer cost on a new car or truck. Dealers get all kinds of cash
incentives, rewards and bonuses after new vehicles are sold, which allows
them to make huge profits when they sell at the invoice price. There is no
way to tell exactly how much extra cash a dealer is getting on a new
vehicle, but it's probably at least 6% to 8% of the Manufacturer's
Suggested Retail Price or MSRP. (On a $30,000 car, this extra cash could
be at least $1800 to $2400.)
Is it really possible to buy new cars
below the dealer invoice price?
Yes, smart shoppers buy new cars below
the dealer invoice price all the time. All it takes is a motivated dealer
and a buyer who knows how to negotiate. (This might not be possible on a
few models that are in short supply, but it does apply to the vast
majority of new cars and trucks.)
How is leasing different from a
Leasing is really just a long-term rental
contract with an option to purchase at the end. There is no ownership or
equity in a leased vehicle unless you purchase the vehicle at a big
discount. Since you don't own the leased vehicle, you have to return it
(or buy it) at the end of the lease. With a conventional purchase, you own
the vehicle and you can keep it after making the last payment.
Is leasing cheaper than buying?
In most cases, leasing is NOT cheaper
than buying. If you typically keep new cars longer than three years, then
buying is going to be cheaper in the long run. The most expensive period
of ownership is the first three years because that's when new cars
depreciate the most. So the longer you keep a new car past the first three
years, the lower your overall cost will be. Since dealers often use
leasing tricks to overcharge unsuspecting consumers, leasing can end up
being a lot more expensive than a conventional purchase.
What is a good lease deal?
A good lease deal is no money down, lease
term 36 months or less, and a $200 monthly payment - or as close to
this as you can get. (Remember, a lease is just a long-term rental
with no ownership or equity.) Beware of cap reductions, as they are really
just monthly payments paid in advance to make a bad deal look better. For
example, on a 30-month lease, a $230 payment with a $2100 cap reduction is
NOT cheaper than a $300 payment with no cap reduction. The $2100 cap
reduction is just hiding the extra $70 per month rental cost. You can
lease a Mercedes or a Cadillac for $400 to $500 per month, so don't get
stuck paying that for a cheaper car. (Throw that in the dealer's face as a
Should I lease longer than 36 months to
lower the monthly payment?
You should never agree to a lease
term that is longer than 36 months. Why not? Because most new car
warranties end at 36 months (or 36,000 miles) and you could end up paying
for repairs on a car that you don't own. In the fourth and fifth years of
a longer lease, you might get stuck paying for new tires, brakes, and
other expensive items. If you can't afford the payment on a 36-month
lease, you should find a cheaper car (like a low-mileage used car).
Are all car prices and leases negotiable?
When it comes to car sales, everything is
negotiable: prices, interest rates and terms on loans and leases,
equipment and options. If you run into a dealer who claims that prices (or
anything else) are not negotiable, just leave. Then visit all the other
dealers in your area who will allow you to negotiate on everything. Be
sure to negotiate a lower selling price (or cap cost) on a lease, as this
is used to calculate the monthly payment.
Is it a good idea to buy the car at the
end of the lease?
If your lease was a good deal with an
inflated residual to lower the monthly payment, then the purchase option
price is going to be really high, more than the car is worth. So buying at
that price would not be a good idea. If your lease was a bad deal with a
residual that was not inflated, then the purchase option price might not
be out of line. Just be sure to research the fair market value of the car
and negotiate hard for a lower price. If you can't get a great deal, don't
buy the car.
Can I get out of a lease early?
Yes, you can get out of a lease early,
but it's going to cost you. You will have to pay an early termination
penalty plus the difference between the current market value of the car
and the amount of depreciation that you have paid on the lease. So if the
residual was inflated (it probably was), you could be
"upside-down" by $2,000 or more. For example, if the penalty is
$200 and your lease is upside-down by $2,300 you will have to pay $2,500
to get out of the lease early.
Is dealer financing cheaper than other
If special financing (like 0%) is
available through a manufacturer's lending division, then a dealer might
be able to offer you a great deal on your car loan. However, if that
special financing is not available, then the typical financing offered by
a dealer will not be cheaper than most other lenders. Car dealers can make
a lot of money by charging people higher rates on loans, so you should not
assume that you will get a great deal there. Always shop around for a
better deal before agreeing to anything.
What is a reasonable amount to spend per
month for a car payment?
A good rule to follow is to limit your
car payment to 20% of the funds that you have available every month after
paying for all your living expenses including rent/mortgage payment,
utilities, credit card payments, insurance, food, etc. And your down
payment should be at least 10% of the total purchase amount.
Is it a good idea to buy rustproofing,
paint sealer, fabric protection, credit life insurance, credit disability
insurance and/or other add-ons that are sold by the dealer?
No, it is not a good idea to buy any of
those items from the finance department of a car dealership. Most of them
are unnecessary, and all of them are horribly overpriced. Just say
"no," then buy a spray can of ScotchGuard (under $10) to do your
own fabric protection. Forget everything else, it's all just a waste of
Is it a good idea to buy an extended
warranty for my new car?
While some people have benefited from
having an extended warranty (or service contract), for most people they do
not make financial sense. In most cases, consumers will spend more money
paying for the extended warranty than they will get back in benefits (paid
claims), especially if they use their car loan to finance the cost of the
warranty. This is why most consumer advocates and financial experts advise
against buying an extended warranty or service contract. Another pitfall
of buying them is that many dealers dramatically inflate the warranty
prices to increase their profits, making them horrible deals. And some
dealers have sold policies that were all but worthless because they were
not backed by a major insurance company, so repair claims were not paid.
Should I trade in my old car at the
dealer or sell it myself?
Trading in your old car is easier, but
you will usually get more money for it if you sell it yourself. The
downside is that you will have to put in some time and effort to get that
extra money. If you are upside down on your old loan or lease, and you are
determined to buy a new car anyway, you might be tempted to trade in your
old car so the lender can add your negative equity to your new loan. This
is a really bad idea; you should wait and pay down your old loan first.
Adding your negative equity to your new car loan will just bury you with
more debt, trapping you in the next car for a long time.
When the sales contract (or the window
sticker) says the buyer is purchasing the car "as is," what does
When you buy a car "as is" that
means that there is no warranty on the car at all, no matter what the
dealer and/or salespeople may say. If they say there really is a warranty,
tell them to prove it by removing the phrase "as is" from your
contract and paperwork, and putting the warranty in writing. If they
refuse to do that, then you know there's no warranty.
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