The low monthly payments and the big rebates are out in force again. Dealerships are financing at low rates and/or giving out 2,000 to 5,000 rebates to entice you to come in and buy a new car. Remember, their intention is to not actually give you something for free without getting something on the back-end.
Let’s review my top car buying tips:
(1) Compare the benefits of the rebate versus the low interest rate
Dealerships will entice you with either a rock bottom low interest rate or a big fat rebate on the front-end. It is never their intention to give you both (unless they can figure out another way to make up their “gift” to you.) Evaluating the two is real easy. If you didn’t follow my most important advice (see tip 2) and get pre-qualified before going into the dealership, you will depend on the finance department to arrange for a loan.
Compare the total cost of the car after paying it off with the normal interest rate plus the rebate versus the low interest rate and no rebate. That will tell you which one is the better deal.
(2) Get pre-qualified for financing before going to the dealership
To me, this is the most important car buying tip. It has been my experience that you don’t get the best interest rate at the dealership. There are too many people making money off of your interest rate. Therefore the rate is higher.
My greatest loan source is the Pentagon Federal Credit Union (http://www.penfed.org/). You can get 4.99% up to 72 months on a new and used car loan (up to 60 months on used car). Now take that rate into the dealership and the rebate. That could be an awesome deal.
(3) Look for a new car that is the prior year
This is one of the greatest ways to get a good deal. If you were looking today for a car, look for an ‘07 instead of an ‘08. If a car dealer still has an ‘07 on their lot, they are probably very motivated to get that car sold. Better yet, if the model changed in any way in ‘08, that ‘07 becomes an even better deal.
(4) Look for a demo
Demos are one of the best buys you can get. The dealership takes the depreciation hit because of the miles. Yes, you are buying a new car with some miles. However, it is that initial depreciation hit that costs you so much money. Plus, dealerships can get pretty motivated if they have a demo sitting on the lot that is not selling.
(5) Research ahead of time
If you are taking my advice in #4, then go to http://www.autotrader.com/ and find comparable cars that you want with low miles. This will tell you how the market is valuing the car and give you a baseline as to what is an acceptable deal.
Buying a car the wrong way can be a huge mistake. Make sure you prepare well before you start the process.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.
