Buying a Car
Second to a home, the purchase of an automobile will probably be your next largest financial investment. The car buying process is amazing; you can walk into a car dealership and often within an hour drive away in an automobile. The first thing you should do when buying a car is take your time. Remember, the new pretty red car that you just have to have will be there next week (or dealers can often get another just like it). Since most people will usually buy a used car the first time, I will share the process of buying a used as well as a new automobile.

Buying a Car Steps
Several steps are involved in buying a car. Since buying a car is a large financial decision, it is recommended that you visit your local library or surf the Internet to gather additional information about the process. This section will briefly describe some of the common steps such as:

• Determining Your Budget
  
• Identifying Your Wants and Needs
  
• Financing the Purchase
  
• Where to Purchase a Car
  
• Understanding Car Dealerships
  

Determining Your Budget
The first thing you should do before buying a car is determine your budget. Can you really afford to buy a car? Your budget will ultimately determine the type of car that you can afford. Your choices may be limited if you just turned sweet-16, have $500 in the bank, and work earning minimum wage. For example, working 20 hours a week making $6.00 an hour will yield you a gross income (before taxes and social security withholdings) of $120 a week/$480 a month/$5,760 a year. Do you want to work one year of your life just to own a car? Many people do. If you had the previous scenario and bought a $6,000 car and spread the cost out over 3 years (36 months) at an interest rate of 9.9%, your monthly payment would be $194. This means you would actually end up paying $6,984 for that car after interest charges (and that does not include taxes, licenses, insurance, maintenance, or fuel). The first thing you should do is determine your budget. This is restated because it is extremely important to know what you can afford. The web page on Car Expenses will detail the total financial cost of owning and maintaining a vehicle.

Identifying Your Wants and Needs
Why do you need an automobile? This is an easy question to answer, right? You need to be able to get from place to place. Now think again. Do you need this vehicle to get to work? Do you need it for cruising on Saturday night? Automobiles are extremely expensive to own and operate. Do you need a car or do you want one? Either way, you will probably own one someday. If you do decide to be in the minority and use mass transit (e.g., bus or train) you will be saving money and natural resources (using mass transit is much more environmentally friendly). However, the reality is that most families in the United States travel by car. Maybe once gasoline becomes extremely expensive more people will start to use mass transit. Until then, most people will probably own an automobile in the United States. Getting wants and needs confused is easy. Why else would people be driving around Chevrolet Corvettes, Dodge Vipers, and Hummers? Sure, they provide reliable transportation, but at what cost? No offense to anyone most of us would have a difficult time turning down riding in a nice sports car or the ultimate SUV. Different types of cars provide for different needs and wants. When deciding on an automobile you have many choices that can fulfill your wants and needs: pickups, sport-utility vehicles, compact cars, mid-size cars, full-size cars, minivans, full-size vans, or sports cars.

Financing the Purchase
If you cannot afford a vehicle outright, you may have to make monthly payments. If this is the case, you should go to several financial institutions to get quotes about financing information and loan qualification. If you do not have any credit or are under 18, you will probably need to have someone cosign the loan with you (that means they are responsible for the loan if you default). If you have had a loan, you should request a personal credit report. A credit report will show your credit history. A bank will check your credit report to quote you an interest rate. Check current interest rates at several banks on automobile loans. Depending on the economy, financial institution, and your credit history, interest rates commonly range from 3.9 to 15.9%. However, in response to recessions, automotive manufacturers may offer interest free (0.0%) or low (0.9% to 2.9%) interest loans. The interest rate that you ultimately pay makes a big difference on the overall price you pay for your vehicle. For example, on a 36-month $6,000 loan at 3.9% you will pay $6,372 for your vehicle with a monthly payment of $177. However, changing to a 36-month $6,000 loan at 15.9% you will end up paying $7,596 for the same purchase with a monthly payment of $211. Understanding interest rates is a necessity to financial success. Once you have researched and mastered this, you will better understand what you will really be able to afford.

Where to Purchase a Car
Several places exist for you to buy a vehicle. The most common are private-party sellers, used car lots, new car lots, and on the Internet. Some people try to sell their used car themselves - they are called private-party sellers. People sell their car mainly for three reasons: 1) they cannot afford the car anymore; 2) they decide to upgrade to a newer car; or, 3) their car is a "lemon" and they do not want to deal with it anymore. Try to determine why someone is selling their "good" used car. This may save you thousands in future repairs. Private-parties will sell their cars using the newspaper, automotive publications, signs in the car's windows, or the Internet. A used car lot is another place to find a car. There are thousands of used car dealerships all across the nation. When purchasing a vehicle from a used car lot make sure you have done your homework. Determine the car's historical service records and thoroughly check the car over. When in the market for a new car, people will commonly go to a car dealership. New cars offer the satisfaction of a warranty. Another place to buy new or used cars is on the Internet. Hundreds of websites out there offer cars to consumers. If you do not know about the business that you are dealing with, check their record with the Better Business Bureau.

Understanding Car Dealerships
One thing you should remember when buying a new car is that the manufacturer makes thousands of each model every year. The one on the lot is not the only one out there. When buying a new car, check out the previous model's history. Does the car have records of reliability? Does it receive good consumer remarks? Sometimes buying a car that has just come out with substantial model changes is not a good idea. The "bugs" may not have been worked out. You should also determine what accessories you want on your vehicle. Often dealerships will try to add-on dealer installed items. Most of the time these items are overpriced. Check out other accessory service installers in the area if you want such things as bug deflectors or running boards on your new vehicle. If you are handy, buy the accessories and install them yourself. Another thing you should be aware of is the difference between the Manufacturer's Suggested Retail Price (MSRP), dealer invoice, and dealer cost. The MSRP is commonly called the sticker price. Few automotive models sell at MSRP. In the past, dealer invoice was the price car dealerships paid for their vehicles. But today, most dealerships receive factory to dealer incentives and factory holdbacks. The dealer invoice price is helpful and is relatively easy to get your hands on. Magazines, books, and Internet sites have dealer invoice prices. Dealer cost is the amount that the dealer will actually pay for the vehicle after holdbacks and incentives. Commonly 2-3% (an average factory holdback) can be estimated off the dealer invoice to establish the dealer's actual cost. For example, a car may have an MSRP sticker price of $34,000, a dealer invoice of $30,000, and a dealer cost of $29,100. What you want to determine is how much you want the dealership to profit from your purchase. You should end up paying from $250 below dealer invoice to $500 above dealer invoice depending upon the model. If you can determine the actual dealer cost (Dealer Cost = Dealer Invoice - Factory Holdback - Factory Incentives) it is reasonable and fair to offer 4% more than dealer cost. Using the previous example, your reasonable offer for that vehicle would be $30,264. This is $3,736 off sticker. However, most dealerships would be happy with that deal. Being educated about the dealer's cost will give you an edge in negotiating a deal. Negotiate up from the dealer cost, not down from the MSRP. Remember you have the advantage. There are thousands of the same car at other dealerships and someone will sell you the car you want at a reasonable price.

Completing Comparables
You should complete comparables whether you are trying to sell your car on your own or trying to figure out if the car you are looking at is a good deal. Many publications are available in book form or on the Internet. Some examples include: Kelley Blue Book www.kbb.com, NADA www.nada.com, and Edmunds www.edmunds.com. You can also look at other individuals trying to sell a car similar to yours. However, you do need to be reasonable. Just because your neighbor sold her car for $1000 more than you are asking, it may be due to several factors such as paint quality, interior condition, or mileage on the vehicle.

Summary
Automobiles are becoming more and more expensive each year. Knowing your budget, identifying your wants and needs, identifying ways to finance the deal, and identifying the abundant places to purchase a car will give you a step up. Remember that this is a large financial purchase - take your time, complete research, and be educated about the car buying process.

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