February 24th, 2020
July 30th, 2020
So, you dread shopping for a car. Do you even know why? As many as 87 percent of Americans report that they dislike the traditional car shopping experience. Chances are, there is more than one thing holding you back from shopping for a new set of wheels.In our three part series "Solutions to Your Car-Buying Anxiety," we will explain common problems and solutions for car shoppers who would rather be doing anything else.Let’s start things off right with a story showing a typical car buying experience from Tracey Lawrence of Grand Family Planning: "My husband and I recently bought a used car. I wanted a quality, reliable vehicle I could pay for with cash. I researched cars that were in my price range, under four years old, got around 30 mpg, had 4-wheel drive, preferably a cross-over. And my husband is 6’7”, so it had to accommodate his largesse.As a AAA member, I have access to their search tools for scanning the inventories of certified dealers. I also looked at CarFax reports.The model that suited us best was a 2015. We found one with 34,000 miles, no accidents and almost a year of factory warranty left. The dealership we went to was not as straightforward in their dealings as I would have liked. They played games and tried to add extra charges. But I knew the facts regarding the vehicle, rejected the add-ons and held out for a better price on our trade in (which I knew the value of going in as well).I then took the car to a dealer to be checked out before making the final purchase." Most people take about four months to research, shop for, and buy a car. Not everyone will have all of the same specifics, but most people will follow the same steps, starting with RESEARCH. Autotrader found that buyers spend an average of 14 hours and 44 minutes on it. It can be a long, drawn-out process with lots of pitfalls. Let's tackle a few of the common anxieties people have with the car-buying research process—and that starts with your budget. Problem 1: I don’t know anything about cars. Where do I even start? Truth time. You’re not alone on this one, but you don’t need to know EVERYTHING about cars to feel competent when shopping for a car. Only about 30 percent of consumers know the exact vehicle they want, when it comes time to buy a car. To be prepared, you just need to know about the model you want to purchase and, if possible, some comparable models, and your trade-in (if applicable). So, for the majority of Americans, how do we figure out what car to buy and where to buy it?At this point in the car buying process, you can either pay someone to do the work for you, or get started on your research. If you don’t even want to do any research, but want an expert to help you with your purchase journey, consider hiring a car buying or car concierge service. You can get help whittling down options with a professional car shopper, who then helps to schedule any test drives and does any negotiating for you. Many can even then deliver the car to you when it's ready. This service, of course, is for a fee. Sometimes it is a flat fee. Sometimes, it is a percentage of savings. If you don’t want to (or can’t afford to) pay someone to shop for you, then it’s time to start the research phase of your purchase. Problem 2: How much should I spend? Personal finance guru Dave Ramsey says that the car you choose requires knowing your budget. Either you are going to pay with cash or you will finance the purchase. If you have saved your money and are ready for the purchase, then your budget is already set. If not, how should you set your budget?In our article "A Beginner's Guide to Auto Financing," our experts explained the steps to take: Know your credit score Make a budget Explore lending options Read more: Car Buying Answers from an Expert: Sonia Steinway Problem 3: What car should I buy? Once you know your budget, then you can move on to the vehicle selection. You need to see what your options are and get researching. To what end? You want to figure out what make and model would be best for your situation and budget, and learn about it. "You can't really rush getting a car if you want to save money," advises Will Craig, Managing Director and CEO, LeaseFetcher. "The more carefully you think about your choice, the less chance you have of being caught out. Draw up a list of the reasons why you want a car and then decide the one factor or feature that you're looking for in it. Do you want a car that looks good? One that's cheap to run? One that has a lot of cabin space? Work out what that one must-have feature is and then do some simple google searches using that phrase – for example, 'best car for [your feature].' This should return multiple cars that you can then pick from."Sonia Steinway, CEO of Outside Financial, a site focusing on educating consumers about their auto loan options, has this advice: "Our number one piece of advice is to do all of your research before you step into the dealership. Start by narrowing down your list to three to four vehicles you’re interested in. Reputable sites like Consumer Reports, Jalopnik, Edmunds, and KBB can help you decide what vehicles make sense for you based on your needs."If you have no idea where to start, start by visiting a few different car finder sites and sorting by local vehicles within your budget. If you still don’t know, try the Cars.com Matchmaker to consider different priorities and features. Problem 4: Where should I buy it? Timing is key. "Do your homework BEFORE you step foot in the dealership or reach out online," advises MyCarLady.com founder, car concierge, and DMV expert Sarah Lee Marks. Basically, buyers have the option to buy new or used, public or private. You can find new and used car listings through a variety of websites. The new marketplace TRED even offers used cars sold by private sellers online, with dealer-type assurances. Read more: The Pros and Cons of Buying a Used Car from a Private Seller When you need to choose a dealership, use online ratings and reviews, as well as model availability to find which dealership is best. Dealership ratings are available on many sites, though we like how iSeeCars combines available models with dealership ratings and pricing reviews to show the best deals at the best dealerships. Jake McKenzie from Auto Accessories Garage suggests focusing on the car you want. He says, "The ideal car buying experience would be finding the value of the vehicle you want, and deciding on a price you are willing to pay before even setting foot on a lot. Then, it’s only a matter of finding a dealership willing to meet your offer."To narrow down dealership options, David Weliver, founder of Money Under 30 and a former car salesman has some advice: "When possible, the very best way to buy a car is to email three (or more) dealerships that have the exact car you want and tell them you’re going to buy a car this week, please email you the paperwork with the entire price (including ALL taxes and fees) for you to review. Make sure to tell them that you’ve contacted several other dealerships. Now, not all dealerships will do business this way. Some will outright refuse to quote you, and others will likely push back. But some will send you their bottom-line price. Once you get a few quotes, you’ll easily be able to spot the best deal. Keep in mind, however, that when dealers quote this way, you likely won’t be able to negotiate any further. They most likely are sending you their best price." Problem 5: I want to do a trade-in. How much is my car worth? Trading-in your current vehicle as a part of the purchase price for your next car can make or break your overall dealership "deal" and your budget. You need to know what it is worth and stick to it, just as Lawrence did in our example at the start of this article. She "held out for a better price" on her trade-in. You should too. There are a variety of resources you can use to follow her example and check how much your car is worth as a trade-in. Here are a few: Black Book Value via cars.com Galves Accu-Trade Value from TrueCar Kelley Blue Book Value Edmunds.com What’s My Car Worth? CARFAX History-Based Value Arriving at a dealership prepared, with your research in-hand is the best way to get a good deal. The links above will help you to find the fair market value for your vehicle, so that you can feel more confident. You can even get an instant offer from local dealerships. Stay tuned for more of our "Solutions to Your Car-Buying Anxiety" series. Next time, we visit the dreaded dealership. Dun. dun. dun. (ominous music plays)More resources: View Best Car Finders Car Buying Answers from an Expert: Jenni Newman What Can I Expect at the Local Car Dealership?
If you are in the market for a used car, where do you look?Many people prefer shopping at a local dealership, while others swear by craigslist or finding "the best deal ever" on the nearest empty corner lot. Which is better? Which is worse? What pros and cons are associated with each? To help answer these questions and weigh our purchase options, we asked auto shopping experts to help break down the pros and cons of buying a used car from a private party, instead of a dealership. Here’s what they said: PROs CONs Pro: Better Price (Usually) Valerie Coleman, head of automotive at 5miles.com says, “A dealer or salesperson can do only so much for a customer. A private seller does not have commission or typical business operating expenses to account for, so may be able to get more aggressive with pricing.” Con: Lack of Regulation Sarah Lee Marks, a car concierge, DMV expert, and founder of MyCarLady.com explains, “Buyer beware. Private sellers are not regulated to the extent a dealership is, so misrepresentation is common.” Pro: Chat with the Previous Owner Sonia Steinway, president of auto loan service Outside Financial says, “...if you’re looking for a used car and you have the patience to review lots of options, look at both. If you value having a conversation with the previous owner, private-party makes sense.” Auto expert Val Coleman agrees, “You also typically can get more context or information about the condition of a car (one owner, mostly city miles, etc.) from a private seller…” You may still want to look into a vehicle history report for added peace of mind. Con: Sketchy Test Drives Lauren Fix, The Car Coach, says, “If you do buy from a private person, have an ASE certified technician look over the car before you make an offer on it. Also, be wary of test driving a car with a stranger, the dealer reps are ok, but who knows what to expect when buying off Craigslist or similar.” Pro: Keep Your Nickels Jake McKenzie from Auto Accessories Garage explains, “A private seller is less likely to be a professional salesman ready to nickel and dime you with extras or confuse you with financing…” The best possible purchase price is likely from a private seller, not a dealership. Con: Interest Rates Sonia Steinway, president of auto loan service Outside Financial says, “Keep in mind that loans to buy cars in private party sales are typically higher than for the identical car sold by a dealership. The interest rate on a loan reflects the risk that the lender won’t be paid back or won’t be able to recoup the money they lent out if the borrower defaults. And because the risk of non-repayment and default is higher on private party loans because of fraud, those interest rates are typically higher.” Pro: Faster Transaction One of the things that people hate the most about shopping at a car dealership is how long the process takes. Valerie Coleman, head of automotive at 5miles.com says that with a private party sale, you get “a quicker transaction time vs. spending hours at a dealership.” Con: Fewer Amenities and Assurances Lauren Fix, The Car Coach, says, “Buying at a dealer can create a good business relationship that can be beneficial for repairs and recalls. The dealer wants that too. Factory warranties are there to protect consumers and your purchase; buying from a private seller can leave you out in the cold with expensive repair bills.” Jake McKenzie from Auto Accessories Garage says, “...a dealership also offers some assurance with warranties and their desire to have a positive reputation in the community.” Warranties and money-back guarantees are not readily available when you just buy from a private party. These add peace of mind to any purchase. We all fear that our used car will end up being a lemon. Thanks to our experts for their helpful advice. For more car shopping how-tos and advice, check out our related articles below. Related pages and articles: BestCompany: BestCar FindersWhat Can I Expect at the Local Car Dealership?A Beginner's Guide to Auto FinancingCar Buying Answers from an Expert: Jenni Newman
I’m a person who likes to know what to expect: Is it going to be sunny or rainy? Is the library busy or empty? Is the wait at Disneyland short or long? Am I going to know anyone at the party?If there’s too much uncertainty, I will likely avoid an experience at all costs. I know that I’m not alone. As someone who has always had help when shopping for a car, I wondered, what would the dealer experience be like? What variables can I control? Will I be able to handle it on my own?If you are new to car shopping, you might have some questions about what to expect when you go to a car dealership. Here are dealership experience questions, asked and answered, to give you confidence when buying a car. To help people who are nervous about going to a dealership, what kind of questions can they expect to answer from salespeople? “A good salesperson will only ask questions to help you narrow down a vehicle that will best suit your needs,” says Ryan Mason from Jacksonville Auto Mart. “If you have social anxiety, much of the interaction can be done via Facebook or text messaging. Only once a trade-in price needs to be solidified and paperwork for your new car [needs to be filled-out] would you need to actually visit the dealership.”However, other types of salesmen out there may ask different qualifying sales questions. Paul Maloney, known as the “Car Buyer’s Advocate,” owner of Car Leasing Concierge, and best-selling author of the book, How To Beat The Car Dealer Every Time! It's So Simple, It's Ridiculous, explains, “Salespeople qualify you by asking the following questions 95 percent of the time: 1. How soon are you looking to buy a car? 2. Who is the car for? 3. Are you looking to buy or lease? 4. What payment range are you looking to be around? By asking these prying questions, the salesperson is getting you to unknowingly show your hand. Once they see what you have, it’s very easy for them to play their trump card and siphon the money out of your wallet.”For a detailed (and long!) behind-the-scenes look, check out this car sales training video. Should customers call first to make an appointment or walk-in? Autotrader reports that initial contact with dealerships in 2018 was as follows: 49 percent walk-in, 26 percent phone, 17 percent email, 4 percent online chat, 2 percent text, and 1 percent social media. Valerie Coleman, head of automotive at 5miles.com, explains that how you contact a dealership initially should depend “on how quickly you want to go about finding — and buying — a car.” Coleman suggests that calling ahead can help the dealer prepare for your appointment. It also allows time to “get many of the preliminary questions (i.e. what are you looking for? what’s your price range? etc.) out of the way so that it can be a more efficient car shopping experience.”Susanna Williams from Superior Honda in New Orleans says, “If you make an appointment, you’ll be saving yourself a lot of time and your car shopping experience will be off to a professional start. By letting the dealer know which car(s) you want to see ahead of time, you give them the ability to find the car and clean it up. If you show up unannounced, the whole process could take some time.” Mason puts it another way, “Walk-ins are fine, but if you want to see a specific salesperson set an appointment. This will allow your salesperson to have a specific vehicle you'd like to check out pulled up, plated, and ready for you to check out. It also allows you to ask any specific questions you may have between certain vehicles to save you time.” What paperwork or identification do people need to bring with them? “What you need to bring depends on what you plan on doing at the dealership,” explains Williams. You may need some, or all, of the following items: insurance card loan release proof of residency SSN (at least know it to run a credit check) recent pay stubs references registration title valid driver’s license Test driving — valid driver’s license “If you’re looking to test drive a car you’ll need a current valid driver’s license.” — Maloney Buying a car — insurance, recent pay stubs, references, proof of residency “Paperwork that will be needed depends on a couple different things and will vary state to state. If one is paying cash for a vehicle and have no trade you may only need your ID and a check. If you are financing its best to bring an insurance copy, proof of any income, an ID and any downpayment money.” — MasonTrading-in a car — title, registration, loan release “If you have a trade, be prepared by getting a 10-day payoff on your current loan, your registration copy, and/or the title to the vehicle” — MasonNOTE: NPR suggests that you bring your own photocopies of your ID, and ask for them back when you leave to avoid identity theft issues. Can you describe the test drive process? What happens if there is a fender bender? “Test drives will vary a lot from dealer to dealer,” says Mason. They can vary by process, whether you will drive alone, and whether you have to leave some sort of collateral. For more explanation, insurance broker Jeff Ryan explains on Quora: “Generally, dealerships only require you to show your driver's license. Many dealerships will require a photocopy of your driver’s license. Some may “hold” your license until the test drive is completed.In some cases, the dealer may keep the keys to the vehicle in which you arrived to the dealership. On rare occasions, the dealer may require that a Vehicle Test Drive Agreement be filled out that includes additional information such as the test driver’s auto insurance company and policy number. You can see a sample Test Drive Agreement with the examples below: Riskpoint.com — Vehicle Test Drive or Use Agreement DealerSupply.com — Test Drive Agreement Whether or not a dealer carries their own insurance or requires signing a test drive agreement, it is always in your best interest to carry your own auto insurance while driving a vehicle owned by someone other than yourself.” When it comes to the actual drive, you may be accompanied by a salesman, or you may not. This can depend on the dealership’s rules, its insurance rules, whether you are taking out a new or used car, and possibly the price range of the vehicle. As for the actual driving route, it can vary as well. Mason explains, “Some dealerships will have a set path and have both you and the salesman drive, others will give you the choice to decide, or simply throw you the keys and answer any questions you may have when you return.”“Don't be scared of getting in a fender bender,” Mason says. “Life happens, you won't be expected to cover any damages caused by an accident. While on a dealer plate, you are covered by that dealer's insurance.” If someone is just browsing and not ready for the pressure of a one-on-one sales experience, what is the best way to proceed? Maloney suggests, “Let the salespeople know upfront that you are here to look and test drive only as ‘I’m in the early stages of comparing other brands. Without driving them first, I won’t be able to decide if it’s a good fit for my needs.’”Comfort is key. “Browsing online or finding a salesman you're comfortable with will save you from the high-pressure push of some dealerships,” says Mason. “We aren't all that way and most will be happy to open some doors and simply allow you to sit or look around the cars without them immediately present. Simply return the keys after and ask any questions you may have.”At other dealerships, it might be a little different. A Reddit AMA’er explains, “If you don't want me to pitch the car just say, ‘Hey man, I'm not trying to get your pitch. I know about cars and I just want to experience this one first hand.’ I'll say, “Okay, well we can just hang out while you test it out and if you have any questions just ask.’ I'll probably just talk to you about what you do with your spare time and other things you might actually want to talk about. Most of the time I would prefer people like you because I hate pitching cars unless it's one that I really love that is tons of fun to drive.” What is the deal with dealerships' digital sales teams? Coleman explains, “Nowadays you can peruse most car dealers’ inventory online, and then, when you’re ready to speak with someone about a particular car, email, call, or simply stop by the dealership. With the ever-growing popularity of buying cars online, most dealerships also offer fair prices online. There does tend to be less wiggle-room though, since the cost of marketing, shipping, etc. all must be factored in.““A digital sales team's job is to convert you from an online shopper to an in-person shopper,” adds Mason. “Generally, the larger dealerships will have a sales staff dedicated to specifically following up with people who have submitted their information for follow up.” You can submit information a number of ways, but most commonly, customers start on a third-party site, according to the Car Buyer Journey 2018 report. One example is TrueCar, which requires information to get access to the TrueCar Price Report. What is the least busy time of the day/week to go to a dealership if you want one-on-one attention? On this question, we got a few different well-reasoned answers from our experts. “Skip out on the weekends and go on a Monday,” suggests Williams from Superior Honda. “After the weekend rush, dealers will have more time to spend with you and you may be able to get a better sale price on a day that isn’t that populated.”Mason has a similar opinion, “A dealership is typically busiest on the weekends and evenings. I would recommend setting up an appointment for any time that works best for you or walking in mid-morning for the best one-on-one attention.”“Wednesday afternoons are typically the best time to visit your local car dealership,” instructs Danny Baker from Marshall Goldman Motor Sales. “Wednesday afternoons between 2:00 p.m.- 5:00 p.m. are best for receiving the one-on-one attention that some car buyers are looking for. If you’re a first-time car buyer or have a lot of questions about a particular vehicle, make sure you don’t show up right before closing time and always give yourself enough time to make the right decisions about your purchase.” Maloney suggests going on “Any weekday or evening.” He says, “Most people buy cars on weekends as their time is usually limited during the week.”TLDR: Not on the weekends How do you help people narrow down options when they aren't sure what to look for? Most people know what they want. “The beautiful thing about today's market is that most shoppers are very educated before they land at the dealership due to the amount of time they've browsed online,” says Mason. “If you're still not sure exactly what you want when you arrive to the dealership, no worries. I can ask you qualifying questions like size, budget, etc. and help you find the perfect fit for your life.” What's the best thing about working for an auto dealership? “I've been obsessed with cars since I was a child. My father runs a local auto repair shop and has some classic cars. I participate in organizing car shows in my city and have a weekend car to have some fun in. The best thing about working at a dealership is sharing my knowledge and passion for cars with others. A car can change someone's life. It's an awesome feeling to help so much!” Mason shares. What is the one thing that you wish the general public knew about what goes on behind the scenes at a dealership? “One of my pet peeves of the industry that should be brought to light are some of the less than truthful online marketing [strategies used] to get you in the door, says Mason. “You'll see payments promised way under reality or noting several thousand dollars down at signing, payment calculators online for terms that aren't possible, no payments for XXX months, etc.” He cautions, “Stop being sucked into this generic bait. Find the car you like and see if you can agree on a price with the dealer. Most dealerships will be pricing their used car from what they could get out of it taking to an auction. This means we generally own comparable cars for the same cost as long as the condition is similar.”“Most people dread the car buying experience,” says Baker, “but what they don’t know is that dealerships love to have fun! Car salesmen usually have a bad reputation, but we have great personalities and love making our buyers happy. We like to have a good time and we genuinely care about our customers. We keep their interest at heart, because it's not about just one sale for us, it's about building a relationship with the customer.” There are pros and cons of working with a dealership vs. a private seller, says Coleman. “A dealer or salesperson can do only so much for a customer. While car dealerships tend to have better financing and warranty options than a private seller, a private seller does not have commission or typical business operating expenses to account for, so he may be able to get more aggressive with pricing. You also typically can get more context or information about the condition of a car (one owner, mostly city miles, etc.) from a private seller, as well as a quicker transaction time vs. spending hours at a dealership.” Do you really have to check with your manager? “My short answer is sometimes,” explains Mason. “This industry is flooded with newbie salesmen that jump from store to store. I joke and call them door greeters vs. salesman. I personally can handle everything from the first hello to a handshake after the sales, but most salesmen do not have access to any of the actual margins and are simply presenting an offer someone else has written for them.”Maloney agrees, “Yes, unfortunately, most dealerships just use salespeople as pawns to get the information they’ll need from you on how to proceed next so they can extract as much money out of your pocket as they can.” Another salesman recently explained what happens when he goes back to talk with his manager in a Reddit AMA: “I literally go to the back to try to get my manager to do whatever it is you asked me to do. I have ABSOLUTELY no control over any of the numbers so I basically go to my manager and beg him to sell you the car for cheaper so I can get a sale. Even if I’m not making any money off the sale it helps get our monthly bonuses. Sometimes it's just not possible to get what someone is asking because we have too much invested into the vehicle. I actually have to basically fight with my manager to drop the price more.” What happens at the finance office, and what experience can people expect? Will everyone judge me for my credit score? “A finance office's job is to find a bank to work with low credit score individuals or get the best terms/rate possible for those who score higher,” explains Mason. “Dealerships work with a variety of banks and probably can get you a payment you’re comfortable with,” says Coleman; however, “it may not be for the exact vehicle you want though.” As for any credit-score-related embarrassment, Mason assures, “The finance office will see scores between 400 and 800 every day. Don't be ashamed if you score low or have no credit. They only review the facts of the deal and work as the middle man for the bank to save everyone time."While car dealerships offer to be a go-between to help save time, it may not be the best loan terms for everyone. Coleman warns, “Zero-percent financing or low interest rates are reserved for those with excellent credit, so be mindful. Dealerships also can be compensated for handling the loan, which means you may be paying a higher interest rate. Some of the best rates, in fact, can be found at credit unions if you're shopping price, and not simply payments.” Check out our Q&A with auto financing expert Sonia Steinway for another take on auto financing. Do dealerships help with government paperwork like registration? Yes, mostly. Mason explains, “Dealerships will generally handle all of the title and plate/registration work needed when you purchase your car. This exception will be made if you are purchasing across state lines. This situation will vary state to state, but you are often times responsible for tax and title upon returning to your home state!” What is with the free popcorn? “Free popcorn is an old subliminal sales tactic,” Mason explains. “One presumes subconsciously that they are to return a favor if they've been given something. This favor would be buying a car. For what it's worth, our dealership doesn't have popcorn, haha!”I hope that this helps shoppers feel more prepared and comfortable with going to the dealership. Do you have any more questions you would like answered? Check out our Car Finders Blog, or shoot me an email via [email protected] Special thanks to star contributor Ryan Mason from Jacksonville Auto Mart in Jacksonville, Illinois, for answering every question we threw at him, even if they were silly (see popcorn above). View Best Car Finders
As a companion article to our Beginner’s Guide to Auto Financing, we’re offering more expert advice for our readers. We reached out to auto financing expert Sonia Steinway, president and co-founder of Outside Financial, a company that saves you money when buying a car through education and loan offers independent of dealerships. Her advice will help first-time and novice buyers know what to expect when financing their new or used car. What kind of personal information do people have to provide to get a financing quote? Every company is a little different, but in general, most ask for information about the vehicle (year, make, model, trim, options). It helps to have the VIN because the price of a vehicle can vary even at that level. Most lenders will give a pre-approval that’s good up to a certain amount with certain restrictions (for example, no Hummers or exotic vehicles), but the more you know about the vehicle, the more tailored the financing quote can be. Lenders also need to know basic information about the borrower, including name, address, contact information like email and phone numbers, employment information (employer name, how long you’ve been with that employer, and income), and information about other debts (especially rent or mortgage). Most lenders will run at least a soft credit check, although some do a hard pull upfront. Some sites (like ours) ask for social security number because it’s the best way to make sure you’re finding the right person during the credit check. Do car loan companies do a hard or soft credit check? It depends on the lender. Eventually, almost every lender will need to run a hard check before making a final underwriting decision. At Outside Financial, we do a soft credit check to match our borrowers with lender offers, and the lender only does a hard check after the prospective borrower has decided to apply for that loan offer. Lenders are required to disclose whether they’re doing a hard or soft check — that is, you the applicant have to authorize the lender to run the hard credit check, so make sure that you understand what you’re agreeing to before you apply. Multiple hard checks for an auto loan within a short period of time (for FICO, it’s 45 days) only count against you once so you’re not penalized for shopping around. What are good and bad terms for financing a new and used car? Any tips for knowing the differences? It’s hard to generalize because everyone’s credit situation is different, but I would watch out for any term over 60 months. I would also make sure to shop around so you know what rates you are eligible for before you step foot into a dealership. Dealers typically mark up a borrower’s interest rate by 1-2 points without disclosing that fact to the borrower. The average markup for a new car loan is almost $1800 — a record high. In fact, dealers now make more money from selling financing than they do from selling cars. Here’s the math. Is there an industry average depending on your credit score? Unfortunately, no. Each lender weighs their underwriting criteria differently, so there can be huge variation in rates, especially the further down the credit spectrum you go. You can look at sites like Bankrate or Credit Karma to get a general sense for the rates that are applicable for your credit score, but auto lenders typically use scoring models that place more emphasis on your history with auto loans. That’s why I strongly recommend using sites like Outside Financial to pre-qualify for a loan based on your vehicle and your credit history. If you have a credit union or bank you like, it’s also a good idea to check their rates first, before going to the dealer. If you are trying to build a good credit history, is it helpful to finance a car? Car loans are often one of the first loans that people take out as a way to build credit. It can be helpful to find a co-borrower to apply with you — just make sure the lender will report the loan to the credit bureaus for both borrowers. Because car loans are secured, the interest rates are typically lower than for unsecured debt. That’s because the lender can repossess your car if you don’t pay to recoup some of their money. Making your car payments on time each month is a great signal to future lenders that you’re responsible with debt. If you pay off the loan quickly, it can actually decrease your score at first, because credit scores include the age of all of your credit accounts (the older, the better). Your credit score also factors in credit mix, so it can be helpful to have multiple types of accounts, including revolving debt like credit cards and installment debt like car loans. But I think people focus too much on a few points on their credit score; for most people, it’s not worth paying, say, 18 percent interest to avoid a 5 point decrease in your FICO score. You would be better off looking into alternative ways to improve your credit. Personally, I would recommend checking out Self Lender and Experian Boost. Any car financing red flags to look out for? Too many! First, never answer the dealer’s favorite question: How much do you want to pay per month? Car loan terms have crept up over time because too many dealers try to hide big markups by stretching them out over longer terms. “It’s just $10 a month” times 84 months is a lot of money. Second, always do the math on your own. Dealers can make honest (or less honest) math mistakes, and it’s important to take out your phone’s calculator and double-check the numbers for yourself. Third, if it sounds sketchy, it probably is. Too many car buyers feel trapped at the dealership, and will sign anything to get out of there. Give yourself enough time to think about the deal, read through the paperwork, and make sure you know what you’re agreeing to. There are about 10,000 dealerships in the United States, so if you aren’t being treated appropriately, walk out. Are there any hidden fees when it comes to auto financing? Yes! First, the dealer has no obligation to disclose that they’re marking up your loan, let alone by how much. The typical loan markup is nearly $1,000, but that can be much higher if you have “near-prime” credit (approximately 600-700). How does it work? Let’s say the dealer gets loan offers from Bank of America for 5 percent and from Wells Fargo for 7 percent. The dealer can then turn to you, the car buyer, and say, “Great news! I’ve found you a loan from Wells Fargo for 9 percent.” The dealer doesn’t have to tell you that there were competing offers, or that Wells Fargo’s offer was much lower without the dealer’s markup added in. Second, dealers also add hefty markups to a variety of “ancillary products” that are often bundled into the loan. We believe vehicle service contracts and GAP waiver can be valuable, if you buy them at the right price and understand what you’re getting, but too many products come with such high markups that they’re not worth it. For more on ancillary products, we have a whole library of content. Is getting a co-signer a good idea? If you’re just starting out with credit, especially with auto loans, getting a co-signer can be a good way to increase your chances of being approved or of lowering the rate on the loan. As a side note, co-signing and co-borrowing are two different things. A co-signer is often a parent, helping out a teenage child; the co-signer agrees to pay off the loan if the primary borrower doesn’t, but doesn’t own the collateral (i.e., the car). By contrast, a co-borrower (often a spouse) will also be on the car’s title and will be considered another owner of the vehicle. Any other tips you can think of to help first-time or novice buyers? We’ve compiled our top ten tips for car buyers here, but the short version is this: take your time! Buying a car, especially for the first time, can be intimidating. There are so many options and so much (often conflicting) advice on the web. It’s really smart to get as many offers as you can, but make sure you understand what each offer is. If the lender hasn’t run a hard pull, chances are the offer is subject to change when they do. If you’re “pre-qualified” or “pre-approved” for a loan, that means the offer isn’t final (that’s typically called “approved”). Thanks so much to Sonia Steinway for helping answer all of our questions. We appreciate her expertise and advice. Related pages and articles: BestCompany: BestCar FindersBestCompany: Outside Financial ReviewBestCompany: Best Car Loans
Whether you are buying a new or used vehicle, you have two options: pay the full purchase price upfront, or make payments over time.While personal finance gurus may suggest trying to pay for your car in cash, that may not be feasible for every American in need of new wheels. In fact, as of 2017, 44 percent of adults in the United States had an auto loan — that’s more than 108 million car loans in the country, a number that has been trending up since 2012 (see chart below). "Auto financing can be a headache," says Will Craig, managing director and CEO of LeaseFetcher, "particularly if you have a challenge with debt." If you are unfamiliar with the process, or you are a first-time car buyer, understanding your financing options can make or break your financial situation for years to come. “If you go to a dealership,” says Michael Rudge at Rudge Automotive and Paytons Auto Body, “NEVER get sucked into the payment conversation: "What would you like your payment to be?" It's financial suicide.” How do we avoid car shopping mistakes like this? LeaseFetcher's Craig instructs, "When it comes to auto financing, knowledge is definitely power. The more information you have about auto finance, the better chance you'll have of being able to find the right loan for your circumstances." If you’re in the market for a car, start with these three essential steps: 1. Know your credit score “Start with your credit score,” suggests Sonia Steinway from Outside Financial. “Auto loan interest rates depend on the borrower’s credit history and score. The higher your credit score, the lower interest rates you should expect because lenders view lending you money as lower-risk. Your credit score doesn’t just change the interest rate; it can also mean the difference between being approved and declined. Many lenders won’t lend money to anyone with a credit score below a certain number. By law, you can access each of your credit reports for free once a year at annualcreditreport.com. Before you car shop, make sure yours is accurate and up-to-date. Most auto lenders prioritize a borrower’s history with car loans specifically, so a first-time car shopper may want to ask a close friend or family member to be a co-borrower to secure a better interest rate.”Your credit report will affect the annual percentage rate of the loan. Check out these images from Wallet Hub illustrating the difference between loan percentage rates for consumers with excellent and fair credit scores. Source: WalletHub Even having a fair score increases the percentage rate, not to mention what a loan looks like for someone with poor credit Please remember that with any lender, rates and terms for your loan, including your monthly payment, will depend on whether you have good credit or bad. The lower your credit score, the higher the interest rate. (see image below) As knowledge is power, knowing your score is essential. LeaseFetcher's Craig says, "Companies use [your credit score] to assess how much of a financial risk you might be when it comes to repaying debt so it makes sense to get this in good health before you start applying for finance. Gather information about your credit score and take steps to improve it before you even start looking for finance for the car. Your bank balance will thank you in the long-run." 2. Create a budget Once you know your up-to-date credit score, your next step may require a little homework. “Know what you can spend in a month,” suggests Jake McKenzie from Auto Accessories Garage. “If you plan on buying your first car and financing it, you may have never made a comprehensive budget. But if you want to know what kind of car you can afford, having a budget beforehand is essential.” Knowing how to account for your monthly car payment in that budget is essential. “It’s important to know what you can afford and stick to that budget,” advises Ivan McBride, vice president of automotive lending products and sales at PenFed Credit Union. “You don’t want to take on a payment or loan term that does not fit your budget.” So, how much of your budget should you set aside for a down payment? What about a monthly payment? Valerie Coleman, an auto expert previously with AutoTrader and now with 5miles.com, explains, "The generally accepted rule is to spend no more than 15 percent of your pre-tax income on your monthly car note. And always assume a downpayment. Be prepared to put $1,500 down, for example, on a vehicle that costs between $23,000 and $34,000 (e.g. good buys like Chevrolet Malibu, Mazda 3, Nissan Rogue, Subaru BRZ, Toyota Prius)." 3. Explore your lending options Auto financing is available from several different sources, including community, regional, and national banks and credit unions, car manufacturers themselves (for new models), and in-house financing set up through the car dealer in the finance office. Car buyers should know that dealership financing means that your loan package can be marked up by about $1,700 on average, according to Outside Financial. A typical dealer finance package markup includes $250-$2,000 added to your loan, as well as fees for things like a service contract or extended warranty and GAP insurance.What will interest and repayment terms be like for a car loan? Of course, these will depend on the financial institution you decide to go with, whether you have good or bad credit, how much of a down payment you can afford, the cost of the vehicle, and many other factors. McBride says, “According to ValuePenguin the average interest rate for a 36-month term auto loan is around 3.71 percent APR. Most manufacturer financing is pretty competitive since they’re up against banks, but consumers should also look to credit unions. PenFed offers an auto loan as low as 1.49 percent APR on new cars through TrueCar.” Check out this graphic from WalletHub, showing the differences between several car finance options and terms, when it comes to buying a car with different lender types. Source: WalletHub "Finally, shop price and not payment," advises auto sales expert Valerie Coleman, from 5miles.com. "Payments can be deceiving when stretched out for up to 84 months. Utilize all of the online resources available. There are sites out there that compare prices for vehicles, looks at total cost of ownership, reviews, recalls, vehicle history and alternate vehicles to consider. Approach a car as a commodity and avoid having an emotional attachment (even if it’s your dream car). This will give you the best ability to negotiate and be an educated consumer." For more advice about financing a car, check out our Q&A with Sonia Steinway from Outside Financial, a finance company that offers consumers additional car loan options from online lenders instead of dealer financing. You can get pre-approved for a loan and know what your financing terms will look like before you take a step onto the car lot. If you have any car shopping questions you would like answered or you are an expert with advice for those just starting their first car buying journey, feel free to contact [email protected] with suggestions. More financial resources for car shoppers: Credit score infographicFICO score bookletAuto loan calculatorArticle comparing interest rates over several credit breakdownsRelated pages and articles: BestCompany: Best Car FindersExperts Explain How to Build Credit from ScratchBestCompany: Best Car LoansWhat You Should Know about Credit by the Time You Turn 25
To help our readers navigate the rough waters of buying a car, we asked for advice from Cars.com Editor-in-Chief and consumer auto expert, Jenni Newman. She answered our questions and gave sage advice about the car-buying process. How did you get into the auto industry? While I have fond memories of cruising the dealer lots with my dad on the weekends, I can’t say that I’m a gearhead. Instead, I found my passion for cars at Cars.com when I joined the editorial department in 2008. Today, I love helping people find the right car for them and their lifestyle. What would you say to anyone who is scared to shop for a car because they feel out of their element? It’s natural to feel nervous when shopping for a car. After all, a car can be the second largest purchase of your life. The good news is there are a lot of great tools to help shoppers navigate all the choices — from the vehicles they’re interested in, to the dealers they want to work with on that purchase. For instance, if you don’t know which specific car you’re interested in, use Cars.com’s Matchmaker tool to help you start your search. It asks you about your lifestyle and then helps to create a list of cars that might interest you. From there, Cars.com has expert articles created by the editorial team whose members test-drive cars and share what works and what doesn’t in each of the vehicles. Once you’ve winnowed your list of potential cars, Cars.com can not only help you find a good deal on a car, but it can help you find a salesperson you’ll feel comfortable working with thanks to our Salesperson Connect tool, which allows you to read salesperson profiles and find the right person for you. If you could go back in time and give yourself advice about your first or second car purchase, what would it be? The first time I bought a car on my own I had no idea what I was doing. I bought a Saturn mainly because I didn’t want to haggle over the price. The 1997 Saturn SL served me well, but I didn’t love it. Had I been a more informed shopper, I could have felt more confident about buying a car and would have ended up with something I loved rather than just liked. I read that you have two sons. What make and model would you recommend for new drivers? When it comes to first-time drivers like my 16-year-old son, parents want to think carefully about the car they drive. Many families will give their new drivers an older used car, but it can be missing critical pieces of safety equipment. If you’re thinking of buying a car for your teen driver, consider getting a new subcompact or compact car that’s loaded with safety features such as automatic emergency braking and forward collision warning. These systems work together to sense a slowed or stopped car in front of your car and can brake the car if you don’t do it in time. That’s critical safety technology for a newer driver. Buying a car can be stressful. Do you have any tips to cut down on that stress? 1. Do your research. Both on the car you want to buy and on the dealership you want to work with. 2. Test-drive before you buy. When trying to decide which car you want to drive, test-drive the leading contenders the same day — ideally, back-to-back. This will help you discern 3. Bring your stroller or car seat or hockey gear. If you’re concerned that your car seat, stroller, or giant hockey bag won’t fit in your new car, bring them with you to the dealership and put them into the car your considering.4. Use tools like Cars.com’s app to make sure that you’re getting the best deal on your new car. Do you have any tips for people who hate to test drive? What can they do to make the process more helpful and less stressful? After you’ve narrowed your list of cars to two or three, it’s time to test drive. To streamline the process, create a checklist of important features to evaluate such as visibility, driver’s seat comfort, acceleration, handling, ride comfort and noise, backseat roominess, cargo space, interior quality, and multimedia functionality. Also compare the standard and optional safety technology, the EPA fuel-economy ratings, and price.Make sure to test drive the contenders over the same day. Even if you can’t drive the cars over the same roads, you’ll still get a sense of the differences between the cars. When it comes to dealership auto financing, what are the rates and terms like? When should someone say no? Automakers and dealerships want you to finance your car purchase through them, but it’s a good idea to come prepared with a pre-approved loan from a bank or credit union. Often, the dealer will meet or beat the interest rate on the pre-approved loan. And if they don’t meet the loan’s terms, you’re prepared to go through with the purchase.One thing that shoppers need to be careful of is using their monthly car payment budget as a guide for what they can afford. This mindset could mean that you get a much more expensive car than you need — and often with a longer loan such as 72 months. Instead, shop for a car based on the out-the-door price. That’s the price of the car plus any fees and taxes. This will help you budget accordingly.Thanks to Jenni Newman for this helpful advice! For more of Newman’s insight through blog and video content, check out cars.com/jennidriven. Her relatable perspective and advice can guide you in the hunt for a new car or new-to-you car.