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Module 15

How to Buy a Car

First things first:  How are you going to pay for it?

You may get a little starry-eyed during the long training period before you can get your license, and start dreaming about having your very own car.  If that happens, you need to be aware that—unless you are fortunate enough to be among the very few exceptions—for most teens, it’s quite a challenge to buy their own car.

For many, the thought of how they’re going to handle the costs has never crossed their mind—not in a realistic way, anyhow.  We say “costs,” in the plural because the cost of the car is only the beginning.  And it’s not only gas expense you need to be thinking of—there are plenty of maintenance expenses as well as yearly registration fees and the required insurance that can drain your wallet pretty quickly:

So, to begin at the beginning:  You have to answer these two basic questions:
  1. How I am going to pay for the car—parents, me, or both?
  2. What is my projected budget—not only for the purchase but all the other expenses?

In case you’re thinking, “I’m going to be independent—I’ll just get a loan from the bank,” you can forget that idea until you turn 18, and even then, it’s hard to get a loan like that. Here’s the hard truth: Nevada law prohibits any minor under the age of 18 from entering into contracts of any kind, and a bank loan (or a loan from any other kind of financing company) is a contract.

That’s why the most common method for teens under the age of 18 to get a car is to have their parents buy it for them. Of course, your parents could choose to buy it for you as a gift, but perhaps more frequently, there will be an informal family loan arrangement.

In any case, a purchase for the under-18 teen (unless it’s all-cash and thus no loan is involved) will require that the loan, and the official certificate of ownership (the “title”) of the car be in the parents’ name, as must the registration and insurance. When the teen turns 18, the parents can “sell” the car to him/her to change ownership.

If outside-the-family financing is involved, the teen, once he or she is 18, could theoretically now get a conventional car loan from a bank or credit union in their own name; we say “theoretically,” because that kind of financing, as mentioned above, would be hard to get on his or her own.

One of the reasons for this is that when you apply for a loan, you are generally going to need enough ready cash to make a down payment, which is figured as a percentage of the total cost of the car.  For a used car, this can average about 10%  But that’s only the first, and possibly the easiest, of the hurdles.

A much greater obstacle is the fact that banks, credit unions, and other financial organizations generally consider a loan applicant’s credit history in order to be confident that any loan they make will be paid back.  A credit history is a list of all kinds of debts a person has had in the past, ranging from their monthly credit card purchases to the payments on car loans and the mortgage on their house.

The importance of that history is that it not only lists the debts the person took on himself, but whether they were paid on time and in full—and most people who just turned 18 haven’t had a chance to build such a history.

And even if you do have a credit history, you must still have a job or some other means of obtaining sufficient income for the lender to approve the loan, typically $1500 per month before taxes. Importantly, this income must be verifiable through pay stubs or tax returns.  This income requirement is another reason why the co-signer option is so popular, because this requirement can be waived if the co-signer makes enough money.

So, in most cases, parents would have to co-sign. This is a good way for young adults to begin building credit (and a credit history) for themselves.

Once you’ve decided how you’re going to be paying for the car and its upkeep, be realistic about where you will get the money each month and how much you (and whoever else is involved) really can afford.  Once you come up with an approximate total, figure an additional 10-15% for inflation, increases in gas or car insurance and unexpected events.

When you’ve got your method of financing and your budget figured out, whew!  Now you can focus on finding out what’s available in your price range, and the process of whittling down the choices— and finally, the actual purchasing process.

Now, it’s time for some serious research. That is definitely the way to ensure that you get the best deal possible.  Where to start your research?  That’s easy.  You’ve got to determine what kind of car you want, starting from whether you want a car,—if so, what size— or maybe you’re thinking of a pickup, a minivan, or an SUV.

Let’s look at some of the possibilities:

A car, SUV, truck, or minivan needs to basically do one thing: get you from point A to point B. What kind of car can do this most efficiently for you? You need to consider what you will be using the vehicle for.

A sports vehicle may be a fun choice, and great for those who like to camp and go off-roading. Judging from the number of SUVs sold in North America, that seems like pretty much a third of the population. But an SUV may not be the best choice for a new driver—or for that matter, any teen, experienced driver or not—because they are big and use a lot of gas.

A pickup truck with a crew cab can be a good choice for the driver who needs both the ability to get around easily and to haul loads.

Do you want a fuel-efficient car?

Hybrid cars are the newest form of car designed to be fuel-efficient. They have two motors, one gas and one electric. During braking, the electric motor generates electricity, which is stored and used to run the car’s lights, etc. This can save gas, but not necessarily so much that you save enough money in gas to make up for the higher price of the car.

But for the environmentally conscious, or someone who has to drive a lot or far distances, or those who just like the look of the car, a hybrid car can be great. The Toyota Prius, for example, can get up to 60 miles to the gallon. This can work out to savings in the long run, depending on how long you keep the car.

You might want to visit www.fueleconomy.gov to find cars that are fuel-efficient.

Other things  to consider

Other items you want to think about in choosing a car are liability (how much will the insurance cost?) prestige, cargo space, and perhaps color. It really depends on what’s important to you and what you need—as well as what you can afford, which for some new drivers may be the most crucial factor of all.

New or used?

Another important decision which you will need to make is whether to buy a new or used car. This is a personal decision, based on a variety of factors, including comfort, financing, trade-ins, and price.  However, all experts agree on this: the best way to save money is to buy used. A new car loses almost half its value in the first five years.

What are teenagers driving today?

Here’s a reality check for you:  According to a nationwide study of teenage licensed drivers in 2014, a huge majority (83%) of the vehicles for them were used when purchased— which was right after they got their license or later.  Most often, teens’ cars (41%) were cars in the model years 2000-2006.

As to the types of vehicles they were driving, here are the statistics:  27% were driving a midsize or large car, 22% an SUV, 20% a mini or small car, 14% a pickup, 6% a minivan, and only 1% a sports car.
Next up:  price!

Once you know what car you want, research how much that car is selling for. There are websites that will tell you the dealer’s cost for that automobile. You can use this information, even if you do not intend to buy from a dealership, because it allows you to bargain from the dealer’s invoice price, and not the “sticker” price, or the price that a private party wants to sell it for.

The point to remember here is that you need to know this amount before you even start looking. Then do your research. Check websites, dealerships, and Consumer Reports magazine. Look for reliability and repair ratings as well as safety advice. The website www.edmunds.com offers pricing information and advice on buying a used car.

Dealing with a dealer

If you are considering buying from a car dealer, keep in mind the kind of car you want when you are there. It’s easy to lose sight of your original goals when you get into conversation with the dealership’s sales representative, who might try to steer you towards a more expensive version of the car you had in mind, or even a different car altogether if you are not specific about what you want.

When dealing with car salesman it is important to remember two things. The first is that they are probably as honest as the next guy. Their work is at least partially based on their reputations, so they won’t go out of their way to put you at a disadvantage or to be unfair. However, they are paid on commission, so their goals are not the same as yours.  They do want you to be happy, though, so if you stay firm, you will get what you want.

Check with the other dealerships that offer the car brand and model you have in mind, so that    you can make the one you’re sitting with at the moment aware that you’ve looked around. Let the different dealerships compete to offer you the best deal.

Tips on Buying Used

Since we haven’t come across very many new drivers who are in a position to buy a new car, we believe you need to know some of the important points to be careful about when considering a used car.

All the deals being offered on new cars lately has helped drive down the price of used cars, and you can get some good deals.  For example, the price of a two-year-old car may be 30% less than it was when it was brand new, and will probably still be under warranty

Again, the most important thing is to concentrate on the vehicle that you want. Don’t get caught up in the deals being offered – you’ll end up choosing the car they want to sell you, not the car you want to own.

If you are buying a used car, it is important to do a complete visual inspection to ensure that you are not looking at and wasting your time on a car that is a complete lemon. Just “kicking the tires” is not enough.

And another word of caution:  avoid car dealers who advertise their business as “buy-here-pay-here”—which means they not only sell the car, but they arrange the financing for you.  That may sound like a sweet deal to you, but their reputation is that they sell older cars, charge high interest rates, and if a customer makes a late payment or misses one, they–unlike reputable finance companies–will not try to work with you to get back on track with your payments, but will repossess immediately. In fact, it is said that much of their business is selling, repossessing, and reselling the very same cars.

A visual inspection can be enough to steer you away from a bad deal. It should not replace a proper inspection by a qualified mechanic, but the visual inspection can tell you if you should continue to that point.

Examine the car carefully yourself using an inspection checklist. You can find a checklist in many of the magazine articles, books and Internet sites that deal with buying a used car.  Carfax.com is one of these.

The first thing to consider is whether the odometer is reasonable. The average car is driven about 15,000 miles each year. Now, the world may be filled with little old ladies who only used their car to drive to church on Sundays, but there are also those who will use a tool of some kind to roll back the odometer (which is illegal) to a lower number of miles than what the true odometer reading shows.

Odometer rollback is an old trick to fool the prospective buyer and try to get a higher price. Every year, American car buyers lose over $1 billion to odometer fraud, according to the National Highway Traffic Safety Administration (NHTSA).  And the digital odometer in newer model cars has not helped prevent it, according to some experts who say it is, if anything, easier to manipulate than the older analog model.  On average, 50,000 miles are rolled back in these crimes, which are considered a felony.

If the mileage seems low for a car you’re considering, check to see if the dashboard shows any sign of tampering, like scratches or missing or mismatched screws.

Check the wear of the driver’s seat and floor mat as well as the steering wheel and pedals. Does the amount of wear seem to match the reported mileage? Try to find an oil change sticker and see if the information on it matches the odometer.

Check for rust under the wheel well, and anywhere else on the car. Make sure the tires are still in good condition, and will last until you can afford to replace them, at least. Sit in the car, and check for wear and tear on the upholstery, as well as for signs that someone smoked in the car.

Next, you should look for signs that the vehicle has had bodywork done. These signs include paint splatter or over spray in the seams between panels, areas where the paint doesn’t match or feels rough to the touch, and bumps, dents, or ripples in the paint. Recent bodywork is evidence that the car has been in an accident

Every vehicle has a unique vehicle identification number (VIN). You can use this number to obtain a vehicle history report. This report will be able to tell you the vehicle’s complete history, including its place of assembly, accident, repair, and odometer history, whether the vehicle has been leased or used as a rental car or taxi and whether there is a lien placed against it.

Before purchasing the report, however, it is a good idea to check to see if you have the correct VIN (the unique vehicle identification number placed in every vehicle by the manufacturer). The VIN can be found in three places, on the vehicle registration card, on the bottom of the windshield on the driver’s side and on the manufacturer’s label, which is usually found on the driver’s side door or door jam. Check that the VIN is in all three places and is the same. Also, check to see if any of the labels show signs of tampering. A missing or altered VIN is a sign that the vehicle may be stolen.

And now, if everything checks out so far, it’s time for a test drive

The Test Drive

Before you buy a car, you want to make sure you will be comfortable driving the car. Do not let yourself be distracted by the salesperson, who may have come along for the ride. Make sure the car will actually be comfortable year round – check the air conditioning and the heating systems. How’s this for a “What Not to Do “story:

 “Once I bought a used car in August, and never thought to test the rear defroster. Guess what? Come November, I found out it didn’t work…”

Moral of the story:  If you’re shopping in the summer, don’t forget to check the heater. And if it’s cold as ice outside, still turn that air on full blast and make sure it works!

Don’t assume that something that is right now a minor problem won’t become a huge annoyance once you are driving this car on a daily basis.

You want to test the braking system by braking in several conditions, as well as testing the turning radius of the car. Make sure the car drives smoothly and you can easily see around the car – huge blind spots can make driving much less comfortable in the long run. Try parking the car, to make sure you will be able to do so easily and smoothly in your own parking spot at work or at home.

Try to see how the car performs in traffic. Does it start and stop easily? Can you make both left and right turns tightly?

Being sure that the car will be comfortable for you all year round is an important consideration in a car. You are spending far too much money to settle for something which “you’ll get used to,” and you don’t want to end up regretting your purchase and wishing you’d bought something else.

Get A Vehicle Inspection

Once you’ve looked over your used vehicle, inspected it yourself, test driven it, and negotiated a price, you may think you are done and the only thing you have left to do is sign next to the little post it sticky -and drive away with your practical “new-to you” car.

Before you drive away, or sign anything, make sure that your car purchase is conditional on the car passing a vehicle inspection by an independent mechanic. If you can’t take the vehicle to the mechanic, automobile associations often have mechanics who will travel to the car and inspect it at the dealership or the private seller’s home. This inspection can cost between $75 to $100, so this should be one of your last steps in purchasing a car – you don’t want to spend $100 on every car you look at.

An independent mechanic can make certain that the car is actually in good shape. He or she might find small concerns with the car – brake pads needing to be replaced soon, or a worn belt. This may allow you to go back and renegotiate the price of the car, perhaps deducting some of the repair costs, or having the dealer do the repairs. If the dealer does the repairs, you may wish to get another vehicle inspection after he or she is done.

So in your deal with a dealer, or while talking to a private seller, make sure it is known and written down that the deal is dependent upon a vehicle inspection.

Have a clause added to the deal that is worded something like this:  “This deal is contingent upon an inspection by mechanic Bob and my accepting of that vehicle inspection.” If the dealer will not accept this clause, simply do not sign the deal until the vehicle inspection has been done.

If the dealer or seller refuses a vehicle inspection by an independent mechanic, walk away. Better yet, run away.

Also be willing to walk away from the car if the results of the vehicle inspection are not good. You do not want to spend the next few years with a car that breaks down on the way to work.

Buying from an individual

Whether you learned about the car from a classified, or Craigslist or from someone you know, the same advice provided above applies here: just as for a car available for sale at a dealership, you also can ask the private seller if you can have the vehicle inspected by your mechanic. If he/she says no… beware. No matter how nice the car appears, something fishy is going on.

If they don’t know you, they may be concerned that if they give you the key to the car to take it to the mechanic, you might just run off with the car. It may seem silly to you,…if you wanted to steal a car, why would you come to talk with the owner first and let them see your face?  However, you can easily deal with this suspicious seller by either agreeing that they come along with you to see the mechanic, or by leaving something that belongs to you with them, so that you will have to come back to pick it up.

Now, a private sale likely will be on an “as is” basis, unless your purchase agreement with the seller specifically states otherwise. A simple “bill of sale” is often used, where the owner states that he/she has sold the car to the named buyer, for such-and-such a price, and signs and dates it.

However, if you have closed the deal with a written contract that has certain conditions in it, the seller has to live up to the contract. (Remember, however, only someone 18 years of older may enter into a contract legally),  The car also may be covered by a manufacturer’s warranty or a separately purchased service contract. But that doesn’t mean that the warranty and service contract are transferable. Plus, other limits or costs may apply. Before you buy the car, ask if it’s still under warranty or service contract, and if it is, review that paperwork carefully.

So again, whether you end up buying a used car from a dealer, a co-worker, or a neighbor, follow the tips above to be safe and not sorry.

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