How not to buy a Car

This is something on a "lest I forget" note; bought a car in haste, and went through a little bit of heart ache. The silver lining is the experience and knowledge gained. So, here it is, in black and white.

This post is specific to buying a new car from a dealer. The process may work differently for leasing, buying a used from a dealer or an individual. This post is also not about researching the vehicle itself, i.e. the technical research. It is to describe what comes after you've made up your mind regarding a vehicle or narrowed it down to a few options.

MOST IMPORTANT THING: There are 3 levels of price addition above and beyond what is mentioned in the website. These additional levels of pricing are clearly mentioned in the final purchase contract that you sign with the dealer i.e the "Retail Installment Sale Contract". So the 1 + 3 levels of pricing:

1. MSRP on website: Manufacturer suggested Retail Price.

2. Dealer's asking Price: 1 + accessories

3. Total Cash Price: 2 + Sales tax + Service Plans + Gap Insurance + other minor fees.

4. Total Sale Price = Down Payment + (3 - Down payment) * APR.

If Price 1 is say around $27,000 Price 4 could be around $50,000. Once again, these levels of pricing are prominently and lucidly dealt with in the sale contract, read(peruse) before signing.

- Regarding 1: MSRP price is usually a gross oversimplification. The price without even the most basic accessories like automatic transmission and power windows and locks. Most dealers wouldn't even have cars like that even if someone didn't want those accessories.

- Regarding 2: This is the price with accessories can be up to $10,000 more than 1. Research that can be done here is getting quotes (Preferably emailed or hard copy, not verbal) from different dealers.

The aim here isn't to flaunt your bargaining skills. Most vehicles with the same accessories will cost almost the same with all dealers. Instead this research gives two other pieces of information:

a. If you had Price 1 in mind and if 2 >> 1, then settle for a cheaper brand.

b. You can get the features and color that you want. You may not care for sun/moon roof and blind spot sensors. You may like a rear windshield wiper and heated seats.

Be ready with the specific set of features you want and tell this to the dealer, before actually visiting the dealer physically.

- Regarding 3: Sales Tax is unavoidable, Gap Insurance is a good idea. You may be offered an extended warranty and/or a maintenance plan. They are optional. Here are the arguments for and against them:

a. AGAINST: almost unanimous opinion in all online forums is that extended warranties are just a means of boosting dealer profit and nothing else, regardless of the product being sold.

b. FOR: What if something goes wrong with the vehicle? The plan gives you peace of mind.

c. AGAINST: Almost any manufacturer will give you a 3-5 year warranty, Insurance will cover you for accidents.

d. FOR: Your interest APR will reduce.

e. AGAINST: But you still end up paying much more. The cost without the additional plan and with the higher interest and the periodic service costs is still lower.

Bottom line: A maintenance plan may be a good idea because it saves you the servicing cost, try avoiding extended warranty or choose a car where manufacturer warranty is 5+ years or 100,00 miles.

Regarding 4: The interest or APR that you pay is the part where you gain nothing at all in return (i.e other than the loan itself). Try reducing it to a minimum. If your credit history is good, then you must get a good APR i.e. around 5%. Some tips:

a. Watch out for APR offers in Ads.

b. Gap insurance + service plans can reduce the apr.

c. Account with the bank providing the loan and direct debit from your account can also reduce the apr.

REFINANCING & CANCELLING SERVICES:

For those of you who were as ill informed as I as was last month, Refinancing a car loan is paying of the whole amount using another bank and getting into an installment plan with the new bank. You could do this when the new bank offers you a much better interest rate.

You can absolutely refinance the car loan and you can cancel the additional services and plans immediately. Both of these things are explicitly mentioned in the Purchase contract and service contract documents at the back.

CATCH 1: As mentioned earlier, the terms of the loan may be dependent on the service plans you take up. After all it is the bank who owns the car until you pay them off. So they wouldn't let you cancel the services until you pay off or refinance the loan.

CATCH 2: Now, the refinancing(new) bank will refinance your car only for its market value(Price 2 - 10%). My own bank was willing to do it for 125% of the car's market value. This may not equal what you still owe the bank i.e. Price 3 - down payment.

Miscellaneous Tip:

Don't buy anything big right before a holiday lock down. You will have hell if you want to return it or change the order.