Vehicle Buying Tutorial

Finding the Right Car for You

Buying a Car: Step 1 of 10

The first step to buying a car is to decide which car is right for you. With such a wide variety of options available, it may seem difficult to narrow down your search. But by doing some homework, you will find the car that fits perfectly with your lifestyle and budget. One of the first options to consider is whether to buy a new car or a used (pre-owned) car. There are advantages and disadvantages to both, but the decision usually comes down to price. Many buyers, often those interested in higher-end vehicles, choose a used vehicle because they feel they get a better deal. Your budget is going to be the biggest determining factor in your purchase, and a used purchase will undoubtedly give you a wider range of vehicles for consideration. For more information, see “How Much Can You Afford?” below.

The most important (but often most difficult) car-buying step is to take as much emotion as possible out of the decision. It is easy to let what’s visually appealing or trendy drive decision making. But allowing these factors to cloud your decision can lead you to buy a car you don’t need, or pay too much for it. Instead, focus on what you are really going to use your car for, and what features are most important to you. Here are a just a few items you should consider:

How much do you drive in an average year? Do you commute to work, or just zip around town? If you commute 20,000 miles or more every year, fuel economy will be an important factor to consider. If you just run errands locally, it will probably be less of an issue. Who travels in your car? Do you drive by yourself most of the time, or do you have kids or friends who travel with you? Because cars come in so many sizes, passenger space is usually a determining factor.

Do you need to haul a lot of cargo, or will you be doing any towing? If you carry a lot of gear on a regular basis, or tow your boat to the lake every weekend, you will probably need to consider a larger vehicle like a mini-van, truck, or SUV. If you do not, you may not need a vehicle of that size.

Do you need 4-wheel or all-wheel drive? If you live in an area that gets a lot of snow or go to the mountains on weekends, you will want to consider something with 4-wheel drive. But, if you venture into the great outdoors only once in a while, you will have many more options available with a 2-wheel drive vehicle.

As long as you take all your needs into account, make realistic determinations, and stay firm on your budget, you will have no problem finding a great car, truck, or SUV that will fit your lifestyle. There are many choices available, and doing your homework is the key to a satisfying car-buying experience. But this is the kind of research most of us enjoy, and the reward of owning a new car makes it all worthwhile!

How Much Can You Afford?

Buying a Vehicle: Step 2 of 10

Everyone has different priorities in life, and every person is willing to spend more on certain items than on others. But because cars tend to depreciate rather quickly, it is a good idea to keep your car payment within reason. A good rule of thumb to consider is keeping your maximum monthly payment at no more than 17% of your monthly take-home pay. Another perspective to consider is the total cost of ownership. This should include insurance costs, gas, and a repair budget. You can probably afford higher monthly payments if you are buying a car with low mileage because you should not have to make as many repairs. But, if you buy a car with high mileage and you are struggling to make payments, you are destined for disaster if it breaks down. You will also need to consider insurance premiums and depreciation. Sports cars are more expensive to insure than sedans, and certain vehicle brands tend to have significantly higher resale value. After you have done some calculations, you should have a pretty good idea about what you can afford. Remember to set a budget and stick to it. It is easy to be sold more car than you need, so adhering to a budget will keep you from buying more car than you can afford.

What is the Value of Your Current Vehicle?

Buying a Vehicle: Step 3 of 10

When it comes to getting the most value out of the trade-in or sale of your existing vehicle, it pays to do research first. The more you know about the current value of your vehicle, the better prepared you will be to negotiate. With the help of Kelley Blue Book or NADA, you can look up the estimated value of any used car or truck on the Internet. You will be asked to enter your entire vehicle’s information, including mileage, options, condition, and colors to get a specific price. Although you may love your car and believe it is worth a premium price, it is important to give it a realistic condition assessment to determine its true value. Evaluate it for flaws in body, paint, trim, glass, and lights, and take into account any rust or hail damage. With the interior, check the upholstery, carpet, and interior panels. Does the car smell of smoke or mold? Do all the power accessories (including air conditioning) work properly? Most importantly, do the engine, transmission, and steering function well? What is the condition of the suspension, frame, brakes and tires?

Once you have a good feel for your vehicle’s value, you can make the decision whether to trade it in or sell it yourself. If you are trading in your old car to a dealer, you probably will not get as much money as you would if you sell it yourself. But, it may be worth the difference in price to avoid the hassle of selling the car to a private party. Selling a car yourself requires strong negotiation skills, placing and paying for advertising, and a degree of concern for your personal and financial safety. A dealership trade-in saves these hassles along with time and may help you negotiate a better price on the vehicle you are purchasing.

If you make the decision to trade in your vehicle, there are tricks for getting the maximum value for your car if you are willing to do some legwork. Visit several dealerships and solicit bids for your vehicle. Inform the salesperson that your purchase of a new car will be contingent upon the amount he or she will pay for your trade-in, and be sure to state that you are shopping several dealerships for the best value. With extra effort, you may be able to boost the price you will get for your car by several hundred dollars. And, that is extra money you can put towards the new car you really want.

Locating the Car You Want

Buying a Vehicle: Step 4 of 10

By now you probably have a picture in your mind of the exact car you want to buy. But the more flexible you can be about the specifics of the car you want, the wider the range of cars you will find available for sale. Buyers who are firm on specific details may find fewer vehicles available and may also have less power when negotiating a purchase price.

Whatever vehicle you want, the information superhighway has made it easier to navigate your way to a new or used car without the hassle of driving all around town. With Internet access, you can shop for the exact car you want, including options, colors, and upgrades. Most dealerships list their inventories online, complete with color photographs so you can see the vehicle you are interested in. In addition, many dealerships list vehicles available at various car lots both in and out of state, giving the consumer even more inventory to choose from. Much of your Internet research will require telephone follow up, but you will save time by narrowing down your search before you dial the phone.

Pricing the Vehicle You Want to Buy

Buying a Vehicle: Step 5 of 10

In a highly competitive new car market, it is important for consumers to be confident they are paying the right price for the car they want. Once you declare your interest in buying a vehicle, the salesperson will often begin the negotiation process by declaring the manufacturer’s suggested retail price, or “sticker” price. If possible, negotiate up from the invoice price, not down from the sticker price. As successful negotiators know, the price the dealership is willing to sell the vehicle for is usually far below the sticker price. In the challenging game of negotiation, how do you know you have finally reached a fair price? Again, your best tool is the Internet. True Market Value (TMV) is the average price buyers pay for a certain type of car in their area. The research is based on actual sales figures, and TMV figures are adjusted for many factors, including options, geographic region, and the color of the vehicle.

Research what incentives, if any, are offered for the sale of the car you want to buy. The dealer web site has information on the latest incentives and rebates available. To come up with the final purchase price, take the TMV price and deduct the amount of the cash rebate. If you are using low-interest financing, such as an First Californian auto loan, you can use this final price to calculate your monthly payment by using First Californian’s Simple Loan Calculator.

Negotiating the Price

Buying a Vehicle: Step 6 of 10

As with other steps in the car-buying process, it is best to do your homework before you begin negotiating the price of a vehicle. This will also help you make a fact-based decision rather than an emotional one. If you really want to pay a rock-bottom price, use True Market Value as your guide and call three or more local dealers for bids. Then, take the lowest bid, call the other dealerships back, and ask if they can beat that price. Chances are good that they will. At some point, however, the negotiating ends and the dealer will give you a take-it-or-leave-it price.

Another powerful online tool for negotiating price is available on the Kelley Blue Book or NADA websites. You can get the price the dealer paid for the vehicle, not including any costs for advertising, destination charges, or special regional pricing.

You should know that a dealer who is faced with cutting his or her profits will most likely try to recoup that cost in another way. It is not just the selling price that determines a good deal – it is paying the lowest total out-the-door price. Be wary of add-ons recommended by the salesperson after you have settled on the price.

If you are uncomfortable with face-to-face negotiating at the dealership, buying a car on the Internet is an option you may want to consider. You no longer have to feel intimated by the atmosphere of the finance and insurance manager’s office. Internet salespeople will discuss price by email or telephone as they know this is the make-or-break factor in the decision of most Internet car buyers.

Closing the Deal

Buying a Vehicle: Step 7 of 10

At this stage, you should be happy with the price you have negotiated for your new car. But unfortunately, there are additional costs ahead. Besides the negotiated price, you will have to pay sales tax and various fees, which differ by state. If you are trading in a vehicle, have the dealer show you the price for your trade separate from the deal. This way, the dealer can’t disguise the amount offered on your trade into the final figure of your monthly payment. It is important to get the best possible price for the car, a reasonable monthly payment, and a good deal on your trade.

The salesperson can also help you estimate the total cost of the vehicle. Before you go to the dealership, ask the salesperson to send you a worksheet and invoice. In the comfort of your own house, without any pressure, you can review the figures at your own pace. Keep in mind, however, that some dealer costs will not appear on True Market Value invoice prices, so the actual price the dealer presents to you may differ. In general, the charges on the dealer’s invoice are non-negotiable.

But if extra fees such as “Delivery & Handling” or “Administrative Costs” are written into the contract, question the dealer. An unsatisfactory answer should be all that you need to ask for the item’s removal or take your business to another dealership.

Though you will want to avoid most dealer extras, you might want to consider three additional services offered by First Californian:

Guaranteed Auto Protection (GAP)
Major Mechanical Protection (MMP)
Debt Protection – First Californian’s ConsumerSafe Program

All three are available at First Californian for less than you would pay for similar policies at the dealership.

GAP – Purchase GAP if you owe more on the vehicle than it is worth. GAP protects you from the difference between what your insurance company says your vehicle is worth and what you actually owe the lender. And GAP will pay you up to $1,000 toward the purchase of a new vehicle if yours is stolen or totaled up to 125% loan to value.

MMP – If you plan to keep the vehicle for five years, consider purchasing MMP. MMP covers mechanical breakdown, and is usually less expensive than warranties offered at the dealership.

Debt Protection – ConsumerSafe is a voluntary loan-payment protection product that helps you get relief from the financial burden of delinquency, default, or death if a protected life event unexpectedly happens to you. And, simple eligibility requirements ease the enrollment process.

For more information about First Californian’s GAP, MMP and Debt Protection Programs, contact First Californian at 951.755.5572 or 877.992.8663 and speak to a loan officer who can explain your options.

Financing Your Vehicle

Buying a Vehicle: Step 8 of 10

If your contract looks good, it is time to pay for your new car. When financing at the dealership, it is important not to be caught off guard. There are a variety of options available for financing, so the more knowledge you have prior to signing your paperwork, the better your chances are to have a satisfying car-buying experience.

The following points can help you prepare for your time in the dealer’s financing office:

Know your credit score – Order a copy of your credit report from or contact the three major credit bureaus below, and look for items that may stand in the way of getting a good rate.

Otherwise, the following numbers and Web site addresses will help you check your credit:
Equifax: 1.800.685.1111
Experian: 1.888.397.3742
TransUnion: 1.800.916.8800

  • Research current interest rates – This way you will be assured you are getting a competitive rate.
  • Do not let the dealer “bundle” the deal – Treat the car-buying process as three separate negotiations – vehicle price, financing and trade-in value. Avoid misleading discussions, such as “how much can you afford to spend per month?” Focus on the APR, not the monthly payment.
  • Don’t be afraid to walk away – The buyer, not the seller, is the one in control of the process. If you feel pressured or out of your comfort zone, walk away.
  • Zero Percent Financing – With many auto manufacturers offering 0% financing on many popular models, it is not surprising that car buyers are drawn to such attractive rates. The purpose of teaser rates is to drive more business to the dealerships, but often these offers are not as attractive as they might seem. Variables like pricing and add-ons can change from dealership to dealership, but a few facts and restrictions typically apply:
  • Near-perfect credit is required to qualify
  • You may be required to sacrifice a manufacturer’s rebate
  • Shorter terms and large monthly payments are often required
  • 0% financing is usually limited on a number of models
  • You may be limited to dealer stock on hand

You may discover that by using First Californian’s low-rate financing and taking advantage of rebates, you will save more than you would with 0% financing and no rebates.

Auto loan terms typically range from 24 to 84 months. Different lengths of time can be arranged, if desired. The longer you take to pay off the loan, the lower the payments will be, but your total interest paid will be higher. In addition, the amount of your monthly payment will depend on the interest rate, the length of the loan, and the amount of your down payment. First Californian’s loan calculator can help you estimate your monthly payment. While you are paying off the balance you owe on your car, the lending institution will hold the car’s title. Once all the payments are made, the car’s title is sent to you, and the car is all yours at last!

Reviewing and Signing the Paperwork

Buying a Vehicle: Step 9 of 10

Once the paperwork is complete and the pen is in your hand, you are ready to sign on the dotted line. For well-prepared car buyers, this moment is more fulfilling than frightening. But it is good to keep in mind that the seemingly endless array of forms is your last chance to confirm or reject purchase details and financing commitments.

An aggressive finance and insurance manager might try to sell you additional items such as fabric protection, alarms, pin-striping, window tinting, chrome-plated wheels, or custom floor mats. These dealer add-ons make it harder to get a fair deal on a new car. Be careful that these items have not been added into your contract without your knowledge. Some buyers want them and are willing to pay for them, but usually the add-ons have little value and are overpriced. If the upgrades are something you really want, you can always add them at a later date, and usually at a much better price.

If you are considering the purchase of Guaranteed Auto Protection (GAP), an extended warranty, Major Mechanical Protection, or Debt Protection, ask the dealer if you can add such options at a later date, and what the deadline will be. This will allow you time to do price research and compare them with the Protection products available at First Californian.

If the dealer has already presented you with a worksheet for your deal, then the contract is simply a formality. Compare the numbers to be sure they match the worksheet and that no numbers have been added. There are several documents involved, including those that register your new car and transfer ownership of your trade-in. If you do not understand what you are signing and what it means, it is your responsibility to ask. Car buying is a serious commitment and it is the Finance and Insurance Manager’s job to make sure you are comfortable with your purchase. Take your time—once the papers are signed, there’s no going back.

Inspecting and Taking Ownership of Your Vehicle

Buying a Vehicle: Step 10 of 10

Congratulations – you have just purchased a new car! Now it is your responsibility to inspect it closely to ensure that everything is in working condition. If you catch problems before driving off the lot, the dealer is more likely to make any necessary repairs.

Make sure to walk around the vehicle and look for any scratches in the paint, wheel dents, and body dings. If your contract includes floor mats, make sure they are included. Test any automatic windows, test the air conditioning and heating, and check the stereo. If you find anything missing or broken, ask for a “Due Bill” that puts the work order in writing. That way, you can come back later and get the work done for no additional charge.

You will enjoy your purchase more knowing you have done your research well and have negotiated a good deal. And enjoy yourself—there is nothing like the exhilaration of driving a new car!

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