The How-to Guide: What to know before buying and financing a car
Buying a used car, truck or SUV is one of the biggest financial decisions that most Americans make. Only buying a home is a bigger purchase. Unfortunately too many people, buying a car is a stressful experience, filled with frustration and anxiety about car choices, financing decisions and picking between dealerships. We get it—buying a car is a BIG DEAL. In this guide, we want to offer our experience on what makes for the best car buying experience. With well over three decades in business, we have seen thousands of customers walk through our doors, and we have noticed a few things that make buying a car easier. We want to use our knowledge to give you the information that will make your next car buying experience smoother, more predictable, with less frustration and surprise. While we might be a little biased about which dealership is best (hint: we think it is us), you can use this guide to help you buy a vehicle at any dealership. Hopefully, it makes the next time you buy a car, truck, or SUV a breeze, and you look like a pro!
The vehicle purchasing decision comes down to three factors, all of which need to be taken into account:
- Vehicle choice
- Financing choice
- Dealership choice
All too often, consumers spend too much time on the first item, vehicle choice, but neglect researching the financing and dealership options. Be sure to spend time considering all three of these factors as they are all essential to getting a great deal and buying like a pro.
Picking Your Next Vehicle
We all have a dream car, truck, or SUV, along with a favorite color for it, maybe trim package and other features. But it is also important to consider a vehicle purchase as a pragmatic financial decision. Consider your practical requirements first. What do you need the vehicle for? Important factors to think about include:
- Body style: Do you want a car, truck, or SUV? Why do you want that body style?
- Seating capacity: Do you need a vehicle can seat a large family, or would a small coupe that only seats two do fine?
- Fuel economy: Do you have a strict fuel budget? Are you traveling long distances? If gas prices increased by 50%, how would that affect your ability to get where you need to go?
- Reliability: Some cars break down more frequently than others. How reliable is the vehicle that you are considering? Look at independent reports and car industry publications for guidance.
- Cost of repairs and maintenance: This is a little different from reliability. Some cars are famously reliable but can be expensive to repair when something does go wrong. Look at how much common repairs cost. Routine maintenance tasks such as oil changes are ridiculously expensive with some cars.
- Availability: Are you looking for something that is hard to find? If so, expect to pay more. If you are looking for a car that is relatively common, you will have a wider choice of dealerships. If it is rare, you may be stuck buying from a dealer that would otherwise not be your first choice.
- Cost of insurance: How much will it cost to insure the vehicle? If you are financing the sale, be sure to know how much full coverage will cost.
- Specific features: Probably the best way to evaluate vehicle features is to make a list with two sections. In the first section list the features that you must have. This means that you will not consider any vehicle that does not have the whole list of “mandatory” features. In the second section, make a list of features that you want but are not essential. From these two lists, you help filter and refine your vehicle choice.
- Price: Price is not the only financial consideration in most auto purchases, but it can be an important one.
There are many other factors that might be important to your choice of car, truck, or SUV. Do your research to figure out which factors matter most to you. Publications such as Consumer Reports, appraisal guides, and even Wikipedia can be helpful. Make a list of the vehicles that you are considering and score them against the factors that are important to you. Remember – comparison shopping is key to car buying success.
Also, key – find more than one vehicle that meets your requirements. To get the best deal, the more options, the better. Keep an open mind during your search. It is easy to become emotionally attached to a specific vehicle. We all have a dream car that we can picture ourselves in. But to get the best deal, stay pragmatic.
Understanding Vehicle Financing Terms
How are you going to pay for your next car, truck, or SUV? Since most people cannot buy their car outright with cash, financing choice is every bit as important as vehicle choice.
Financing choices have multiplied since the Great Recession in 2008. There are many companies, banks, and credit unions that are offering automotive financing. To choose between them, you need to understand some of the factors that financing choices differ on. While there can be a lot of financing considerations, the big ones include:
- Down payment: this is the initial, upfront payment you make toward the total cost of the vehicle.
- Annual Percentage Rate: the cost you pay each year to borrow money, including fees, expressed as a percentage.
- Interest rate: the cost you pay each year to borrow money expressed as a percentage. The interest rate does not include fees charged for the loan.
- Term: this is the length of your auto financing.
- Qualification requirements: every financing program will have requirements to be approved. For the best interest rates, the qualification requirements will be more difficult. For programs with easier qualification requirements, the interest rates are generally going to be higher.
- Reputational considerations: some financing companies have much better reputations than others. Do some research. Are they well-established? Do they have a good reputation in the community?
- Additional factors: ask questions about the small details that can make a big difference in the financing experience. Are there convenience fees if you make a payment by credit card (in some cases these fees might be illegal)? Are there late fees? Also, ask about early termination fees.
Sometimes the dealer can find you amazing financing. We will talk more about dealership choice here in a bit but be sure to consider financing options when choosing a car dealer. Early on, talk to the dealer about the financing options that they offer. If you do not have great credit, be upfront about it.
One of the most common “pain points” in the car buying process is not qualifying for financing for the vehicle that you want. In general, vehicle financing choices fall into one of several categories
Different Car Financing Programs
- Bank and credit union financing: there are two different ways bank and credit union financing can be arranged. One way is for the customer to go directly to their bank and get qualified for an auto loan. Alternatively, the dealership can arrange this financing on behalf of the customer.
- Captive finance companies: these are the finance companies operated by or affiliated with car manufacturers. This financing is typically only available through franchise new car dealers (though they may finance used car purchases from them).
- Automotive finance companies: there are a lot of automotive finance companies that are not a bank, credit union, or affiliated with a car manufacturer. Some of these finance companies focus on customers with strong credit while others specialize in sub-prime credit.
- Buy here pay here financing: this is financing provided in-house by the dealership. Buy here pay here financing is targeted for people that have had credit problems and struggle to get financed through traditional financing programs. With buy here pay here financing, it is important to find a highly reputable dealer that you trust to finance your purchase.
If you have great credit, your best bet is to try to get approved directly through your bank or credit union. Often these are the best automotive financing rates and terms. If you need the dealer arranged to finance, be sure to ask a lot of questions of your sales representative. You can shop for financing just like you can shop for a car.
If your credit is bad, you may need to look at buy here pay here financing. Buy here pay here financing can be a great way to get financed when you have bad credit. But not every buy here pay here dealership is necessarily a good choice. You will want a professional dealership that has a good track record with the community, complying with all applicable laws and regulations, that you can trust. If the dealership does not have many reviews, has not been around for a while, or a poor relationship with advocacy organizations such as the Better Business Bureau, you may wish to consider another dealer.
And remember, with whatever financing source you choose, you can ask to see all the terms of the financing prior to officially closing on the deal. If for some reason the dealership finance staff does not provide this, you may wish to reconsider the purchase. Don’t leave anything to surprise at the end!
How to choose a local car dealer…
Your choice of the dealership is usually the single biggest factor in the quality of your car shopping experience. Things to look at in a dealership include:
- Years in business: the longer a dealership has been in business, the longer they have had to establish a track record of performance. While there are some excellent new dealerships, in general, you will get more “intelligence” on well-established dealers.
- Reviews: survey the review sites but recognize that some review sites are better than others. Can the dealer pay to improve their score? Does the review site favor advertisers over objective reviews? Does the site encourage unfairly positive or unfairly negative reviews? If so, consider those reviews with caution.
- License: in Colorado, a license is required to operate as a motor vehicle dealership. A proper dealership should have a permanent location, signage, and inventory. It can be extremely risky to buy from unlicensed dealers selling cars from empty parking lots.
- Ownership: does the dealership have local owners, or is it owned by a large out-of-state corporation? While there are some good large corporate dealerships, a large corporation typically does not have the same connection to the local community. Your locally owned dealership is typically genuinely concerned about maintaining a great reputation in their local area, is involved in local causes, and gives back to the community.
- The first impression: when you visit the dealership, do you get a good first impression? Is the salesperson responsive to your needs? Or are they dismissive, pushy, or uninformed? A good salesperson should be a good listener to their customers. The customer should feel like the salesperson is an ally in the car buying process. If not, check out other dealerships.
The quality of the dealership is key to a good sales experience. It is also the factor that usually receives the least attention. Do not be afraid to walk away and visit other dealers. In the end, be sure that you are buying from a dealership that you have been able to build trust with.
Final Considerations Before Buying a Vehicle
Buying a car can be a daunting experience. By using the factors talked about in this guide, we hope it makes the experience a little less intimidating. By doing your homework, examining your choices for vehicle, financing, and dealership upfront, you can reduce the likelihood of unexpected difficulties in the sales process and come out looking like a car buying pro!
And if you are looking for a used car in the Denver metro area, be sure to check out Mark’s Auto Sales! With over 37 years in business with a stellar reputation, we are one of the Denver metro area’s best used car dealerships.