Buying a Car

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Buying a Car

What It Means

For most people buying a car (especially a new car) is the second most expensive type of purchase they will make in their lives (buying a house is usually the most expensive). Going about buying a car involves some big decisions, decisions that buyers should be informed about before they take the plunge. Even if you are buying a used car, which will likely cost significantly less, familiarizing yourself with the process will help you get the most for your money and avoid being taken advantage of by the seller.

There are many factors to consider in deciding what kind of car you will buy. First, how much can you afford to spend? If you are planning to pay for the car outright, how much of your savings can you spare? If you are planning to get financing (a loan that you will pay off in monthly installments, along with interest payments, or fees the lender charges for the loan), how much of your income can you put toward car payments each month?

Once you have figured out your financial limits, research various makes and models of cars and consider what features the car you buy must have (as well as which ones are on your wish list). What are the respective safety ratings of various models? Which ones can accommodate your lifestyle (number of family members or friends, space for dogs or gear, and so forth)? Which ones come with a sunroof? Information about new and older models is available through consumer reporting agencies, auto magazines, buying guides, and vehicle reviews on the Internet.

Keep in mind that in addition to the sale price, there are other major factors that will affect how economical a car is for you in the long run: What kind of gas mileage does the car get? What is the repair record for that model or for a car of that age? How much will it cost to insure? Remember too that you might want to resell or trade in the vehicle someday and that some cars retain their value better than others over time.

The more prepared you are when you step into a car dealership (or even into the driveway of an independent seller), the less likely you will be to make a hasty or unwise decision.

When Did It Begin

Early prototypes of automobiles may be traced back to European inventors in the late seventeenth century. In the United States the first patent for an automobile was granted to Oliver Evans (1755–1819) in 1789. But while automotive technology continued to advance in Europe and America throughout the nineteenth century, the automobile remained more of a novelty than a necessity of life for the average family. In the late nineteenth and early twentieth centuries, however, inventors (most notably Henry Ford) figured out how to mass-produce the automobile, thereby greatly lessening the cost of each vehicle. In the United States 1905 was the first year that automobile sales to average users surpassed sales to hobbyists. By the 1920s it had become standard for most middle-class and even some working-class families to own their own car. Car ownership in America reached new heights in the post–World War II era as suburban housing sprang up outside metropolitan areas, highway infrastructure was vastly expanded, and more and more people became dependent upon the automobile for daily transportation.

More Detailed Information

Buying a New Car

When you have decided on a couple of models you are interested in, shop around to find the best price by comparing the listings in newspaper ads, at dealerships, and on the Internet.

If you are planning to get financing for your car, obtain a copy of your credit report (a detailed summary of your credit history that lenders will review to assess how financially responsible you are) from one of the national credit bureaus (Equifax, Experian, and TransUnion) to make sure there are no issues that will prevent you from getting a good interest rate. Also, inquire about financing options at your bank and other lending agencies: often they will offer you a better rate than the car dealership. When you are setting up your financing, remember that the lowest monthly payment is not necessarily the best deal. The total amount you will pay for the car in the end will be determined by the price you settle on with the dealer, the interest rate, and the duration of the loan (how many months it will take you to pay it off).

When you go to the car dealership, plan to negotiate on the price of the car. Most dealers have a certain amount of flexibility in how much they need to profit on any individual car, usually between 10 and 20 percent of the price. Following are some key terms you will want to be familiar with before you enter into the bargaining process.

  • Invoice price is the initial amount the car manufacturer charges the dealer for the car. The final cost to the dealer is usually lower than this because dealers receive various discounts, rebates (a return of part of a payment), and incentive awards (cost reductions offered by the manufacturer to encourage the dealer to sell more of certain models).
  • Base price is the cost of the car without options (options are extras, such as air conditioning, alloy wheels, leather upholstery, a CD changer, and so forth). The base price only includes the car’s standard equipment and the factory warranty (a guarantee from the manufacturer that promises to pay for repairs to the car within a certain time frame after it is purchased).
  • Monroney sticker price is the manufacturer’s suggested retail price (MSRP). It includes the base price, the options already installed by the manufacturer, and the manufacturer’s transportation charge (the charge for shipping the car from the factory to the dealership). Federal law requires that the sticker price be displayed in the car window and only be removed by the buyer. The sticker also shows the vehicle’s fuel economy (or gas mileage).
  • Dealer sticker price, usually displayed on a secondary sticker on the window, indicates the MSRP plus the suggested retail price of dealer-installed options, additional dealer markup (ADM) or additional dealer profit (ADP), and dealer add-ons, such as interior and exterior protectants for the vehicle or an upgraded alarm system. Be advised that dealer add-ons are exorbitantly overpriced and that the same services can be purchased elsewhere for a fraction of the cost. In general beware of the dealer sticker price! It is just a tactic used by the dealer to start the negotiations at a higher price so that the salesperson can seem to come down on the price without losing any actual profit.

When you have settled on a fair price with the salesperson, be sure to read the contract carefully before you sign it, and do not drive off the lot without a copy of it in hand.

Buying a Used Car

Used cars are available from a variety of sources, including dealerships, rental-car companies, and private sellers. Whether you are buying a used car from a dealer, your coworker, or a stranger who advertised in the classified ads (advertisements in the classified section of the newspaper), make sure you check the car out thoroughly before you commit to buying it. Obtain an inspection checklist from a used-car buying guide, and look over the car yourself. Test-drive the vehicle under a variety of road conditions, such as in stop-and-go traffic, on the highway, and on hills. Ask the seller for records of the car’s maintenance history (if the seller does not have records, ask him or her to get them from a mechanic who has worked on the car over time). Most importantly, get an official inspection from an independent mechanic you choose yourself. When the mechanic has completed the inspection, make sure to get a report in writing that itemizes any problems the car has and that estimates the cost of necessary repairs. This report can be an important tool for negotiating the price of the car.

Recent Trends

During the 1990s the American automotive landscape was overrun by gas-guzzling sport-utility vehicles (SUVs), some of them averaging just 16 miles to the gallon. There seemed to be no end in sight to the consumer love affair with these vehicles. In the early 2000s, however, as gas prices soared as high as three dollars per gallon and the dangers of global warming received unprecedented media attention, the need to reduce our dependence on fossil fuels (such as oil) suddenly became an urgent national issue.

Correspondingly the auto industry saw a sharp increase in consumer demand for fuel-efficient vehicles and vehicles that could run on alternative fuels, such as ethanol, electricity, and biodiesel. Whereas SUVs had been the most fashionable cars of the previous decade, high-profile Hollywood celebrities like Cameron Diaz, Leonardo DiCaprio, Will Ferrell, and others promoted the cause (and the glamour) of fuel efficiency by driving hybrid cars. Among the most sought-after green cars (those that preserved environmental quality) were the Ford Escape Hybrid, which got 33 miles to the gallon, and the Honda Civic Hybrid, which averaged 50 miles per gallon. Across the auto industry major manufacturers announced plans to broaden their offerings of clean, fuel-efficient models.