Buying a New Car? Seven Things To Know Before Driving Off the Lot

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New car smell may be one of the most exhilarating (and expensive) scents known to humankind. Purchasing a new car can also be both exciting and—if you’re not careful—extremely costly. Buying a new car can be confusing, overwhelming and if you go into it unprepared can result in buyer’s remorse that lasts the length of the car loan—usually 72 months, or just over six years.

It doesn’t have to be such a harrowing experience. Going into the process with as much information as possible can help you to identify and successfully navigate some of the trickier aspects of the purchase.


1. Know What You Can Afford

Not knowing how much you can afford each month before you sign the contract can put you in an uncomfortable bind. Likewise, knowing how much of a down payment you can make is critical to accurately assess the true cost of the transaction. Focusing on just the monthly payment just isn’t the most accurate way to determine the real cost of the car.

Some loans can lower the monthly payment with higher interest or a longer-term. You’ll end up paying substantially more over that longer time. To determine the actual total cost of a new car, multiply the monthly payment by the total number of months of the car loan and add your down payment, taxes and fees and any other associated costs.

2. Identify Incentives Offered by the Dealership or Manufacturer

When sales are slow or an automobile manufacturer wants to clear the previous year’s inventory before shipping new models, they’ll frequently offer some kind of incentive to spur sales and move units. Some of these deals can come in the form of cashback or low-interest financing and can save you a lot of money.

3. Know How Much It Will Cost To Insure Your New Car

Different cars require different insurance and the price difference can be considerable. Talking to an insurance agent before you go to a dealership will eliminate any nasty surprises, give you a better idea of what your total monthly expenditure will be and highlight any opportunities for savings you might otherwise have missed.

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Many dealerships offer GAP insurance and service contracts, but these are also generally available through your insurance company at substantial savings. It’s good to know what your insurance provider can do for you specifically so you can identify the best value. The best way to shop for auto insurance is in advance—your monthly premium should be considered when making any purchasing decisions.

4. Know About Yo-Yo Financing

Dealers will often give you the “opportunity” to take a car home before all the paperwork—and financing details—are finalized. It’s a bit of a dirty trick and it’s good to know about it so you can avoid it if they try to snag you with it. It’s intended to play on your emotions and cloud your judgment. You’re likely to enjoy the feeling of driving a new car so much that you won’t be as impartial when it comes to negotiating.

The trick involves the dealer changing the terms of the financing, usually by saying they were unable to get a lower interest rate or better financing offer. They’ll instead offer a much pricier contract with higher rates that inflate the price of the car by a significant amount. If you’re already in love with the car, you might be tempted to take the new, more expensive deal just so you can hang on to your new favorite ride.

In some cases, the dealer may even lead you to believe that, since you took the car home, you’re now stuck with the new contract. This isn’t the case—until the paperwork is signed, you have no legal obligation. It’s a dirty trick, but it can be such a common practice that it even has a catchy name: yo-yo financing.

5. Know the Real Cost of Add-Ons

Dealers can increase the amount of money they make with the sale of a car by bundling expensive add-on features that weren’t part of the original contract. Some of them might be worth it, but the majority of them either provide few substantial benefits or can be added to the car after purchase at a much lower cost.

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When purchased through the dealer, these extras are usually much more expensive than they should be and offer little in real value. Vehicle service contracts, undercarriage coating, key insurance or other plans like “paint protection” can sound like a good idea when you’re at the end of a long negotiation and just want to get in your new car and get on the road. Avoid the temptation.

6. Know What You’re Signing

If the finalized contract the dealer presents has changes you didn’t authorize, contains new language or clauses that you don’t remember seeing or has any errors or other anomalies, don’t sign it. Signing a contract usually makes it legally binding and you may be unable to correct any mistakes after the ink is dry.

7. Know That It’s Nothing Personal

Not all car salespeople are out to swindle you and not all dealerships inflate the cost of a new car with a lot of sketchy tricks and questionable tactics. Some do and it’s good to be aware of the more common kinds of shenanigans that unscrupulous parties can get up to before you see them in the wild.

Generally, people on both sides of the transaction want the same thing—a fair deal that provides both parties with value. Knowing when to distance yourself from a bad deal is perhaps the most important and valuable thing you can learn ahead of time. There’s no need to rush into this kind of purchase—you can afford to take your time and pass on any deal that isn’t exactly what you’re after.