5 Tips For Buying A Car The Smart Way

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Jun. 10, 2024

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5 Tips For Buying A Car The Smart Way

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New cars these days have better safety features and more tech gizmos than models from a decade ago. And let's face it: Trading in a beat-up clunker with grimy seats is an enticing idea.

But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.

But don't worry &#; NPR's Life Kit is here to help. Here's how to buy a car without getting over your head in debt or paying more than you have to.

1. Get preapproved for a loan before you set foot in a dealer's lot.

"The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.

For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question. "How much car can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats. "

Reed says getting preapproved also reveals any problems with your credit. So before you start car shopping, you might want to build up your credit score or get erroneous information off your credit report.

And shop around for the best rate. "People are being charged more for interest rates than they should be based upon their creditworthiness," says John Van Alst, a lawyer with the National Consumer Law Center.

Van Alst says many people don't realize it, but the dealership is allowed to jack up the rate it offers you above what you actually qualify for. So with your credit score, "you might qualify for an interest rate of 6%," says Van Alst. But, he says, the dealership might not tell you that and offer you a 9% rate. If you take that bad deal, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance company, "they'll split that extra money."

So Reed says having that preapproval can be a valuable card to have in your hand in the car-buying game. It can help you negotiate a better rate. "The preapproval will act as a bargaining chip," he says. "If you're preapproved at 4.5%, the dealer says, 'Hey, you know, I can get you 3.5. Would you be interested?' And it's a good idea to take it, but make sure all of the terms, meaning the down payment and the length of the loan, remain the same."

One word of caution about lenders: Van Alst says there are plenty of shady lending outfits operating online. Reed says it's a good idea to go with a mainstream bank, credit union or other lender whose name you recognize.

2. Keep it simple at the dealership.

If you're buying a car at a dealership, focus on one thing at a time. And don't tell the salespeople too much. Remember &#; this is a kind of game. And if you're playing cards, you don't hold them up and say, "Hey, everybody, look &#; I have a pair of queens," right?

So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't want to. Keep it simple. One thing at a time.

Once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there too. A little research online can tell you what your trade is worth in ballpark terms. Reed suggests looking at the free pricing guides at Edmunds.com, Kelley Blue Book and NADA. On Autotrader, you can also see what people in your area are asking for your car model. And he says, "You can get an actual offer from Carvana.com and also by taking the car to a CarMax, where they will write you a check on the spot."

So he and Van Alst say don't be afraid to walk away or buy the car at a good price without the trade-in if you feel the dealership is lowballing you on your old car. You have plenty of other good options these days.

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3. Don't buy any add-ons at the dealership.

If you've bought a car, you know how this works. You've been at the dealership for hours, you're tired, you've settled on a price, you've haggled over the trade-in &#; then you get handed off to the finance manager.

"You're led to this back office. They'll often refer to it as the box," says Van Alst. This is where the dealership will try to sell you extended warranties, tire protection plans, paint protection plans, something called gap insurance. Dealerships make a lot of money on this stuff. And Van Alst says it's often very overpriced and most people have no idea how to figure out a fair price.

"Is this add-on, you know, being marked up 300%? You don't really know any of that," Van Alst says. So he and Reed say a good strategy, especially with a new car, is to just say no &#; to everything. He says especially with longer-term loans, there's more wiggle room for dealers to try to sell you the extras. The finance person might try to tell you, "It's only a little more money per month." But that money adds up.

"Concerning the extended factory warranty, you can always buy it later," says Reed. "So if you're buying a new car, you can buy it in three years from now, just before it goes out of warranty." At that point, if you want the extended warranty, he says, you should call several dealerships and ask for the best price each can offer. That way, he says, you're not rolling the cost into your car loan and paying interest on a service you wouldn't even use for three years because you're still covered by the new car's warranty.

Gap insurance promises to cover any gap between the purchase price of replacing your almost-new car with a brand-new car if your regular insurance doesn't pay for full replacement if your car gets totaled. Van Alst says gap insurance is often overpriced and is fundamentally problematic. If you still want the product, it's best to obtain it through your regular insurance company, not the dealer.

4. Beware longer-term six- or seven-year car loans.

A third of new car loans are now longer than six years. And that's "a really dangerous trend," says Reed. We have a whole story about why that's the case. But in short, a seven-year loan will mean lower monthly payments than a five-year loan. But it will also mean paying a lot more money in interest.

Reed says seven-year loans often have higher interest rates than five-year loans. And like most loans, the interest is front-loaded &#; you're paying more interest compared with principal in the first years. "Most people don't even realize this, and they don't know why it's dangerous," says Reed.

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Reed says that if you want to sell your car &#; you decide you can't afford it, or maybe you have another kid and need a minivan instead &#; with a seven-year loan you are much more likely to be stuck still owing more than the car is worth. So he says, "It puts you in a very vulnerable financial situation."

A better way to go, Reed says, is a five-year loan for a new car and "with a used car you should really finance it for only three years, which is 36 months." One reason that makes sense, he says, is that if your used car breaks down and isn't worth fixing &#; say the transmission totally goes &#; you're more likely to have paid off the loan by that time.

Reed says a five-year loan make sense for new cars because "that's been the traditional way &#; it's kind of a sweet spot. The payments aren't too high. You know the car will still be in good condition. There will still be value in the car at the end of the five years."

Also, Van Alst and Reed say to make sure dealers don't slip in extras or change the loan terms without you realizing it. Read carefully what you're signing.

Reed says a colleague at NerdWallet actually bought a minivan recently and "when she got home, she looked at the contract." She had asked for a five-year loan but said the dealership instead stuck her with a seven-year loan. "And they included a factory warranty which she didn't request and she didn't want." Reed says she was able to cancel the entire contract, remove the extended warranty and get a rebate on it.

"But the point of it is," he says, "I mean, here's somebody who is very financially savvy, and yet they were able to do this to her. And it's not an uncommon scenario for people to think that they've got a good deal, but then when they go home and look at the contract, they find out what's been done to them."

5. Don't buy too much car. And consider a used car to save a lot of money!

"The golden rule is that all of your car expenses should really be no more than 20% of your take-home pay," says Reed. And he says that that's total car expenses, including insurance, gas and repairs. "So the car payment itself should be between 10 and 15%."

And if a new car with a five-year loan doesn't fit into your budget, you might decide you don't really need a brand-new car.

"We're actually living in a golden age of used cars," says Reed. "I mean, the reliability of used cars is remarkable these days." Reed says there is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that, he says, are definitely worth considering. "You know, people are buying good used cars at a hundred-thousand miles and driving them for another hundred-thousand miles," says Reed. "So I'm a big fan of buying a used car as a way to save money."

He acknowledges that which car you buy matters and that it's a good idea to read reviews and ratings about which brands and models are more or less likely to run into costly repair problems down the road. He says some European cars are famously expensive to maintain.

NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car buying. Many said they were shocked by how much money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, "40 years of owning vehicles and our total transportation purchases don't even add up to the cost of one of the financed ones these folks are talking about."

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Dean is a freelance AV technician, and Patricia is a flight attendant. They say, "our nicest, newest purchase was a Honda Accord for $, bought last year, that with regular maintenance could likely last another 100,000+ miles." And they say they "can't understand those who insist on driving their retirement funds away."

Even if you buy a slightly newer used car than the Raekers', the couple raises a great point. What else could you be spending that car payment money on? And if you can cut in half what you might otherwise spend, that's a lot of extra money for your retirement account, your kids' college fund or whatever else you'd rather be doing with that money.

35 Easy Ways to Save Money at Home

Your house gives you so much: security, pride, shelter. With all that on the line, it's easy to assume the costs of keeping it up just are what they are. But wait. There are plenty of expenses that are simply a waste.

35 Easy Ways to Save Money Around the House

Small changes can start to add up. Here are ways to save money each month without putting a dime of home value at risk.

#1 Clean Your Lightbulbs

What? Who does that? Well, smart people (those who know shrewd, easy ways to save money). A dirty bulb emits 30% less light than a clean one. Dust off both the bulb and fixture, and you might be able to cut back on the number or brightness of lights in each room without noticing any difference.

#2 Keep Your Fridge Full

Solid items snuggled together retain the cold better than air and help keep one another cold &#; requiring less energy overall. Leaving town for awhile and fridge is empty? Fill voids in the fridge or freezer with water bottles.

#3 Use Power Strips

Here is an easy way to save money &#; a lot of it &#; on bills. Appliances like coffee makers, TVs, and computers continue to suck power even when they're off, which can add 20% to your monthly utility bill and increase the average household's annual electric bill by $100 to $200. And did you know the AC adapter for your laptop keeps drawing power even if the laptop isn't plugged in? Stop this slow money burn by connecting them to an easy-to-switch-off power strip.

#4 Use a Toaster Oven When Possible

Toaster ovens use roughly one-third the electricity used by a full-size electric oven.

#5 Set Your Water Heater to 120 Degrees

Hot water heaters often come with a factory setting that's higher than you need. You'll cool your water heating costs by 3% to 5% every time you lower the temperature setting by 10 degrees.

#6 Insulate Your Water Heater

For about $30, an insulating jacket or blanket can shave 7% to 16% off your water heating costs for the year. Just make sure to follow the manufacturer's directions to avoid creating a fire hazard.

#7 Wash Clothes in Cold Water

Just switching from hot to warm water will cut every load's energy use in half, and you'll reap even more savings taking the temp down to cold. And don't worry: Your clothes will get just as clean from cold water, thanks to the efficiency of today's detergents (except in the case of sickness, when you'll want hot water and bleach).

#8 Use the Right Dryer Cycle

If you're using a high heat setting for each load, you could be using more energy than you need. Almost all fabrics can be dried with a lower heat setting, such as the permanent press setting. It uses less energy and has the bonus of extending the life of your fabrics. Save the higher heat for items such as sheets and towels.

#9 Use Homemade Cleaners

Many commercial products rely on baking soda or vinegar for their cleaning power, so why not make your own? Odds are, you likely have a lot of the ingredients sitting in your cabinets or pantry right now.

#10 Cut Back on Laundry Detergent

Never mind the barely visible measurement lines in the cap: You typically need only a tablespoon of detergent. And, clothes actually get cleaner when you use less, because there's no soap residue left behind.

#11 Ditch Disposable Sweeper and Mop Head

Stop throwing money away every time you clean! Refill your Swiffer Sweeper with microfiber cloths. Just cut to size and use them dry for dusting or with a little water and floor cleaner for mopping. Or switch to a microfiber mop with a washable head.

#12 Stop Buying Dryer Sheets

Another easy money saving swap? Give up your dryer-sheet habit (about $10 for 240 loads) in favor of wool dryer balls (about $11 for four, which can last for up to 1,000 loads each). Of course, depending on your laundry preferences, you can always just go without either.

#13 Cut Scouring Pads in Half

Most clean-ups don't require a full one.

#14 Don't Rinse Dishes

Image: Cavan Images/Offset

Two minutes of rinsing with the faucet on full-power will consume five gallons of water &#; the same amount efficient dishwashers use during an entire cycle. Shocking, right? And it's an unnecessary step, since most newer models are equipped to remove even stubborn food debris. Just be sure to clean the dishwasher trap regularly to keep your dishwasher running efficiently.

#15 Keep a Pitcher of Water in the Fridge

You won't have to waste time and money running the faucet, waiting for it to get cold enough for a refreshing sip.

#16 Set a Timer for the Shower

The average American takes an eight-minute shower and uses about 16 gallons of water. It's easy to linger, so set a timer for five minutes. Or try this more entertaining idea: Time your shower to a song or podcast segment.

#17 Install Low-Flow Fixtures

By installing a just one low-flow showerhead, the average U.S. household can save about 2,700 gallons of water every year and decrease home water consumption by 40% or more.

#18 Replace Your Old Water-Hogging Toilet

The U.S. Environmental Protection Agency says that by replacing old, inefficient toilets with WaterSense-labeled models, the average family can reduce water used for toilets by 20% to 60% &#; nearly 13,000 gallons of water savings per year. (WaterSense-labeled toilets are independently certified to meet criteria for both performance and efficiency, according to the EPA.) They could also save more than $140 per year in water costs.

#19 Close Closet Doors

Each closet and pantry may hold a paltry amount of square footage, but you're still heating and cooling it. Add up all the storage space, and you've got the equivalent of a small room. Shut the doors to keep the conditioned air out.

#20 Program the Thermostat

You can save as much as 10% a year on heating and cooling by simply turning your thermostat back seven degrees to 10 degrees Fahrenheit from its normal setting for eight hours a day. You can easily save energy in the winter by setting the thermostat to around 68 degrees while you're awake and setting it lower while you're asleep.

#21 Don't Crank the Thermostat Up or Down Too Far

A common misconception is that a furnace works harder than normal to warm a space back to a comfortable temperature after the thermostat has been set back, resulting in little or no savings, says Energy.gov. In fact, as soon as your house drops below its normal temperature, it will lose energy to the surrounding environment more slowly. Avoid setting your thermostat at a colder setting than normal when you turn on your air conditioner. It won't cool your home any faster and could result in excessive cooling and unnecessary expense.

#22 Use Fans Year-Round

Image: Iaobzjls/Getty

Ceiling fans can reduce your summer cooling costs and even reduce winter heating bills &#; but only if used correctly. Flip the switch on the base to make the blades rotate counterclockwise for a cooling effect or clockwise to help distribute heat in the winter. And in the warmer months, an attic or whole-house fan can suck hot air out and help distribute cooler air so you can give the AC a little break.

#23 Caulk or Weatherstrip Around Doors and Windows

Caulk may not have the charisma of something like solar panels, but using it to seal air leaks around doors and windows will deliver immediate savings. You'll spend $3 to $30 and save 10% to 20% on energy bills.

For gaps between moving parts that can't be caulked, add weatherstripping.

#24 Add Insulation

By sealing air leaks and installing the right insulation in places like attics, crawl spaces, and basements, homeowners can save an average of 10% on heating and cooling.

#25 Change HVAC Filters

Nearly half of the energy used in your home goes to heating and cooling, according to Energy Star. That's why it's important to check your home's HVAC filter and change it about every three months or more often if it looks grungy because of heavy use in the summer or winter. A dirty filter obstructs air flow, so the system has to work harder and wastes energy.

#26 Plant Shade Trees

Image: Liz Foreman for HouseLogic

Block the summer sun to lower cooling costs. Planting one shade tree on the west side and one on the east side of your home can shield your home from the sun during the summer months (but avoid south-side trees, which block winter sun). Carefully positioned trees can save up to 25% of the energy a typical household uses, according to Energy.gov. Plus, healthy, mature trees add an average 10% to a property&#;s value, says the Arbor Day Foundation.

#27 Use Curtains as Insulation

Another way to practice energy-saving passive heating and cooling? Open curtains on sunny windows in the winter and close them in the summer.

#28 Cool With a Cross Breeze

On a breezy day, open a window on the side of your house that's receiving the breeze, then open another on the opposite side of the house. Make sure the window on the receiving side is open a little less than the exhaust side to accelerate the breeze. You can also use a fan if there's no breeze outside.

#29 Check Your Mortgage PMI

You&#;ll generally pay between $30 and $70 per month for every $100,000 borrowed, according to Freddie Mac. Keep in mind this amount can vary based on your credit score and your loan-to-value ratio &#; the amount you borrowed on your mortgage compared to the home&#;s value.

once you've built 20% equity in your home, you can ask your lender to cancel your PMI and remove that expense from your monthly payment. If the value of your home appreciates before then, you might be able to cancel sooner.

#30 Check Your Home Insurance for Savings

Your homeowners insurance should change as your life changes. Installing home security devices &#; including smoke detectors, burglar and fire alarm systems or dead-bolt locks &#; could reduce your premiums, says the Insurance Information Institute.

Bundling your home and auto coverage could also save money on both policies. To be sure you're getting the best price, check that any combined price from one insurer is lower than buying the coverage separately from different companies, according to the III.

A "Consumer Reports" survey found that of the 21% of consumers who had changed home insurance carriers in the past five years, 62% were motivated by better rates or because their current carrier had raised rates. So, you could save by going with a new company.

How often are you going to use that expensive demolition hammer once you remove your bathroom tile? Not so much? Rent it from a home-improvement store for a fraction of the cost. Be sure to do the math for each tool and project, though. Sometimes the rental price is high enough to justify buying it.

Or join a tool lending library or cooperative to borrow tools for free or much less than retail stores.

#32 Cut Back on Paper Towels

Households average about $115 per year, or $2.20 per week, on paper towels. Over 10 years that&#;s $1,150. Instead, try machine-washable cotton shop towels. They clean up messes just as fast and cost a few dollars for five. Save paper towels for messes that need to go straight into the trash, like oil and grease.

#33 Stop Buying Plants for Curb Appeal Every Year

A pop of color in your landscaping perks up your curb appeal. But instead of wasting household funds on short-lived annuals, invest in perennials that will keep giving for years to come.

#34 Water Grass in the Morning to Save on Your Water Bill

Turning the sprinkler on at midday is kinda like watering the air &#; especially when the mercury soars. Lose less to evaporation by watering during cooler hours (but avoid overnight watering, when too-slow evaporation can invite fungus growth).

#35 Make Your Yard Drought-Tolerant

According to the Environmental Protection Agency, a traditional lawn can use up to 10,000 gallons of water per year, while a xeriscape yard can use as little as 2,500 gallons of water per year, according to the Environmental Protection Agency. This can result in a savings of 7,500 gallons of water per year.

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