#AskFarnoosh: Buying a Car. Help!

This week, I tackled a question from Rich, a Facebook fan, regarding how to buy a car. He asks:

When is the best time to buy a new car, Farnoosh? Used & new? I just can’t seem to get the right advice!
Also, what are the pros and cons of getting your own financing first, i.e. credit union, bank-or going through the dealerships and the car companies?

Dear Rich,

Truth be told, I’ve only purchased a car once in my life: a 2006 pre-pre-owned sports car from my brother (a gift to myself after finishing book #2). I paid the Blue Book value and did so in cash. The plan is to keep it for a long time…or at least until it’s time to make room for car seats. That said, in all my ten years of reporting on personal finance and interviewing industry experts, I have picked up a thing or two. I also – just for you and everyone else curious about this topic – tapped Ron Montoya, consumer advice editor for Edmunds.com for additional insight.

First, with regards to timing, I’ve heard – and reported – on everything from “best to buy during Labor Day weekend” to “wait until the end of year” when dealerships have to clear inventory for  new year models to “buy at the end of the month – any month,” with the thought that dealers will need to meet their month-end sales quota and be more open to negotiating.  And while these statements have been proven true in some instances, every dealership is different so it’s difficult to speak in absolutes. It really just depends. (sorry, lame answer, I know. But it’s the truth.)

Ron has some additional advice regarding timing. While he doesn’t believe in tips like “best to buy on a rainy day,” for new cars, he does think it’s best to wait to buy until a few months after a model’s been released. “This allows the inventory to build up. Having waited, the selection may not be everything, but you’ll get a deal,” he says.  “The downside, though, is if the maker is planning to redesign the next model, the resale value of your recent purchase will drop tremendously. It won’t matter, however, if you’re planning on keeping your vehicle for the long haul.” As for used cars? “There’s never really a good or bad time to buy a used car,” he says. “It’s a matter of where you look, so shop around. To get the best deal, buy through a private party, an owner selling on their own – of course to do so you’ll need cash or to secure financing through you bank.”

Which brings us to the second part of your question – how to best finance a car? Ultimately you want to obtain the loan with the most competitive interest rate, which tends to be offered by auto companies. You can find deals for as low as 1%, says Montoya, but you’ll need stellar credit to qualify. [According to myFico that means a credit score of about 720 for a 48-month new or used auto loan] “To secure it, you could also lose incentives like a lower sticker price,” he adds.

But, do still consider banks when shopping for a car. It’s smart to come to the dealership with a pre-approved loan offer in hand from a local bank or credit union. It’ll give you a sense of what you can afford – and also some real negotiating power with the dealer’s bank when you’re ready to close.

Happy driving!

Photo courtesy: DHilowitz on Flickr

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