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Purchasing a Vehicle

Other than real property, a vehicle purchase is generally the largest purchase an individual makes over the course of a lifetime. Whether you are buying with cash or financing the purchase, the purchase always includes:

• Sales tax, and other taxes if applicable. The sales tax rate in your state determines the amount. For example, a 10 percent sales tax on a $10,000 vehicle is $1,000. If your state assesses personal property taxes on vehicles, you may receive a bill for those taxes as well.
• Title fees. The fee for obtaining the document showing you are the owner of the vehicle. The Department of Motor Vehicles in your state issues the title for a nominal amount (approximately $50). Dealers often add a "carrier fee" for getting the title for you.
• Licensing fees. The fees states charge to register or license your vehicle. In some states, such as California, the fees can be several hundred dollars in households with more than one vehicle.

Each of these items is calculated differently depending on the state in which you reside. and the buyer is required to pay them.

SIDEBAR: In 2005, if you pay more than $38,000 for a vehicle, you will incur a luxury tax on the vehicle. The tax is 5 percent of that part of the purchase price above $38,000. For example, a $40,000 vehicle will cost the purchaser $100 in luxury tax ($40,000 - $38,000 = $2000 x 5% = $100).

TIP: There is no luxury tax on sports utility vehicles, vans and trucks with a gross vehicle weight rating of 6,000 pounds or more if made as an investment for a farm or small business.

There is a lot of information available regarding new vehicles. What areas do I need to concentrate on?

Depending on what is important to you (e.g., fuel economy versus safety), you should concentrate your research in:

• safety
• reliability
• fuel economy
• style and performance
• total purchase price
• cost to drive (including insurance)

I am concerned about vehicle safety. Where can I get reliable information?

The National Highway Traffic Safety Administration (NHTSA) tests vehicles, provides crash statistics and lists recalls as well as other important safety information on any vehicle you may be considering. Their comprehensive Web site is located at www.nhtsa.dot.gov.

How can I find out the dealer invoice price of a car I want to buy?

Once you have determined the make and model of the vehicle you want to buy, you need to research the invoice price versus the purchase price or manufacturer's suggested retail price (MSRP). It is fairly simple to find out the price the dealer pays for a vehicle by obtaining the dealer invoice. Many companies provide dealer invoices for particular vehicles for a fee. Credit unions may also provide this information to their members as a service.

Your best research tools are online. If you do not have access to the Internet, check with your local public library to find out how you can use their computer for online research. Many Web sites provide extensive car-shopping information to consumers, including dealer invoices. Begin your research with the following sites:

www.edmunds.com
www.consumerreports.org
www.kbb.com

How can I determine the amount of car I can afford?

It is unwise to enter into negotiations for the purchase of a vehicle, especially a new one, without setting a spending limit. Car buying is emotional and you do not want to be at the dealership with your heart set on a new car that is beyond your limit.

The amount you can afford should include tax, title and licensing fees as well as any vehicle options you want. Decide which options you will not pay for and stick to your decision, even if seat warmers sound like a good idea.

I have calculated the price of the car by adding the title fee and sales tax. Are there other amounts I should factor in?

Yes. You should add in annual expenses for maintenance, including:

• fuel
• oil
• cleaning expenses (if you are determined to keep your new vehicle clean, you might spend $20 a week or more)
• insurance

Over the life of the car, factor in (then divide by 4 years):

• tires
• repairs

What are some tips for negotiating the purchase price of a car?

Use this simple rule: never bid against yourself. If the dealer asks you what you are willing to pay, ask the dealer what discounts he is willing to make. Even better, go in with the invoice and negotiate up from that price rather than down from the MSRP.

EXAMPLE: Ask the dealer to tell you first what amount, above the invoice, he is willing to take before you indicate how much you will pay.

TIP: Some sites where you can order a copy of the dealer invoice on a particular vehicle are:

www.invoicedealers.com
www.consumerreports.org

The salesperson at the auto dealership wants to know my budget. Should I tell him?

No. The only information you need to give is a list of the options you want on the vehicle you are looking at so you can get a quote. The goal is to obtain a price under your budget. If the salesperson knows you maximum, the quote will be at least that amount or more.

TIP: Never purchase a vehicle based on the monthly payment you can afford. Paying $400 a month for a new Mercedes could take 15 years and thousands of dollars of interest.

I have several quotes from different dealerships. Should I disclose the lowest price to another salesperson?

Yes. Give the dealership a chance to meet or beat your lowest quote.

The salesperson rode with me while I test-drove the vehicle around the block. Should I insist on a longer test drive?

Yes. Drive the vehicle at least two miles, including city traffic and highway driving. The salesperson will get the message that you are serious about purchasing the vehicle.

TIP: If the salesperson does not permit an adequate test drive (typically in a used car purchase), walk away from the dealership and the vehicle. The possibility is great there is something wrong with the vehicle.

The salesperson I am working with says she cannot hold the car and I need to decide if I want to buy it now. What should I do?

You should tell the salesperson you will get back to her when you have considered the purchase at greater length. The salesperson's statement is typically a negotiating tactic to pressure you into purchasing the vehicle without getting other quotes. If the vehicle is in fact sold before you get back to her, the chances are good you can find a similar one for a better price at another dealership. Do not be bullied into making a commitment.

Do I negotiate the purchase price of my new vehicle and the trade-in value of my current vehicle at the same time?

No. Each price should be negotiated separately. Get the trade-in price in writing before you go onto negotiating the purchase price of the new vehicle.

TIP: Research the trade-in value, including deductions for possible repairs and high mileage, before you accept an offer.

TIP: Check used car values at the Kelley Blue Book Web site, www.kbb.com.

TIP: The wholesale or trade-in value of your vehicle is much less than its retail value. Consider selling your vehicle yourself. Check the classified automobile ads in your local newspaper to get an idea of prices. There could be several thousands of dollars of difference, especially if your car is relatively new with low mileage.

The salesperson says I have to pay for the "extras" on the vehicle. Can I negotiate away some of these charges?

Yes. Many extras did not cost the dealership anything. Tell the salesperson you will not pay for one or all of the items listed below and do not budge:

• protection or appearance packages
• fabric protection
• rust-proofing
• undercoating
• pin striping
• Teflon coating

Should I purchase an extended service plan for my new vehicle?

Not if you will trade in the vehicle within 4 to 5 years and the original warranty is for several years and high mileage. Extended service plans can cost at least $1,000; however, the plan pays for itself if you have an expensive repair after the original warranty expires. Some factors to consider in purchasing an extended warranty include:

• length of coverage (you can pick the number of years)
• extent of coverage (find out what repairs are not covered)
• owner's out-of-pocket expenses and/or deductible
• reputation of company or dealership that performs the repairs
• cancellation and refund policy

I am not sure how to finance my new car. What do I need to know?

If you have any credit history issues, obtain your credit "score" from at least one of the three major credit-reporting agencies. Assuming you are regularly employed, this number determines whether you will qualify for a vehicle loan. With a score of 680 or above, you will be able to find a lender. If your score is below that, you must find a lender that specializes in loans for people with poor credit histories. Applying with regular banks, credit unions and manufacturer finance programs lowers your score with each application.

TIP: For more information on credit scores, go online to www.creditnet.com.

After you have determined whether you qualify for a loan, research interest rates for vehicle purchases to find the most competitive rate available to you. You can call various banks and credit unions, give them your credit score and get a fair idea of the interest rate you can expect. However, Internet research is the better tool. A reputable Web site for current interest rates is www.bankrate.com.

TIP: Do not let anyone make an inquiry on your credit report. Too many inquires in a short period of time can negatively affect your score.

Who do I contact to obtain my credit score?

The following three agencies are the largest in the industry:

Equifax Credit Information Services, Inc.
PO Box 740241
Atlanta, GA 30374
To order report: 1.800.685.1111
Web site: www.equifax.com

Experian (formerly TRW)/National Consumer Assistance Center
PO Box 2002
Allen, TX 75013
To order report: 1.888.397.3742
Web site: www.experian.com

Transunion/Consumer Disclosure Center
PO Box 1000
Chester, PA 19022
To order report: 1.800.888.4213
Web site: www.transunion.com

What are my financing options?

If your credit is good, search the Internet for a rate. The absence of overhead makes many of these reputable online banks highly competitive. Check www.bankrate.com to find the best rates and the companies offering them.

TIP: Always get a complete list of any fees you will be charged for taking out the loan.

Your next best bet is a credit union. Their interest rates for vehicle purchases, both new and used, are often lower than the banks in your area. If you do not belong to one through your employment, there are many credit unions that allow you to join based on other qualifications.

A last option is financing through the automobile manufacturer. Until recently, those interest rates were not especially competitive. Currently, however, many vehicles can be financed at zero percent interest through the manufacturer if you meet its stringent credit qualifications. Your monthly payments may be much higher, however, because the zero percent interest rate offers are typically available for short-term loans only. Remember, too, that you may be required to give up any available rebates in return for the zero percent interest. Do not go into a zero percent interest loan without doing the math-you may be better off with a combination of a credit union rate, a rebate and a longer term to repay the loan.

Avoid finance companies as a way to fund your vehicle purchase. The rates are typically astronomical, and you should be careful to examine the loan papers to determine the total amount of interest you are paying over the course of the loan. It could be nearly as much as the purchase price of the vehicle itself. Additionally, finance companies also apply "carrying charges"-fees for making the loan above and beyond interest. Carrying charges are regulated in most states by statutes. Do not accept a monthly payment chart as a report of total interest. Ask for a simple statement setting out the total interest charges over the life of the loan plus any carrying charges.

Can I get a loan for the full amount of the purchase?

Probably not. Your bank, or whatever method you use to finance the car, lends a portion of the money needed for the purchase, and the borrower supplies the balance.

TIP: The trade-in on your old vehicle generally acts as the down payment on the new loan.

SIDEBAR: The bank secures it loan by placing a lien on the vehicle. A lien gives the lender a claim on the vehicle in exchange for providing the money to buy it. The lien is noted on the title. If you do not make payment, the lien gives the bank the right to repossess the vehicle without complicated legal action.

Can I sell a car with a lien on it?

Yes, if the lender agrees and you are current on your payments. Any monies you receive for the sale of the car must first go to repay the loan and remove the lien. In most states, it is a criminal offense to sell a vehicle with a lien without the consent of the lien holder. Consent must be in writing and signed by the lien holder and is typically made part of the paperwork in the sale.

Is there a difference between financing a new and a used vehicle?

Yes. Financing a used vehicle costs more because the interest rate is higher. On the other hand, the buyer avoids the immediate depreciation of the new car the moment it is driven off the lot.

I purchased a used SUV "as is" from a local automobile dealer. Is he responsible for any repairs?

No. As long as the dealer complied with Federal Trade Commission (FTC) rules concerning the sale of used vehicles in "as is" condition, he has no further responsibility for your SUV.

The dealer has offered to sell me a "program car." What does that mean?

A program car is a low-mileage, current-model-year vehicle returned from short-term leasing or rental.

TIP: A "demo" car is a vehicle driven by dealer staff. It has not been owned, leased, or used as a rental.

Do I have the right to return a used vehicle I purchased within 3 days?

No. The law does not give you an automatic 3-day right to cancel the transaction. You only have that right if the dealer gave it to you when you purchased the vehicle.

TIP: Always get the dealer's refund policy in writing. If there is no policy for returning the car and the dealer refuses to give you one, consider buying from another source.

TIP: Dealers often advertise "cooling off" periods, "money-back guarantees" and returns with "no questions asked." Find out from the dealer the exact meaning of these phrases:

• How long is the cooling off period?
• When must the vehicle be returned in order to get your money back?
• Will all the money be returned or is there a return fee?

My dealer gave me a "buyer's guide" to read about the used truck I am considering purchasing. What is the guide supposed to tell me?

The FTC requires the dealer's buyer's guide to include:

• whether the vehicle is being sold "as is" or with a warranty;
• what percentage of the repair costs a dealer will pay under the warranty;
• the major mechanical and electrical systems on the car, including some of the major problems you should look out for; and
• your right to ask to have the car inspected by an independent mechanic before you buy.

The buyer's guide also warns you to get all promises in writing and reminds you that oral promises are often unenforceable.

TIP: Keep the buyer's guide for reference after the sale. The FTC requires that any modifications in warranty coverage be reflected in the guide. For example, if the car was originally offered "as is" but the dealer agrees to a 6-month warranty, the new warranty must be written in the buyer's guide.

SIDEBAR: The FTC requires a buyer's guide to be posted in every used car offered for sale.

What is a "Lemon Law"?

All states have fraud or deceptive trade practice laws that apply specifically to vehicles. Under these so-called Lemon Laws, vehicles have the following two types of warranties:

• Implied Warranty. The vehicle is presumed to be in working order and reasonable condition.
• Express Warranty. The vehicle is sold with certain guarantees the seller is required to fulfill. Generally, express warranties are the written warranty the vehicle manufacturer gives the new car buyer. For example, the warranty may guarantee repairs for mechanical problems, no questions asked, for a year after the purchase.

TIP: Manufacturers offer extended warranties on their vehicles when the original warranty has expired. An extended warranty costs at least $1,000 and typically covers the car for another 1 to 3 years. If your vehicle has a history of repairs, consider buying the extended warranty. Consumer Reports magazine publishes a "Used Car Yearbook" each year with repair histories. The book is available at libraries and bookstores. You can also view it online, for a fee, at www.consumerreports.org.

Some states apply an implied warranty to sales where the buyer has sold the car "as is." In those cases, the buyer, by the act of selling the vehicle, guarantees it is in working order and reasonable condition.

EXAMPLE: You may be able to sue the neighbor who sold you a vehicle "as is," but knew that the vehicle would never start in below-freezing weather.

TIP: Have an independent mechanic check the vehicle out to determine its condition. If the vehicle is in the condition the seller or dealer says it is, they will let you take the car for an inspection.

How do I know if a used vehicle comes with a warranty or is sold "as is"?

The dealer is required to check the "As Is/No Warranty" box on the buyer's guide.

I know I bought my vehicle "as is" but it will not start. Should the dealer be required to repair it or refund my money?

No (unless you live in a state that prohibits "as is" sales). Typically, a used car is sold with an implied warranty of merchantability. In other words, the car, at a minimum, should perform as expected, such as your being able to start it. If it does not perform, the warranty forces the dealer to repair or refund. However, by selling the car "as is," the implied warranty was eliminated. You have to pay for the repairs.

SIDEBAR: The implied warranty is not eliminated in some states, including Connecticut, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, New York, Rhode Island, Vermont, West Virginia and the District of Columbia.

I was told my used vehicle came with a warranty, but the dealer says he sold it to me "as is." What are my options?

If the dealer represented to you that the vehicle was covered by a warranty and it was not, he may have violated FTC regulations. You can file a complaint with the FTC on their Web site or by calling 877.FTC.HELP (or 877.382.4357).

SIDEBAR: You can also file a lawsuit against the dealer under your state's consumer protection laws. Additionally, a suit can be filed claiming violations of the Magnuson-Moss Warranty Act, which protects consumers from deceptive warranty practices.

TIP: You can obtain a booklet with FTC rules, an explanation of the Magnuson-Moss Warranty Act and the FTC Warranty Advertising Guides on the FTC Web site or by writing:

Federal Trade Commission
Consumer Response Center
Washington, D.C. 20580

What is the difference between "full" and "limited" warranties?

A full warranty means the coverage meets the federal minimum standards for comprehensive warranties, which requires:

• providing coverage to any owner during the warranty period, not just the original purchaser;
• providing warranty service free of charge;
• replacement or a full refund after repeated repairs are unsuccessful; and
• that the consumer need do nothing other than notify the seller of the problems in order to obtain warranty service.

If the warranty lacks any of these requirements, then it is a limited warranty. For example, if you are required to send in a warranty card within 30 days of purchase to trigger coverage, the warranty is limited. It is not a full warranty because you are required to do something other than notify the company of problems.

SIDEBAR: A limited warranty always includes the implied warranty of merchantability. However, the duration of implied warranty can expire when the limited warranty ends.

Does a private seller give an implied warranty when her car is sold?

Yes, but the warranties are much less stringent than those applied to dealers. Any vehicle purchased from a private individual should be road-tested by the potential purchaser and inspected by a mechanic.

I am selling my daughter's car for her. Do I have to provide the buyer with a buyer's guide?

No. Buyers' guides are only required from persons who sell more than six used vehicles per year.

SIDEBAR: Buyers' guides do not have to be posted on motorcycles and most recreational vehicles.