What You Need to Know Before Buying

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An Introduction to Vehicle Shopping for First Time Buyers

Automobiles are a significant investment. In most cases, you're securing financing you will spend years paying back, investing in your primary mode of transportation for years to come. You have to do everything you can to make your choice the best choice. That means you need to be as informed as possible before you start looking. The following sections in this article will take you through each of the major purchasing steps, including some considerations you may not have thought of if you haven't purchased a vehicle in the recent past.

Budget Considerations

Determining your Price Range

The first thing you need to know is what your potential budget is. The primary factor here is how much you can afford to pay each month. Determine this amount based on your own personal finances -- everyone will have a different figure based on their income and expenses. Once you have this number, multiply it by 36, 48 or 60, which is the number of months for three, four and five year terms.

To this total, you need to add what you will be able to put forward as a down payment. If you have an older trade in, you will add this number as well. The trade-in value may not be much, depending on the age, make and model. It will factor towards your down payment.

This number still needs some tweaking to finish. You will still need to pay financing charges and, depending on your state, sales tax. From your number, subtract twelve to twenty percent, with twenty being the most expensive scenario. Once you have done so, the number you come up with will be the general price range you can afford. Keep in mind that you will be able to negotiate somewhat with the seller, which increases your price range slightly.

As an example:

  • $400 monthly payment available
  • $3,000 available for down payment
  • $8,000 available trade-in value
  • Three Year: $25,400 Four Year: $30,200 Five Year: $35,000
  • Subtract taxes and financing at 15 percent: $21,590, $25,670, and $29,750
  • Available price range: $22,000 - $30,000

We offer a variety of tools that will calculate your price range with a few extra variables, if you choose that route. It is useful to know what information is relevant, however. Make sure you don't over-estimate your price range simply to buy a more expensive automobile! You have to be able to afford fuel, insurance and other life expenses as well.

As a special note, make sure you look up what your trade-in value is. One of the main ways that a dealership profits off you is by offering you below book. By knowing the value coming in to negotiations, you know when they try to low-ball you. Check both the Kelley Blue Book and the NADA price guide for an idea of value.

Knowing your Credit History

Before you search for a vehicle, you should first know what you look like to lending institutions. They are going to want to check your credit history, so you should pull your own history so you know what to expect. If there are any issues or questions that may arise, you should know how to answer them.

Your credit history is primarily stored with three reporting agencies: Experian, Equifax and TransUnion. Any other credit report service will charge you an exorbitant fee in order to pull the information from these companies. Fortunately, you can get your credit history directly from each company for a minimal fee. It does not hurt your score when you pull your report, and it will leave you more informed than before. You are also entitled to get a free credit report from each service at AnnualCreditReport.com.

Why does your credit score matter? Dealerships and financial agencies look for anything that will indicate you may have issues paying for your purchase. If you have a poor credit score, you are likely to face higher interest rates and less room negotiating price. Most of the best offers advertised on television and the Internet only apply to people with excellent credit scores.

Picking your Vehicle

If you go shopping with nothing in mind, you are more than likely going to walk away with nothing. If not, chances are you will be convinced to buy something that doesn't quite suit you. You never know what a salesman is going to push to you. What might seem like a good idea at the time often turns out to be ill suited to your needs. To prevent this, it is best to do your research before you visit a lot. Here are some general need indicators.

  • If you are single, like sporty cars, want to make a statement about your lifestyle and have virtually no need to haul cargo or passengers, a convertible or coupe may be perfect for you. They have limited cargo space and often only sit two people at a time.
  • If you routinely carry more than two people, or if you have children on the way, you might want a four-door sedan. They are best for small families. If you have more than two or three children, you will probably want to go for a more spacious choice.
  • If you have a small family but also tend to carry cargo -- or large loads of groceries -- you might want to consider a hatchback. They have a bad mental reputation among Americans, but they are growing more stylish by the year. They are also conveniently large without being heavy like SUVs, which means they have better fuel economy than their larger brethren.
  • One step up from the capacity of the hatchback, without the oversized requirements of an SUV, a station wagon fits the bill. Station wagons also have a significant negative image, but modern station wagons don't even resemble the wagons of old. New models have amazing capacity and fuel economy, combining the best aspects of cars and SUVs.
  • If you have a large family, tow a trailer occasionally and like a wide visibility, you may want to opt for a SUV or a crossover. They have a higher ground clearance, which is helpful for people who live out of the way, where you have to travel unpaved roads -- especially in the winter, where snow becomes an issue. The primary drawback is fuel economy, which is getting better every year -- especially with deisel hybrids.
  • A minivan or a van is perfect for families of six, seven or more passengers. They have the capacity for large families and for the large amounts of cargo such families need to transport on occasion. Some of the more recent variations even have decent fuel economy and are a pleasure to drive.
  • If you don't have passengers to accommodate but haul a lot of cargo, you will want to go with a pickup truck of some kind. This is best for various contractors and workers in the construction field.

Category type is just one concern. You also have to consider the size within that category and many of the extras that a salesman may try to sell you.

What size vehicle should you go for? Chances are good that you'll be pleased with a smaller one, as they are typically just as safe as larger ones, if not safer. They are more agile and lighter, which means they stop faster and can avoid accidents. They also get better fuel economy than their larger cousins do, though of course the make and model affect that as well. Many small ones have just as much space inside as larger ones. While that may not translate into carrying capacity, it does wonders for the comfort of larger people.

When it comes to drive train and power, you probably don't need the top of the line. All wheel drive, for example, has little effect beyond better acceleration in slippery conditions. Likewise, buying something that can go 0-to-60 in record time isn't much use if you never put the pedal to the metal. It's better to go with a less powerful engine that suits your driving habits. Hybrids have their own section later on in this article, but in general, they are excellent for driving around town -- if you plan to drive long enough to make the upfront costs worth it.

Once you know what you're looking for, you should do further pricing research. Check relevant websites and magazines to see average prices. That way you will know what is a good buy and what is simply a salesman sounding persuasive.

Securing Financing

Always try to secure financing before you set foot on a lot. Having financing of your own gives you bargaining leverage against the typical tactics a salesman will use. More on those in the negotiation section later. You also have the advantage of knowing how much you have to spend, as well as being able to shop around for the best lending rates. Having your own financing also avoids many of the most common financial scams.

Securing a pre-approved loan has a number of advantages. These include:

  • You get the best rate by shopping around and your financing gives you leverage in negotiations.
  • Securing financing in advance allows you to get one large chunk of the buying process out of the way, leaving you with more energy and focus when it comes to the actual negotiations.
  • If you have your own financing, you don't need to choose between dealer zero percent financing and a factory rebate. You can choose the rebate every time and rest easy with your pre-approved interest rate.

In order to get pre-approved you will need to gather some data first. You will need proof of your income as well as any assets and savings you may have. This helps the financial institution know you can repay. This includes pay stubs and, in some cases, tax returns. It will help you to have a copy of your credit report, in order to spot any credit mistakes or scams a lending institution may try to pull. This is increasingly rare, but it never hurts to protect yourself.

You have the advantage of being able to shop around, including online. Websites like CarsDirect and TrueCar allow you to get quotes from the comfort of your couch without needing to talk with a bank representative. Feel free to get quotes from as many agencies as you can. Compare the amount, the length of repayment and the interest rate to know how much you're really getting.

At this point, you should know whether you have bad credit. If you do, you are not completely out of luck. Many financial advisers will suggest that you focus your money and attention on improving your credit, but the decision is ultimately yours. Thankfully, bad credit auto financing is becoming more common. They are also much safer than they used to be. In the past, poor credit was little more than an excuse to prey upon people using a ridiculously high interest rate. Today, rates are much more reasonable.

You should also be aware that many of the dealer incentives offering low APR financing do not apply if you have poor credit. It can't hurt to ask, but do not rely on getting a low APR from a dealership.

Finally, here are some financial terms you will encounter in your hunt for financing and negotiating with dealers. It will help you immensely if you know what all of these terms mean before you dive neck-deep into negotiations.

  • APR: Annual Percentage Rate, or the interest rate charged. Essentially, how much extra you will have to pay over time as you repay.
  • Factory Invoice: a listing of the costs paid to the manufacturer. Remember that the invoice price is not their actual price, because the dealers get special holdbacks, fees and sales incentives that decrease their costs further. The invoice price is a good place to start for price research.
  • Holdbacks: These are the monetary payments that the dealer receives if they sell within a certain time frame. This is the incentive behind many blowout sales -- they want to move inventory and get the added profit of the holdbacks before they expire.
  • MSRP: The Manufacturer Suggested Retail Price. This is the price that the manufacturer suggests in order to maximize profits. With skilled negotiation, you will never need to purchase at or above MSRP.
  • Upside Down Loan: This is when you owe more on a vehicle than it is worth.

Considering New & Used Options

Buy New or Used?

New Vehicles

In terms of the initial sticker price, buying brand new is unquestionably more expensive than buying a used model. The true costs, however, come later down the road. New vehicles have a number of benefits such as the peace of mind you gain from knowing there is nothing broken and hidden from you. You also gain the benefit of any manufacturer warranties. Because it is more expensive up front, however, you may look for other ways to save money.

Bonus Cash, Cash Rebates, Customer Cash

Sometimes a manufacturer will offer bonus cash on a new vehicle. Essentially,if the price is $30,000 with a $3,000 cash rebate, your purchase price becomes $27,000. This is the most straightforward type of discount you can find.

Most of the time, the cash rebate will be given to you when you sign the contract to purchase. You are free to apply the rebate to the purchase price immediately, or you can save it for some other use. It is completely up to you, the money is cash in your hand. Since autos depreciate quickly, it is usually best to put the rebate on the loan, unless you have higher interest obligations like credit cards to pay off.

Qualifying for a cash rebate is the difficult part. You may have to finance through the manufacturer, you may have to leave a competitor's brand or you may have to be purchasing during a spring or summer event. Always be on the lookout for cash rebates on the one you want. If you can plan a year or more in advance, you can see when these seasonal opportunities are likely to come around the next year.

Low APR or Low Interest Financing

Low APR financing is currently a popular option. Nearly every automotive commercial will mention some kind of low interest financing. Occasionally they will advertise a complete zero percent APR. A low interest rate will result, of course, in a cheaper borrowing cost. If interest is not building up, you will cut months off your payment schedule. That's not to say that a low APR is free of drawbacks.

As with any financing, you will need to qualify. This is where your credit history comes into play most often. You will need an excellent credit score in order to be approved for low APR. Chances are, if your credit score is not good enough, you will end up with a higher interest rate. Always know your credit history so you have an idea whether or not you will qualify.

Low APR financing often cancel out other discounts. This means that if you find your ideal car with both a cash rebate and a low APR, you will have to pick which one you want to apply. Most dealerships won't allow you to use both. Generally, the cash back rebate will be better than a low APR. This is because the amount of cash you get back is more than the amount you would save by paying lower interest. In extreme cases, where you long for an expensive vehicle, the percentage of interest you would pay over the years is high enough to make a lower APR a better option. Remember that most low APR specials will stipulate a specific amount of time to pay back -- if you cannot afford the monthly payments for that given period, don't sign the contract.

Leases and Special Sales

The standard buying method, the one assumed in the rest of this article, is that you will negotiate financing up front. You will then pay it back over time. If this isn't ideal for you, a lease may be the better alternative.

Leases are calculated such that the overall price is cheaper than it would be to purchase it outright. The catch is the strings attached to the lease. You may have to stick with a strict payment plan and face stiff penalties if you miss a payment. Other contracts will offer you an incredibly low monthly payment, but lock you in for years of payments or perhaps a balloon payment which results in a higher overall price.

Leases have four major factors to consider:

  • How many months are in the lease?
  • What is the down payment?
  • How many miles can you drive each year?
  • What is the monthly payment you'll be expected to pay?

Once you know each of these, you will have an idea of whether or not the lease is a better alternative. Miles driven is rarely an issue unless you spend a significant amount of time on the road. Lease term and monthly payments are the primary two you need to calculate.

Most leases are resold after the term is up. If you opt to lease, it generally makes sense to lease something which holds its value to minimize the amount of depreciation you pay for during the contract.

Tax Breaks and Incentives

The government offers some select tax incentives. Most of the time, this means looking into a hybrid or an electric car. The government is trying to curb pollution, and is encouraging people to purchase green vehicles. If you are already planning to look for a hybrid, you should certainly look for tax credits. Which credits are available depend on the time of year, the state you reside in and the make and model you plan to purchase.

It is unlikely that a tax credit alone is enough to justify purchasing a hybrid over a comparable gasoline option. Hybrids have a higher purchase price. However, a tax credit is something you can factor in to your calculations when you decide on your budget, if a hybrid is part of your considerations to begin with.

Used Vehicles

A used vehicle isn't as glamorous as a new one. It probably has some dings and scratches. It might need a little work to keep running. It is probably an older style, an older make and model that might not lend you the image you want. On the other hand, older vehicles are bound to be significantly cheaper than new ones. You have to research how it was treated before you owned it, but if you pick a good previous owner and treated it properly, it can last you just as long as a new one would.

Finding a Used Automobile

There are several ways you can locate a used car. Dealerships have the largest selection, but they are businesses and there tends to be adverse selection. Many of the horror stories you hear about being sold a lemon come from used car dealerships. That is not to say all of them are out to scam you, nor does it mean that every individual seller is trustworthy. Many new car dealerships will also sell used ones, though they may have a limited selection. Just remember to inspect every bit of paperwork. Services like Carfax and Autocheck offer history reports highlighting major issues like crashes.

You can also check guides online and in print. Searching online is a tricky proposition, but with caution, you can make it work. Used car classifieds, as you might find in a newspaper or a specialty magazine, can be published by both individuals and businesses. If you're looking to avoid dealerships, you won't be guaranteed if you just browse classifieds.

The Best Used Vehicles Available Today

This list is far from comprehensive, but here are ten of the most reliable, best-rated options you can buy used. There are certainly other good choices available, and these models may change in the coming years. For the next few years, however, these are good choices to look into.

  • Sedan:
    • Hyundai Elantra. The Elantra is relatively cheap for how high quality it is, and a used version is even more of a bargain. You can choose between the 2006 or earlier version or the post-2007 redesigned models. It has a good performance, is very durable and economic with fuel. You may even be able to snag a good warranty if you buy from an authorized reseller.
    • Mercury Montego. The Montego was only really in production from 2004 to 2007. It is a large sedan with a slightly underpowered engine for its size, but that doesn't mean it suffers. It has a very high safety rating and is durable for years beyond new. It might not be the cheapest option available, but it's certainly one of the best.
  • SUV:
    • Honda CR-V. The CR-V has a high degree of long-term dependability and is one of the best used SUVs you can buy. Stick to the 2005 or 2006 models for the best value. They drive like cars, have the space and capacity of trucks and are highly inexpensive. It might not be the most powerful, or the most fuel-efficient SUV on the market, but it is certainly worth a look.
    • Chevrolet Tahoe. The Tahoe may seem familiar because there are tons of them on the roads. They are a large SUV and have all the benefits and drawbacks that implies. They were redesigned in 2007, so a 2008 or newer model will have a greatly improved set of interior and mechanical properties. It is a great SUV all around.
  • Luxury:
    • Infiniti G35/G37. The G35 is the older of the two, while the G37 is both newer and more expensive. Both of them are great to drive and have excellent handling. They are powerful machines on par with the BMW 3-series, but with better numbers in both performance and in cost. If you opt for a G-series, you are sure to enjoy the experience.
    • Cadillac DTS. Cadillac used to be one of the best luxury names. While their reputation has dropped in recent years, especially with BMW and Mercedes taking the lead, they are still excellent. The DTS is an older model, but it is one of the most dependable vehicles ever made. If you can find one, it makes an excellent purchase.
  • Truck:
    • Toyota Tacoma. The Tacoma is a line of varied and powerful utility trucks. They come in a number of different sizes and styles, so if you're in the market for a truck, you are sure to find one that suits your needs. They have been topping the lists for both resale value and dependability for years, and there are tons of them available. A model from 2006 or earlier is an excellent value. Some models are even suitable for off-road driving, if you're looking for something with that capability.
    • Ford F-150. The F-150 is one of the longest-running truck lines in the world. It has an amazingly good reputation for one so long-lived. There are decades worth of interior and exterior designs to explore, and there are plenty of them available at any given time. As one of the most popular trucks for thirty years, there are plenty to choose from and you'll never need to worry about selecting a poorly maintained model.
  • Hybrid:
    • Toyota Prius. There will be more on hybrids later in this guide, but for now, suffice to say that if you're in the market for a hybrid you can't do wrong with a Prius. The first generation was small and a little underpowered, but the subsequent redesigns fixed those issues. Models more recent than 2004 have much more thought put into interior space and power. It can drive on the highway with no issues and any city driver can take advantage of the fuel efficiency. The 2010 remodel makes every good point that much better.
  • Sports Car:
    • Porsche 911. Certainly not an option for those looking to stay on a budget. If you're looking for a sporty ride to take you around town in style, you certainly can do worse than a 911. The 2005 models are perfect for someone looking for a sports car that won't break the bank. They are reliable in the long term -- the brand is known for it -- and they can be had for a relatively low price compared to new ones.

Inspecting Used Vehicles

Millions of accidents occur every year. Many wrecks end up totaled and parted out. Many more have minor cosmetic damage or some internal damage that can be repaired. It is probable that in your search for a used vehicle, you will encounter one that has been in an accident, so you must do research and exercising caution.

Before you even think about buying a particular model, here are some things you should know about it.

  • How many previous owners it has had. You might be inheriting problems from two owners ago.
  • If it was ever in an accident, no matter how minor. Dents can be fixed, but if there is an underlying problem you might not know about it from a superficial inspection.
  • If it has a history of mechanical problems. If the brakes keep failing, you probably want to know. If it went through a flood you might have recurring electrical problems.
  • What maintenance work has been done over its lifetime. A CarFax report should tell you everything you need to know.

Never sign paperwork that forfeits liability as is. The "AS IS" paperwork means that as soon as you drive it off the lot, any problems it has are yours to deal with. This is a common way some avoid state lemon laws. If you suspect something is wrong, make sure you get it looked at before signing.

With the hurricanes and large storms flooding large parts of the country, one thing you should learn to watch for is signs of flood damage. Flooded automobiles have fewer obvious signs of damage than those in accidents, but you never know when a small patch of rust is going to ruin an engine. Check the radiator, engine and interior for water lines. Does it have new upholstery? No one re-carpets without a good reason. Smell for must and mold. Lift up the carpeting to look for damage beneath. Check the metal bits under the seats for rust. Check the air intake for debris that was never cleaned out.

Step by Step Purchasing Process

For a detailed rundown of the process, here is a six step guide to buying a used automobile from start to finish.

  1. Search newspaper classifieds, trader magazines, Internet resources and dealerships to give yourself a wide range of options.
  2. Run a histor report which will tell you if anything has gone wrong or, possibly, is wrong and hidden right now. CarFax and Autocheck are both good options. Never buy without running a history report.
  3. Secure a loan for the purchase price. Banks have stipulations for financing used vehicles. There are two primary types. One is for buying from a private seller, and the other is for buying from a dealership. Make sure you get the right type of loan. Also, be aware that banks charge higher interest rates on used vehicles due to the perception of greater risk. They also will generally not offer financing for cars over five years old.
  4. Negotiate with the seller. There is a lot of information involved in negotiating, so there will be more on that in a later section.
  5. Complete the sale itself. You will probably want to get a bank draft, which will record the transaction in case there are any problems in the future. You do not want to pay entirely in cash, because cash is untraceable and there will be no record of the transaction. You can also download a bill of sale form from the Internet to have something you can record all pertinent information on.
  6. Protect yourself. You will probably want to get an extended warranty, since chances are the original warranty is not available. If you are purchasing as-is, you definitely need the warranty. You will also need to make sure to take it to a mechanic to spot any problems before they become expensive issues.

Avoid the common scam with cars parked on the side of the road. It works like this. It's priced incredibly low and looks in perfect working order. The seller parks it somewhere out of the way so you don't know where they live. You withdraw the cash to pay the seller, who doesn't have the title. You go to register it, only to find out that it is recorded stolen. You lose the vehicle, and you have no way to get the money back. Avoid these extra-cheap "opportunities" on the side of the road.

You can buy from a rental agency if you want. They have a few benefits, mostly in maintenance. The rental agency wants their inventory to be in perfect working order, so they keep them in good repair and retire them after only a couple of years. This means you're getting a well-maintained vehicle. On the other hand, it is likely to have a number of cosmetic dings and scratches. Further, it has been driven by many drivers who may have treated it poorly. Rental agencies also typically refuse to haggle, so the price may not be as low as you would like.

Negotiation Strategies


Negotiating is where most of your information comes in handy. It is also where the dealership will do their best to try to wring more money from you. If you go into negotiations well informed, you will be able to beat their sales tactics and walk away with a better price than you otherwise would. Here are some tips and strategies for negotiation.

New Car Negotiations

Find your Fair Price

The first step for negotiating is learning what they paid. There are services online like TrueCar that allow you to look up the dealer invoice. You can even ask to see the invoice while negotiating. You'll be able to see a list of the various fees and payments they have to make while ot is taking up space on their lot. Some of these are legitimate expenses, such as rent for the building. Others are financing fees and special offers that they add on top to make their potential profits higher.

Your goal is to calculate a price that is five percent higher than their cost. Take the invoice price, subtract the factory to dealer incentives, subtract the factory holdback and add five percent.

Why five percent? Most businesses survive and thrive on a one to three percent profit. Salesmen often sell to uninformed shoppers for a profit of ten or more percent. Five percent is a fair offer that gives them profit without costing you more money than you have to spend.

Negotiate Correctly

Try to complete the negotiationl quickly. You're offering them a lower profit than they would usually get, so they have an incentive to not waste time with you. If you spend two hours negotiating, their profit per hour shrinks. Try to get the terms complete within half an hour. It saves both of you time. In order to encourage this, make sure you have your financing secure before you arrive.

You've made your offer, so don't budge. They will give you a sob story about stealing food from their kids, needing more profit to survive or how little they get after the dealership takes their cut. You don't need to listen -- they're trying to charge you more, after all. They would be stealing food from your kids.

Make sure you know why your offer is what it is. You need to be confident in your offer. If the salesman doesn't take you seriously, be prepared to walk away. Others will accept your offer. You do not need to accept a worse counteroffer just because of a perceived limited choice. Stick to your offer! They might try to explain other costs they have to pay, but you have done your research. You know what offer is fair.

Never negotiate when you're hungry, tired or sick. Eat a good meal before you visit. Make sure you got plenty of sleep the previous night. Shower so you feel comfortable. Dress casually, but not too casually. A nice pair of slacks and a dress shirt is all you need. You don't need a suit to negotiate, but you shouldn't look like you can't afford what you're buying. Any inappropriate state of mind may make you make poor decisions.

Dealership Tactics

"We don't need to lower our price. These are selling like hotcakes. Other people will pay more than you will, and you'll lose out." No, you won't! You will go elsewhere and give them your fair five percent profits. Always be prepared to walk away.

"This offer is only good today. There are other buyers looking at this, and my price today is lower than it will be tomorrow." Wrong! Other people looked at it, showed interest, saw the price and walked away. They may be back tomorrow, or they may not be back at all. You have an offer on the table. They might tell you their good price will be gone tomorrow. You can tell them so is your offer. You're under no obligation to purchase from them, and you can get your better opportunity elsewhere.

"Look at these records. Here are how many we've sold, and the prices we've closed on. This offer is fair, anything less is stealing food from our children." Nope! They clearly present you with a list of previous sales they made an excellent profit on. In reality, they're trying to increase your offer, stealing food from your children. Don't be afraid to use their information against them.

"We'll beat any other dealer's price, or we'll give you X amount of money!" Of course, they will. You just need written paperwork from that other dealership. So why not just buy it for the better price at that other location? Even if you do bring in the paperwork, they might find a tiny detail to claim the vehicles are different enough to void the offer.

"Our ad says no payments for six months, but it was a clerical error. It's really just two months." This is an outright lie. Take your offer and leave.

"We have the model you're looking for, just come in." Then, when you come in, it turns out they just sold it and you missed out. However, if you just look over here, we have another one for a few thousand more. All you need to do is pay more than your offer because you missed the one that didn't exist in the first place.

"You'll never find it cheaper anywhere else." Usually they will say this as you walk out the door, jilted that they didn't get the sale. Well, who are they to tell you what you won't find? Even if you can't find a better price, there's no shame in coming back and saying so. At least you tried.

Save Money

Always have your facts on hand. You calculated a fair five percent profit. You have all of the numbers, you know where they came from and you trust the source. Don't let them sway you with the invoice price.

No haggle signs are a great time to haggle. Many use no haggle to sell at an inflated price. They think it will lower your guard, and that you won't have to go through this whole process. If the no haggle price is higher than your fair profit offer, haggle! Remember, you have the ultimate trump card. You can, at any time, walk out.

If they ask you how much you're willing to pay each month, don't give them a number. The monthly payment is irrelevant and has nothing to do with the value of what they are selling. You're negotiating based on the value, not on how much you can pay ever month.

Don't let them to convince you to finance through them. They may claim it gets you a better price, but the loan might have a longer term, pre-payment penalties, or you might have a higher interest rate. They want to maximize their profits and will do whatever they can to crank those numbers up.

If they claim it is hot and flying off the shelves, back away. You don't care about popularity. Don't impulse buy just because of the perceived demand. At best, you'll pay far more than you should have paid. Don't ignore supply and demand. Once the buying frenzy drops off, you'll be able to buy cheaper. All you need to do is back off and wait.

Always verify the dates on any paperwork they provide you, both handwritten and computer printed. Many specials require you to pay by a specific date. It serves them to misprint the date, so they can later revoke the discount with claims of nonpayment. They even have proof! Always verify dates.

You are not required to purchase credit life insurance or an extended warranty. Credit life insurance is a scam that increases dealer profits, and it is aimed at people with bad credit. It is also an illegal practice in some states. Report the dealership immediately and definitely do not buy from them.

Read the fine print. Often newspaper ads will mention a much lower price, but the price includes rebates. That has them retaining the rebates for themselves, meaning you don't get any of the cash back.

Never give a deposit check before you're one hundred percent certain you're purchasing. They'll file it away in a folder so that if you decide to back out of negotiations, you have to get it back. They'll do anything they can to hold on to that check. Don't even take it out of your checkbook until you're ready to buy.

Used Car Negotiations

Buying used is a bit of a different experience. Here, you are in the position of the salesman, trying to whittle away the patience and confidence of the seller. You want the best deal possible, so it is best to treat the seller as if they are trying to overcharge you. Treat them respectfully, of course. They have no obligation to sell to you if you are obnoxious.

Buying from Dealers

Ignore "certified used car" labels. This is dealership slang to make you feel better. In order to sell it certified, they need to perform certain maintenance tasks and ensure the vehicle is in proper working order. It also means it has never been in a major accident. Always compare your CarFax report with what they are telling you. Some slimy dealers will make cosmetic improvements and leave mechanical problems for you to fix down the road.

Don't rely on a 90-day warranty covering everything. Most of them cover the power train and not much else. If they say they'll cover everything, no matter what happens, get it in writing. Verbal contracts are not legally binding, and some salesmen will do anything to close the sale and get inventory off their lot.

Federal law require used vehicles have a buyers guide attached, containing all of the pertinent information about it, including whether or not it is sold as is. Don't listen to a salesman if they try to contradict the buyers guide. The guide overwrites what they say.

Remember that it's only worth what you're willing to pay for it. If it has been sitting on the lot for one month or for one year, the price doesn't change. Always be willing to walk away, and remember they probably paid several thousand under book value. They will also try to cite you prices from the NADA price list. This list is typically higher than the Kelley Blue Book pricing, which is what you probably used. Stick with your offer.

Buying from Private Sellers

Some buyers will purchase from another individual who is simply trying to offload their old vehicle. Chances are they will set a high price hoping to negotiate down to something closer to the true value, with as much profit as they can save. You should do your research first, looking up the used value and subtracting any damages you see. When you come prepared, the seller has less ground to stand on.

  • Why are they selling it? They might have hit a bad patch in their lives and need the money, but vehicles are so convenient that is almost questionable. If they hesitate, they might be hiding damage from you. Is it too expensive for them to maintain?
  • How many miles are on it? Drivers average around 12,000 miles a year. If it has a significant amount more, the heavy use may be contributing to a problem and the value goes down.
  • Ask them for their maintenance records. Virtually no one keeps them, and you can use it as proof that they probably don't maintain it as they should. Even if they do, you can drive the price down that way. If they do have the records, then you have a complete source of information to cross-reference with your CarFax history report.
  • Ask them about the condition of the interior, as well as any known issues.

Always show up a little late to your appointment, to drive down their confidence. Always show up during the day, because at night you can't perform a proper inspection. Always take a second person with you, because they will be used in a few of the other negotiation tactics discussed here.

Have your partner be extremely negative, trying to convince you not to buy. Have them point out every scratch, every dent and every slight flaw. When they point something out for you, run a finger along it and look disapproving. You're using psychological tactics here to discourage the seller. They will expect a low-ball offer when you're done, and you will be happy to oblige.

Always take a test drive. Bring the seller with you and ask them questions about every little rattle, grind or shake. Never buy without a test drive. If the seller won't let you drive it, look elsewhere. There is no reason they should ever deny you the ability to drive what you will be buying.

Check the fluids. Is there windshield fluid? If not, the driver couldn't be bothered to refill it for a buyer, which is a sign something else may be poorly maintained. What color is the radiator fluid? It should be green, and brown fluid signifies old unchanged fluid. The transmission fluid should be purple, or slightly brown if it is getting older. If it is black, back away.

If you are confident in your research, make an offer. If not, go home and analyze the data you collected to come up with a solid offer. Don't try to work away at their selling point. In fact, ignore their selling point altogether. You know book value and you know how much you are willing to pay. Make your own offer. When you make your offer, bring printouts of other sellers who have similar or lower prices.

If the seller won't budge, back away. Have your partner make a comment about how the other seller -- whether or not you have one -- was selling a similar one with lower mileage. If the seller overhears, they may panic and decide to accept your offer at the end. Otherwise, simply walk away. You can always come back with a higher offer later, once you've done more research to see if a cheaper option can be found.

Dealership Scams

Some dealerships are run by trustworthy individuals with salespeople who will cut you a fair offer, be up front with information and will work with you to find a good option. Others are staffed with people more concerned with their profits than with your savings. Some have unscrupulous salesmen who make the stereotype look pleasant. Here are some of the possible scams you may encounter. If you have bad credit, be particularly careful, as you are a probable target. Most of these scams take place in the finance office after the sale, so do not let your guard down just because the price was negotiated.

#1: Financing fell through. You make the deal for a low APR, you sign the papers and you drive home. A week later, they call you saying you didn't actually qualify for the rate. You check your paperwork, only to find a "subject to approval" clause in the contract. Now you're stuck with a higher APR. To avoid this scam, secure your own financing. They cannot scam you through financing if you don't finance through them.

#2: Lying about your credit score. You pulled your credit history. You know your score is, say, 680. You qualify for the zero percent APR. Then the finance manager comes out of the office and hands you a paper with 500 circled, saying your score is too low to qualify. To avoid this scam, simply show them your score. Why is the official report different from their number? If they don't correct it immediately, walk away.

#3: Didn't pay off your trade-in. If you still owe money on your trade-in, the typical practice is that they will pay it off and add that payment figure to the price of your purchase. The scam happens months later, when you receive notices that you haven't paid off your old loan and you now owe more money. You have no recourse, because the contract is in your name until they pay it off. To avoid this scam, you have two options. The first is to wait unitl it is paid off. Then you can trade it in without worrying about the bills haunting you later. The second option is to force them to add a clause, in writing, that they will pay off your trade-in within ten days or the contract is void. This way you have a legal fallback if they fail to pay.

#4: Straw loan signing. This is a type of bait and switch scheme. You're told your credit score is too low to qualify for a good rate, and so you need a co-signer. The co-signer is mixed up in the paperwork and, somehow, ends up as the listed primary recipient. Suddenly, there is a "mistake" and you aren't even on the contract any more. To avoid this scam, avoid co-signing altogether. If you don't have good enough credit to secure financing, you should probably not be looking for a new car.

#5: Your lender always bounces checks. This is most common with online lenders and credit unions. The dealership will say that this particular group always bounces checks, and that they don't accept them any more. Instead, you have to finance at the lot. Of course, you'll get a high interest rate. To avoid this scam, walk away. Your lender is trustworthy -- if they weren't, they wouldn't still be in business. You're under no obligation to finance with any particular source.

#6: Warranty required. Some will try to sell you a warranty using any of a number of different tactics. You might need a warranty due to your low credit score, or so that the bank will approve your loan. They might claim the warranty factors in to the total cost and will decrease your APR or your monthly payments somehow. To avoid this scam, ask them to put it in writing that the warranty is required to secure the loan. They won't! That's because it isn't, and they can be held liable if they claim it is. Instead, refuse to buy it or walk away. As always, securing your own financing is a better way to go.

#7: Excessive charges and fees. This isn't technically a scam, because there is nothing illegal about it. It is simply a high fee that you don't need to pay. Many will add a line on their contract about some kind of preparation or initiation charge. This is the fee they charge for preparing it -- putting in fluids, removing plastic from the seats and vacuuming -- which doesn't take them very long. It is also a fee that is paid by the manufacturer, so why are you being charged? To avoid this scam, simply demand they credit you for the amount. They may claim they can't remove the fee because it is permanently printed on their contract, but they can easily add a credit elsewhere for the same amount to cancel it out.

#8: No matter the cost, we'll pay off your old loan. If you still own ten thousand on a trade in, and they pay it off when you buy a new one, it is still you who is doing the paying. Of course, you still have to pay off the ten thousand. Why? They add the ten thousand to the cost of your current loan. The trick is, they stretch the term out. Maybe you were paying $300 a month, but with this trade-in, you're only paying $250 a month. Seems reasonable, right? The catch is now you're paying $250 a month for 36 more months than you would be before. To avoid this scam, pay off your trade-in before you trade it in. This is a similar scam to #3 and can be avoided the same way.

#9: Sold as is. It might have been in a wreck, and they might be lying about it. They might not even know it was in a wreck. Federal law mandates that the buyers guide have the line "As in, no warranty" on it when this is the case. “As is” means that they are not liable in any way for any repairs. You might be buying something that will fall apart the instant you drive it off the lot. To avoid this scam, never, ever buy as is. Just don't do it. You will never get a good deal. If they were confident in quality & reliability, they wouldn't push this sort of contract.

#10: The fake escrow scam. This isn't actually a scam you will find at a dealership, because it doesn't involve a legitimate dealer at all. If you are trying to buy on EBay or another online service, beware. This scam comes when the seller wants to contact you through e-mail about using a third party escrow service they trust. Never use it. Never, ever use it. It may be a fake site designed to steal your personal information and your money. Chances are the seller doesn't even have anything to sell. To avoid this scam, never use a financial site you don't trust. Always check the URL before you put in so much as a username, and do research searches for "brand name scams" and similar to verify it has a good reputation. Never wire money through Western Union or any other service. Protect yourself.

#11: We snagged you a lower monthly payment, just come back and sign a new contract. Your monthly payment will go down, of course, but the number of months will go up. Chances are they actually raised your interest rate and want to hook you into a longer term loan. To avoid this scam, be satisfied with your original deal. If you want to trust them, at the very least check the calculations. Multiply your payment by the number of months for both your old and new contract to see what they're pulling.

Hybrid Vehicles

All about Hybrids

Hybrid is the general term many people use for anything that runs on a fuel other than gasoline. As such, it is a large category with plenty of information. Combine that with the aggressive competition and anti-hybrid campaigns in the early days, plenty of misinformation is available as well. This section should help clear up some of the common misconceptions about hybrids. Firstly, there are two main types of hybrid vehicles: gas-electric hybrids and true electric vehicles (EVs).

Benefits of Electric

True electric cars are a relative rarity compared with hybrids. They are powered completely by electricity, the same kind you get when you plug a television or a computer into the wall. EVs plug into the wall to charge, or at public charging stations that are slowly being built around the world.

Some EVs are gasoline models that have been converted. Others are designed from the ground up to be electric. Thare are virtually silent when running & much quieter then older automobiles. When you consider that gasoline fuels a constant series of small explosions, this should come as no surprise.

EVs have a lower cost to run than gasoline ones. You don't need to purchase gas, so your fuel costs don't fluctuate with gas prices. You will have a higher power bill, but the cost of electricity is much lower than that of gasoline. They are also very reliable -- they have very few moving parts, so they won't wear out as quickly as gas engines. They also have a lower need for various fluids, which helps the wear and repair costs.

The largest reason to get an EV is the lack of emissions. They have no tailpipe emissions and are a very green alternative to gas. They are nearly silent, which lowers noise pollution as well. Even though the electricity has to come from somewhere, there are plenty of green energy sources.

Common Complaints about Electric Vehicles

One common complaint is driving range. It can only run as long as it has power, and because it is entirely electric it doesn't have a gasoline-powered engine recharging the batteries. Once the power runs dry, the engine shuts down and you need to charge it if you want to move again. Technology is always improving in this regard, however, and the problem has been mitigated in recent years. The average person drives around forty miles in a day, and the typical EV can travel at least eighty on a single full charge. As long as it is charged each night, there should be no issues with distance and charge.

Another common complaint for both hybrids and true electrics is that the green benefits are minor. The thought is that while it is not producing emissions, the power required to charge it comes from coal burning or another dirty fuel source, which minimizes the benefit. While this is true, the emissions from a single tank of gas far outweigh the emissions caused by the power of a single charge.

The power grid and charging infrastructure are two more common complaints. Many people claim few charging stations present a major inconvenience. While this is true, most charging is done at home. Barring long trips, it virtually never needs to be charged at service stations. Some people also believe that if there were a mass adoption, it would overload the power grid and cause untold damage. This, fortunately, is simply not true.

Batteries cause other concerns. The batteries themselves are expensive, but most EVs have battery warranties or leases. They are also highly recyclable. The impact on the environment is incredibly minimal.

Benefits of Hybrids

Hybrids, which have both a gasoline engine and an electric motor, offer the best of both worlds when it comes to power production. They tend to be more environmentally friendly than EVs or gas automobiles. They still burn gasoline to augment the battery. Hybrids mostly rely on the electric motor, and the gasoline engine is used simply to keep the battery charged and to aid when more power is necessary.

There are actually two different styles of hybrids. These are the Series and the Parallel hybrids. Series hybrids are powered entirely by the electric motor for short distances, and the gasoline engine kicks in for trips over fifty miles. Parallel hybrids are more common and use both the gas and electric motors at the same time. They work together to save as much energy as possible, resulting in incredibly high fuel efficiency. The Prius is a prime example of a parallel hybrid.

Hybrids bridge the gap between EVs and traditional gasoline automobiles. They have some emissions, but far less than that of a gasoline one. They do not rely entirely on a charged battery, nor do they have the horsepower issues that some EVs face. They are perfectly capable of traveling hundreds of miles at a time without suffering. They are also less expensive than pure electrics, though they are still more expensive than gasoline-only autos.

Hybrids are still mostly used for coupe and sedan styles, and to a lesser extent SUVs. They do not quite have the power and towing capacity necessary for heavy work, though great improvements are being made every year in that respect. Hybrids are excellent for families who travel in the city or over short distances very frequently, and occasionally take longer trips in the countryside. They are ideal for city driving, because they use very little fuel for short distance trips. This means a single tank of gas can last an incredibly long time.

A hybrid needs to be used constantly for a significant amount of time to balance out the increase in purchase price, however. Take this example. A gasoline automobile costs $30,000 and a comparable Hybrid costs $45,000. The hybrid has a government rebate of $5,000, bringing the cost down to $40,000. This means the hybrid has a $10,000 higher introductory price than the gasoline one.

Assuming a moderate amount of driving, we can guess a driver will use a single tank of gas each week. If a single tank of gas costs $60, a conservative estimate for some parts of the country, it will take 167 weeks worth of gas to equal the $10,000 price different to break even. That is three years of constant usage, with a few months left over. This doesn't factor in the hybrid still needing to purchase gas occasionally. These example numbers are a bit high. In recent years prices have come down and the price difference between a hybrid and a comparable automobile is closer to $4,000.

The exact calculations, of course, will differ. The selling price difference may be lower, the tax breaks may be higher, gas prices fluctuate and the amount of driving has a huge impact. Each individual or family looking to buy a hybrid will need to do these calculations themselves. That said, a hybrid is still an excellent investment if you plan to drive for at least four or five years, if not longer. If you habitually change autos every couple of years, the hybrid may not be the right choice.

Common Complaints about Hybrid Vehicles

Size is one primary concerns. You won't find a Ford F-150 hybrid, nor will you find a nine-passenger SUV or van powered by a hybrid engine. That is, unless you perform the conversion yourself. Hybrid engines only put out so much power at a time, and they are currently unsuitable for hauling cargo or extremely heavy vehicles. That said, hybrid technology is improving with every year that passes, and eventually hybrid engines will be able to fill this role.

Internal size is occasionally a concern as well, but most hybrids have roomy interiors and a well-designed layout. As always, test-drive before you decide to buy. The interior can make or break a purchase no matter what type of engine is under the hood.

The price point is of concern for some drivers. As mentioned above, they do have a higher cost to purchase. They take years to work off the investment, but after a certain point, it is entirely profit. Each driver needs to perform their own cost-benefit analysis of the price point, available discounts and driving habits.

Battery issues are a common concern. With a gasoline automobile, a jump-start can get you running and even recharge the battery when it is drained. With a hybrid, the battery provides most of the power. If the battery drains, it will use gasoline to recharge it, but the battery itself may be damaged. Batteries need to be replaced occasionally, and they can be very expensive. If multiple batteries are installed, they may have different ages and charges, and the constant cycling between them will wear them both down much more quickly.

Part of the cost of hybrids is the manufacturing cost. There are no factories completely set up to manufacture hybrids at the same rate and cost as gasoline automobiles. They are simply more expensive to make, which means they are more expensive to buy. Government tax incentives can help mitigate this cost, but it is still substantial.

As with electric vehicles, many people worry of the origin of the power that is used to charge it. In a hybrid, you either plug it in like an electric and draw power from the grid, or you run the gasoline portion of the engine long enough to charge it. Some power is drawn from the brakes when slowing, but as anything with friction, it is not perfectly efficient. That said, much of the power that comes from the grid is cleaner than the energy gained from burning gas. The green savings is a net benefit.

Hybrid Buying Tips

  • Remember why you're buying the hybrid. You need to make the decision before you search for a specific model. Are you doing it to save money, or to help the environment or both? Maybe you want to reduce your the amount of oil our country consumes. Regardless of the reason, you at least need to have a reason.
  • Do your research. Collect all of the information you would about any other automobile, but also consider hybrid-specific information like battery type, warranty information and MPG savings. Some of this valuable information can be found at fueleconomy.gov.
  • Don't forget to learn about the different types of hybrid, like series, parallel, mixed and full hybrids. You can also research the upcoming trends in plug-in hybrids for another option.
  • Research your alternatives. Maybe you can achieve an equivalent savings by switching to diesel or a highly efficient smart car. You can also make some changes to driving habits like pooling, instead of buying a more efficient vehicle to compensate.
  • Know your habits and the limitations of a hybrid. If you do a lot of highway driving, be aware that highway travel is the time when a hybrid uses the most gas. You will have to fill up more often and take longer to break even from the investment cost.
  • Research your incentives. Your state may have specific incentives for specific hybrid models. The Federal government offers certain rebates for hybrids and hybrid accessories. Some businesses and cities allow free parking for otherwise paid lots or offer preferred parking in certain spaces. You may also save on insurance.

Vehicle Insurance

All about Insurance

Insurance is mandatory for all drivers, and unless you are a first time buyer, you probably have insurance already. When you're buying a new automobile, it is the perfect time to research and purchase new insurance.

Asking about Insurance

When you buy a new vehicle, you should contact your insurance agency to ask about your current policy. You will definitely need to contact them to change your auto information, whether or not you change insurance providers. The last thing you want to do is pay insurance for something you no longer own. Buying a new automobile will impact your insurance rates. They may go up or down, depending on your new vehicle's features. If you buy new, your premiums may increase due to its higher value, especially if you shift from collision to full coverage, while a used one may have different liability costs due to a lower value & fewer safety features.

You may as well take this time to talk to your insurance agent about your coverage. It may have changed since the last time you talked about it. On the other hand, your situation may have changed and your insurance no longer covers everything you want it to cover. Here are some good questions to ask.

1: Who all is covered under your current policy? If you are the only one covered, you may want to tweak your coverage if you have a family. A spouse or child of driving age should be covered as well.

2: What about when they are driving a different vehicle? Most insurance will cover you no matter what you're driving, but you should make sure your dependents and family are covered. Too little coverage is never a good thing.

3: Do you have other policies that can be lumped together for a discount? You may have more than one vehicle. If you have a boat, you might insure that as well. Depending on the company, you may be able to receive a nice discount by lumping in life or renters/homeowners insurance. Health insurance of all sorts might be qualified as well, depending on your policy. Ask for any discounts you can.

4: When your vehicle changes, what needs to happen? If you've sold something, you will want to remove it from the policy. If you are keeping it, it needs to be insured. Some companies offer cheaper policies for parked automobiles. On new purchases you may have different policy changes than if it is used. There is also the transition period to worry about; the time between when your current coverage ends and your new coverage begins. Ask about the temporary coverage in case an accident occurs in that short span of time.

5: If you were to cancel your insurance, for instance if you find a better deal elsewhere, are there any penalties? Some policies have cancellation fees and repercussions. Of course, if you don't have a vehicle you may be able to let your insurance lapse with no issues, but this article assumes you're buying a new one.

6: What does each line on your policy mean? It might be a good idea to sit down with your agent in person to discuss all of the details. If you are unclear on your coverage, what premiums and deductibles are and other terms, you will benefit from learning the details. It always helps to know in advance if a fender bender is covered or if there is a circumstance where it isn't.

If you're shopping around for a new policy, you should ask a few questions of your new potential provider. This is especially true for small, independent providers. You want to make sure you go with a reputable name you can trust and not a minor player with a bad reputation.

1: How long has the company existed? A company that has lasted for years is going to have a reputation. This reputation might be good or bad, and it is up to you to find out. Insurance is a long-term investment and you want to make sure your provider is able to provide. Some companies, especially new companies, might not have a good reputation. It is rare, but occasionally a company folds and leaves drivers unprotected.

2: Is the agent a full-time worker? Some agents work part time from home, and that means they aren't always available to answer questions or file claims. On the other hand, it might show they are motivated to work for themselves and will do what they can to please you. It is a personal judgment whether you take it as good or bad, but you should ask and learn regardless.

3: If you're working with an independent insurance agent, be sure to ask them what company or companies they represent. Some agents will work exclusively with one company. Others will leverage their time amongst several companies. You want to know if they are working with a shady company you would rather not rely on.

4: How often do they review their policies? You might want to have an agent who looks over your account ever six months or so. Circumstances change, vehicles change and lives change on a regular basis. It's no good to have insurance that won't change with the times.

Insurance Myths

While we're on the subject, we might as well cover some of the more prevalent myths. Decades of information and misinformation have piled up, and it becomes difficult to sort through everything to find the truth buried beneath. Here are some of the more common insurance myths and the truth behind them.

1: The minimum mandatory coverage required by the state is plenty. In fact, the minimum mandatory coverage is just that -- a minimum. It is all you need in order to meet the legal requirements of the state. However, it is far from adequate coverage for the variety of situations you might encounter. You may be a safe driver and you may never get into an accident, and so your coverage never comes up. On the other hand, you may have someone run into you when you're parked it at the grocery store and find the damage isn't covered. You never know when something you didn't expect is going to come up and put your policy to the test. It is far better to get complete coverage now than to have to pay extra later.

2: New cars are more expensive than old ones to insure. This may seem like it is true on the surface, and that implies that the new car you are buying now will cause your rates to rise. This is because a new vehicle is more expensive to replace than an older one, in most cases. On the other hand, insurance covers a wide variety of situations, and yours may not result in an increase. For example, if you are trading away a rare or expensive vehicle, a new one may be cheaper to insure. Newer automobiles also have significantly more safety equipment than older ones, and safety is a huge factor in calculating policy costs. An unsafe older automobile may cost far more to insure than a safe new one.

3: Red cars are the most expensive color when it comes to insurance. The fact is, the color has very little to do with your insurance costs. Red cars have a stereotypical history of being speedsters and living dangerously. In the end, it is just another stereotype. The color may have a minor effect on your risk of crashing, but its safety features, local weather conditions and other factors are far more influential. Insurance companies simply don't bother to consider exterior color when they calculate your premiums. The only reason they ask about the color is so the automobile can be identified more easily.

4: If a friend drives your new car and is in an accident, their insurance will cover it. The truth is, you are insuring your vehicle, not yourself. If your friend crashes it, they aren't responsible as far as the policy is concerned. Your coverage will cover the accident and any repairs, though your friend may still be on the hook legally for any damages.

5: Your credit score doesn't affect your insurance rates. In fact, as we know from previous sections of this article, your credit score has a large impact on your ability to get financing. The same can be said for your insurance rates. If you have poor credit, it indicates to the insurance company that you have a history of negative financial transactions. They see you as financially unreliable, and so increase your rates accordingly. On the other hand, if your score is good or excellent, you will see better insurance rates than you otherwise would. Of course, if you live in Massachusetts, Hawaii or California, you don't see this effect. These three states have banned the practice of using credit history to calculate insurance rates.

6: Children will cause your insurance rates to change. This is probably true! Children have a huge impact on every aspect of your life, including your insurance. On the other hand, this doesn't necessarily mean your rates will go up. Once again, safety is a primary factor here. If you have a child, chances are you're purchasing something with a high safety rating. Larger, roomier automobiles with more safety features tend to have lower insurance rates than the smaller, faster ones not designed with child safety as a priority.

What Affects Insurance Calculations

Three primary categories affect insurance rates. These are automobile, driver and company factors. Here is an idea of what each contains. Bear in mind that every company is different, and their calculations may put different weight on different factors.


  • What is the year, make and model?
  • What safety features does it have, such as airbags?
  • Does it have an alarm? An alarm is considered a primary factor in discouraging theft and so is weighted heavily on its own.
  • How much coverage are you buying? The more coverage, the more it will cost.
  • How many automobiles are you insuring at once? If you are a multi-car family, you will have higher insurance than if you had a single vehicle.


  • How old are the people who will drive the vehicle? Drivers under 25 tend to have higher rates, and occasionally seniors will too.
  • What is your driving record? If you have a history of accidents and claims you will have higher insurance rates.
  • Where do you live? Your location may have a higher or lower than average number of accidents, and so may affect your rates.
  • Are there any discounts you can receive? Some discounts include those that apply to students and those that apply to people who roll multiple policies into one service from the same company.


  • What state are you insuring in? Different states have different laws and may have additional fees. This also affects the minimum amount of coverage you can buy.
  • How long have you been with your current company? Many companies will give you a discount if you have been with them for a long period, as an incentive to not switch.
  • The company itself and the profits they want to make is a factor as well. This is not something you can control, but be aware that every company has different goals. Some may want to make as much money as possible, while others might simply want to offer the best policies they can without maximizing profits. Some providers are explicitly designated as non-profits. Others may maximize their profits by leveraging the float in stock market investments.

Your Old Vehicle

Disposing of your Old Automobile

When you're buying a new car, whether it's used or new off the lot, you have a decision to make about your old one. What do you do with it? You have several options.

1: Keep it. If it still runs, it can be useful in certain situations. If you have a family, having two options may make it easier for both parents to hold jobs. It is also useful for when children reach a driving age. If they have a junker to use, you as a parent don't have to worry as much about your nice new one being dinged up in a young driver's first fender bender.

2: Sell it. You are always able to sell it used on the secondary market. You don't have to involve a dealer. Just be sure to read the sections above about buying a used vehicle. Many of the tactics that buyers should use when negotiating are tactics you should watch out for as a seller. Make sure it is well maintained, that you have all the relevant records, that you are honest and communicative with potential buyers about the price and that you don't try to hide anything. You might be able to offload a junker on an unsuspecting buyer, but it is better to be honest about its value.

3: Trade it in. Many dealers will accept trade-ins in virtually any state, though they may not give you much for it. Some will take anything, regardless of whether or not it runs, patch it up and sell it to someone else. Others will take your junker and tear it down for parts, selling the parts or using them in repairs. When you trade-in, you are generally putting its value toward the down payment on your new one. Make sure you know the value of your trade-in before you agree to give it up.

4: Sell it for scrap, to a junk yard or as parts. There are many groups who will buy an old, inoperable vehicle. This is the ideal option if it is broken beyond repair. You can sell it for scrap and make a minor profit if no one will take it as a trade-in. You can also sell it to specialty buyers who specifically advertise cash for cars. Always be aware of the book value before you agree to sell it, because many of these buyers will attempt to low-ball you in order to maximize their profits. On the other hand, the price might be worth it simply to get it out of your yard.

5: Repair it. If you have the money to invest, you might be able to make a bit of a profit if you perform some minor repairs. If it functions, or if it is nonfunctional but has minor work to get it fixed, you can potentially sell it or trade it in for more value than you would if it was broken. Be sure to do your research before you spend money on repairs! You don't want to dump $1500 into repairs only to find you can now sell it for $300 more than you could before.

6: For those who are mechanically inclined, you can always keep the junker to do something with. It can be a father-son project, for example, tearing down and rebuilding it. It could be re-purposed in any number of ways. Your imagination is limitless if you don't worry about its value. This is especially true of mostly-valueless old automobiles or, in the case of a rebuild, classic cars that can use some work.

About the Kelley Blue Book

When dealing with list price, you will often see the term "blue book value" thrown around. This is the listed value according to the Kelley Blue Book. What is the KBB and why is it the authority on auto prices?

In 1918 Les Kelley was one of the original use car salesmen. In order to keep track of inventory he would buy and sell, he started making a list of each one and the values he would buy and sell it for. He sent this information to various banks and dealerships, and it quickly became the go-to price reference. The first version of the book itself was published in 1926.

Today the Kelley Blue Book can still be found published each year, but the more useful reference is their website. They keep all of the information, constantly up to date, on the Kelley Blue Book website. At any time, you can visit the site to look up how much you should pay for any given make, model and year. You can also look up approximately how much any automobile is worth. This is an invaluable resource both for buyers and sellers.

Dealers may try to use a different price list. This list is the NADA price guide, which stands for National Automotive Dealer's Association. The NADA guide, found on their website here, often lists slightly different prices from the Kelley Blue Book. The KBB value tends to favor the consumer, while the NADA guide will offer the dealer better prices. Dealers will often use this guide to try to get a higher sell price in negotiations.