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4 First Time Car Buyer Tips
The internet is full of guides and blog posts titled “first time car buyer tips.” A quick google search yields thousands of articles with “pro tips” for how a first time car shopper should approach the car buying process. Sadly, many of those articles are full of fluff and BS.
For many, buying a car is either the largest, or second largest purchase of their life. Regardless of if you’ve bought a dozen cars during your lifetime, or if this is your first time going through the process, it’s very intimidating. That’s why we filmed the video above (just click play to enjoy that version instead of reading), and wrote this guide, to help make sure you get the fundamentals of the car buying process done right and worry free.
We also offer Deal School, our 100% free e-course that will teach you how to go through the entire car buying process (or become a car salesperson, whichever you prefer), so be sure to check that out as well. In this article however, we’re going to focus our attention on 4 first time car buyer tips that you need to know before you go to a dealership.
Without further ado, let’s dive in!
Car buyer tip #1: Know your budget
This assumption may not hold true for everyone that reads this guide, but for 99% of you, it’s likely you are not a cash buyer. If this is your first time purchasing a car, it’s likely you’re going to finance your purchase, which makes sense, how many people have tens of thousands of dollars sitting around to plunk down on a depreciating asset?
It’s important to understand what your budget is for your first car (and for all your future vehicle purchases for that matter), and to factor in all of the costs associated with owning an automobile. For example, you will most certainly encounter salespeople that will ask you, “What’s your monthly payment goal?” And you’ll reply, “$400.”
Read our complete guide on how much to spend on a car: How Much Should I Spend on a Car?
Does that $400 include insurance, gas, maintenance costs, etc? Or are you thinking of that $400 as your budget for only the loan payment each month?
My recommendation is to set a monthly budget goal that is reflective of the total cost of ownership (including insurance, and gas). Factoring maintenance expenses can be difficult because that is entirely dependent on how frequently you drive the car.
{Bonus tip, don’t negotiate on the monthly payment. Instead focus on the OTD price. Link to calculator/blog post.}
Car buyer tip #2: Know your credit score
Did you know that annually you have free access to your credit report from each of the three major credit bureaus (Experian, TransUnion, and Equifax)? Most people aren’t aware that the federal government provides access to each report (for free) at www.annualcreditreport.com.
Before you buy your first car, be sure to know your credit score. Why? Because car dealers make a lot of money when you don’t! If you’re a first time car buyer, it’s likely you have a “thin file” (not a lot of credit history), and when a dealership runs your credit to get loan options on your behalf, don’t be surprised if they come back with outrageously high interest rates.
However, if you knew your credit score beforehand, you could be proactive and secure outside financing through a local bank or credit union and not be reliant on the high interest rate options the dealer finds for you.
It’s also important to be aware of manufacturer incentives for recent college graduates. A lot of first time car buyers are recent graduates, and car manufacturers create special incentives to appeal to that demographic. Many recent college grad programs include special financing through the manufacturer’s captive lender that allow you access to interest rates you could not have obtained elsewhere.
Familiarize yourself with these programs (and your credit score) before blindly accepting the interest rate the dealer secures on your behalf. This investment of time will certainly save you thousands of dollars over the lifetime of your loan.
Car buyer tip #3: Co-signers can help
If you have no credit history, a co-signer can help you get approved for a loan. If you have bad credit, a co-signer won’t make up for that. In the example we used above, when you have a “thin file,” a co-signer will help secure a loan with a more reasonable interest rate.
A lot of recent college graduate programs require a co-signer.
Co-signers are typically family members, such as parents, grandparents, aunts, or uncles. It’s important to understand that the co-signer is obligated to make the loan payments if you don’t. By co-signing on your loan, their purchasing power is impacted. The co-signed loan shows as an obligation for them on their credit applications in the future.
What does this mean for you? Make sure you make your car payments! The last thing you want to do is negatively impact the credit score of your family members. If they co-sign for you, they’re risking their reputation on your ability to make your payments. Please don’t take that lightly!
Car buyer tip #4: Do your homework
If you’re a recent college graduate, the concept of doing your homework should still be second nature to you. But what do I mean by “do your homework” in this context?
Focus on two things:
- Study the reliability, cost of maintenance, and over all five year cost of ownership about each vehicle you’re interested in purchasing. Edmunds has good resources for that: https://www.edmunds.com/tco.html
- Get a sense for the expected depreciation of the vehicle over the lifetime of ownership. CarEdge has good resources for that: https://CarEdge.com/depreciation
If you follow these 4 first time car buyer tips and complete Deal School, you’ll be in a great position to purchase your first car. Buying a car, truck, or SUV doesn’t have to be as daunting as it once seemed. Just remember, knowledge is power!
Title Washing: How a Vehicle Without Airbags Was Sold (7 times) with a Clean Title
Car dealers catch a lot of flack. The annual trustworthiness of professions poll from Gallup ranks car salespeople at the bottom of the list. To suggest that car people aren’t held in high regard would be an understatement. It doesn’t help when car dealerships engage in the practice of title washing and other consumer unfriendly practices. All too often we see a story on the evening news that reminds us of why car dealers are often considered the “scum of the earth.”
Having been in the car business for 43 years, I know that not all car people are bad people. Actually (and this may come as a surprise), most car people I know are good, decent, and humane individuals (far from the characterization they receive at work). However, as with all things in life, a few bad apples can ruin the bunch, and the same holds true for car dealers.
Recently I came across a news story out of Georgia that told the journey of a fateful 2015 Toyota 4-runner that was sold 7 times over the span of 5 years in 5 different states; each time with a clean title. The kicker is, the car didn’t have side airbags in it. How could it possibly have been sold 7 times in 5 different states (each with a clean title) even though the car didn’t have side airbags? The answer: title washing.
What is title washing
Washing a vehicle title is the process of taking a total loss vehicle (when it would cost more than a car is worth to repair it) and physically moving it to another state where the title can be recognized as “clean,” instead of salvaged or branded. When a vehicle sustains severe damage, insurance companies are required to update the status of the vehicle’s title to reflect its condition, however, each state has different requirements for what must be reported, and to whom.
For example, Texas state law allows vehicles that have been in an accident to retain a clean title without proof that critical safety repairs have been fixed. In the case of our 2015 4-runner from Georgia, the side airbags had never been replaced, however the vehicle was sold with a clean Texas title at a Progressive Insurance vehicle auction. It was then transported to Georgia where it was bought and sold multiple times to unsuspecting dealers and buyers.
Title washing is unfortunately all too common in the car business. Since each state has different legal requirements for what information (and how much information) must be reported to the local government we end up with situations where nefarious people can take advantage of loopholes across state borders.
Title washing is a federal crime, however enforcement of this law is few and far between. A quick google search of “title washing crime” returns many results, but it quickly becomes clear that enforcing title washing laws across all 50 states is a task too large for any existing federal government agency. State governments are then tasked with enforcing these laws, however many are lax in their pursuit of title washers.
With one out of 44.6 cars having a washed title, the state of Mississippi has the worst title washing problem in the country. Siloed databases, different definitions of “salvage” or “branded” title, and myriad other reasons explain why Mississippi (and many other states) face major challenges from title washing.
How do you know if a vehicle’s title has been washed
The unfortunate thing about title washing is that frequently many people in the buying process have been fooled by what they thought was a clean title vehicle. For example the story of our 2015 Toyota 4-runner in Georgia was initially sold to a dealer that did not know it had previous accident history and was missing airbags.
The owner of the first dealership that sold the vehicle to a consumer ended up refunding the customer once the customer learned that the vehicle didn’t have side airbags (something their mechanic) was able to uncover.
This simply goes to show that you have to be your own advocate during the car buying process and you can’t assume that anyone is looking out for your best interests. It’s an unfortunate reality, but it’s the truth, and it’s especially true when considering the purchase of a used vehicle.
How can I protect myself
Buying a used car is a bit like gambling. You’re making a bet that the car you are buying is in good mechanical condition and won’t turn into a clunker overnight. How can you increase your odds of making a good bet? It’s easy; get a pre-purchase inspection done before buying any used car.
A pre-purchase inspection is non-negotiable when purchasing a used car. It’s unfortunate that there is no other way to protect yourself from accidentally purchasing a vehicle with a washed title, but the best thing you can do is take proactive steps to minimize the risk.
In addition to an inspection (which we really think is a must if you are purchasing a used vehicle) you can (and should) also refer to the vehicle’s Carfax or AutoCheck report. Bear in mind that Carfax and AutoCheck reports are only as accurate as the information they receive, however they may indicate that a vehicle has had a previous accident, and if it does, that can be an indication to you that the vehicle is not worth purchasing.
Another option that we strongly recommend you consider is contacting your insurance company and asking them if they have any records on the vehicle you are considering. You will need to share with them the VIN, and they should be able to provide you with even more information than the Carfax report.
BMW Finally Got Caught! $18M In Fines & This Is Just the Beginning
The Securities and Exchange Commission recently announced $18M in fines that BMW and two of their subsidiaries must pay for having provided misleading and inaccurate retail sales information to their investors.
The SEC report reads:
According to the SEC’s order, from 2015 to 2019, BMW inflated its reported retail sales in the U.S., which helped BMW close the gap between its actual retail sales volume and internal targets and publicly maintain a leading retail sales position relative to other premium automotive companies. The order finds that BMW of North America LLC (BMW NA) maintained a reserve of unreported retail vehicle sales — referred to internally as the “bank” — that it used to meet internal monthly sales targets without regard to when the underlying sales occurred. The order also finds that BMW NA paid dealers to inaccurately designate vehicles as demonstrators or loaners so that BMW would count them as having been sold to customers when they had not been. Additionally, the order finds that BMW NA improperly adjusted its retail sales reporting calendar in 2015 and 2017 to meet internal sales targets or bank excess retail sales for future use. As a result, according to the order, the information that BMW provided to investors in the bond offerings by BMW’s U.S. financing subsidiary, BMW US Capital LLC, and to credit rating agencies contained material misstatements and omissions regarding BMW’s U.S. retail vehicle sales.
https://www.sec.gov/news/press-release/2020-223
After having spent 43 years in the car business (many of which with BMW North America), I can unequivocally say these practices are routine and commonplace within car dealerships. Fraudulent behavior like this is not limited to BMW. Every manufacturer I have ever worked for encourages this.
When I worked for Penske Automotive Group we were explicitly instructed not to fudge any numbers. If our BMW rep asked us to “pad the numbers” one month, we didn’t. Penske didn’t want to participate in that type of activity. They were the exception to the rule.
As a dealer you have very little choice but to “play the game.” As I’ve talked about in other videos and guides here on the blog, car dealers don’t make much of anything when they sell vehicles. Instead, they make their money from factory incentives and from selling finance and insurance products.
With that in mind, it’s clear why dealers “play the game.” If you have a $250,000 incentive that is based on the number of cars you sell in any given month, and the person writing you that check (BMW) is encouraging you to “fake” sales so that you can actually attain the bonus, what would you do? The answer is simple.
Car manufacturers are happy to pay out giant monthly bonuses to subsidize their dealers, but only if they hit certain sales volume thresholds. This is because manufacturers are then able to report better than expected sales volumes to their investors.
How many fraudulently reported vehicles are “sold” in any given month? In any given month we would designate 15 Mini Coopers as “sold,” even though they hadn’t been. In that same month we may have actually sold 35 or 40 vehicles. Each month, upwards of 20% of our “sales” were fake.
It’s surprising to think that BMW was only fined $18M. Considering a nontrivial amount of their sold inventory is not actually sold, you would think the fine should be $180M instead of $18M.
Fiat Chrysler paid $40M in fines a few years ago for similar practices. Regardless of who it is, it’s clear that the fines aren’t enough to stop the fraudulent behavior.
How to Negotiate at CarMax, Carvana, and Other “Negotiation Free” Car Dealers
We all know that buying a car is harder than it needs to be. From the prolonged sales process to the trip to the “back office” for financing and warranty sales, buying a car certainly isn’t as fun as you’d think the second largest purchase of your life should be.
Fortunately for us there are a handful of people out there who recognize this terribly unpleasant process and took action to make it better. I’m referring to one-price, or negotiation-free car dealers like CarMax, Carvana, and others. The premise of negotiation-free car dealerships is in the name; the price is the price, there are no gimmicks, no haggling, no bartering, no headache.
A lot of people like buying a car from a one-price car dealer. It doesn’t take a rocket scientist to figure out why. The experience is simply more pleasant and less aggravating than going to a traditional car dealer. There is one downside though, you can’t negotiate!
It may sound paradoxical, but one of the biggest frustrations when buying from a negotiation free car dealer is that you can’t get them to lower their selling price of the car. It may come as a surprise, but you actually can negotiate at a negotiation free car dealership, the trick is what you are negotiating on. Interested to learn more? Let’s dive into how you can negotiate at CarMax, Carvana, and any other negotiation free car dealership!
Car dealers don’t make their money selling cars
Go ahead and re-read that title … Yes, it is true, most car dealerships don’t make their money selling cars. Instead, they make most of their profits from fixed operations (parts and service), as well as when they sell finance and insurance products.
Specifically, dealers make money when they originate the loan you use to purchase your vehicle. Dealers also make a healthy margin when you purchase a vehicle service contract or GAP insurance. The sale of a car is simply a means to an end for a lot of car dealers.
For example, Carvana, one of the largest used car dealers in the United States makes more than 50% of their gross profit per vehicle sold on the “back-end” of the car deal; the sale of loans, extended warranties, and more.
One price car dealerships do make money selling their inventory, and if you buy a car from one of them, you will be buying at a bit above market value. That’s simply the reality of purchasing from a negotiation free dealership.
If you buy a car from CarMax, it is true that you cannot negotiate the price of the actual vehicle, however, where you can negotiate at CarMax (and Carvana, et al) is on the back-end of the deal.
CarMax also has a ‘Love Your Car’ Guarantee. For a full review of that program, click here: https://caredge.com/guides/carmax-love-your-car-guarantee/
Negotiate the interest rate on the loan
We gather the BEST new car offers every month. See this month’s list here!
Do dealers want you to negotiate on the interest rate of the loan they secure on your behalf? No. Should you negotiate the interest rate on the loan they secure on your behalf? YES!
When you buy a car from a dealership and require financing for your purchase, you have a few options for how to secure a loan. You may be tempted to secure a loan through the dealership. When a dealer provides you with financing options you need to understand that the dealer is profiting from this.
Car dealers place a lot more loans than any individual would. Because of this, they are able to work with their financial partners to secure lower interest rates on loans. When you fill out a credit application at a dealership the dealer circulates your application to multiple lenders and receives many quotes for what you qualify for. The dealer will then present to you options that are marked up from what they received from their lending partners.
For example, if you qualify for a 3% interest rate loan, the dealer may present to you a 5% interest rate loan as your best option. Why would the dealer do that if you were approved for 3%? Because the dealer is able to pocket the difference. This has been going on for decades, and this is one of the primary revenue channels for car dealers, especially one-price dealerships.
What does this mean for you? Two things:
- Always consider getting prequalified from your local credit union or bank before going to a dealership; and
- Negotiate the interest rate the dealer presents to you.
This is the first area in a negotiation free car dealership that you can negotiate.For example you can negotiate at CarMax when you’re presented with an interest rate of 6% and you know you can qualify for something better. Don’t agree to 6%. The dealer will not want to lose a car deal simply because you won’t agree to their marked up interest rate. Even in negotiation free car dealerships this is negotiable.
Negotiate the extended warranty
Thinking about buying an extended warranty? Get a free quote from CarEdge first!
What do you do when your salesperson tells you that for only $10 more per month you can get an extended warranty on that 2017 BMW X3? You sign the dotted line, don’t you? Not so fast … This is yet another area within a one-price dealership that is actually negotiable.
Don’t be swayed by sales tactics that make it seem like you’re getting a “great deal” when you add a $2,500 extended warranty onto your purchase, “but Mary, it only increases your monthly payment a few bucks each month.”
The reality is, extended warranty sales, GAP insurance, tire and wheel protection, and any other insurance product you can buy after you purchase your vehicle are all negotiable. These products are generally marked up 200-300%. Yes, you read that right, 200-300%. That means the $2,500 extended warranty you are “tacking on” to your loan might only cost the dealer $700-$800.
Not only are insurance products negotiable at a one-price car dealership, you should also consider buying them from a different provider. Shopping extended warranties at other dealers or directly from providers is a wise move. But at a minimum, be sure to negotiate at CarMax, Carvana, etc, when you think about purchasing an extended warranty or other insurance product.
Negotiate the sale of your vehicle
Last but not least, you can always negotiate the selling price of your trade-in (if you’re in a position to sell your current vehicle). One price dealers are constantly looking to secure new inventory so that they can sell more cars (to ultimately sell more loans and more extended warranties), and nine times out of ten, they’d prefer to buy a car directly from you rather than from an auction.
Buying vehicles from the auction entail many other expenses, so generally speaking, it’s more profitable to purchase vehicles directly from consumers. Keep this in mind if you’re purchasing from a CarMax, Carvana, or somewhere similar. You can and should negotiate the best selling price for your car before agreeing to what you are initially offered.
proceed with caution
Is online car buying too good to be true? Carvana and Vroom have been subject to controversy in 2024. Vroom is under investigation in Texas, and Carvana is all over the news for failing to transfer car titles, selling vehicles in horrible condition, and more.
Carvana Lawsuit: Can You Trust Them?
Before you give online car retailers your business, it’s wise to be informed about the latest lawsuits and license revocations that could impact your own buying experience. This is a developing situation, we’ll update this page when we know more.
Free Car Buying Help Is Here!
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Buying a Car on Craigslist? Here Are 4 Things You Need to Do First.
As if buying a car wasn’t difficult enough, buying a car on craigslist, eBay, or from any private party ads an additional layer of complexity. Knowing you are buying a car that is reliable and safe is one concern. Making sure you get a fair price is yet another. At the end of the day, buying a car private-party poses many of the same challenges you experience when purchasing from a dealer, and then some!
That’s why we decided to take the time to draft this guide to buying a car on craigslist (or similar peer to peer websites). The last thing you want to do is get taken advantage of, and by reading through this guide, you’ll be more prepared as you navigate your buying process.
Without further ado, let’s dive in! And, as always, if you’d prefer to watch instead of read, you can click “play” on the video up above.
Check the title of the car
It may come as a surprise, but the first thing you need to confirm is that the seller of the vehicle is actually the owner of the vehicle. Yes, people sell cars without owning them, and when they inevitably get caught, you’ll be the one who no longer has a car. That “great deal” you see on craigslist? Yeah, there’s a chance that’s because the person selling it isn’t actually the person who owns it!
I’d sell a car cheaply (and quickly) if I wasn’t the actual owner of it! Sure, when you buy a car from a car dealership you don’t have to worry about confirming that the name on the title of the vehicle matches the person selling it to you, but when you purchase from a private party, you certainly do.
How can you confirm that the seller of the vehicle is the true owner of the vehicle? Simply ask for a copy of the vehicle title and a copy of the seller’s driver’s license. The two names should match. If the title is in someone else’s name but they have “signed off” on the back of the title, that isn’t good enough. The current owner needs to take the signed off title to the state and get a new title in their name.
Once the vehicle title and the seller’s identification match, you can purchase the vehicle without hesitation.
Get a CARFAX or VIN history report
Let’s say the car you’re interested in is being sold lawfully by the current owner. Great, now what? The first thing I would recommend is that you call your insurance company and tell them you are interested in purchasing a vehicle, and that you were wondering if they could run the VIN to see what history they are able to pull on it.
Insurance companies are in the business of maximizing their profits, and one way they do that is by keeping track of every vehicle on the road to make sure they are able to charge a fair price to insure it. That being said, insurance companies have access to much more robust systems than you and I, and as a customer, you are well within your right to call them and ask for their help in assessing the history of a vehicle.
Of course you can also check the Carfax on the vehicle, however, as we have discussed in recent videos on YouTube, a vehicle’s Carfax is only as good as the information Carfax was able to receive. At the end of the day, a vehicle’s Carfax is not entirely accurate, and frequently key service and repair records will not be available on the report. Carfax reports are also not “realtime,” meaning that there are sometimes serious delays in when an event happens, and when it ultimately appears on the Carfax report.
Our recommendation is that you work with your insurance company to get their full history report on a VIN before purchasing a Carfax or AutoCheck report. However, what is most important to understand is that you need to get some VIN history on the vehicle before purchasing it.
Get a pre-purchase inspection
The history of a vehicle is critically important, however, there is something that is even more necessary for you to consider before buying a car on craigslist or a similar peer-to-peer website; a pre-purchase inspection.
Buying a used car is a crapshoot. Whether you’re buying a used car on craigslist, Facebook Marketplace, or from the local car dealership, you really don’t know what you’re getting yourself into. As I like to say, “no two used cars are the same.”
With that in mind, the worst thing you can do is blindly purchase a used car without ever having a qualified mechanic look it over. Buying a used car without a pre-purchase inspection is like buying a house without a home inspection. You just don’t do it.
This is especially true when buying a car from a private party. What warranty does the individual selling the car have to you? None! If they sell you a piece of junk, and you don’t realize it, there are very few repercussions for them. At least when you buy from a dealership you can go to the Better Business Bureau and leave online reviews. When you buy a car on craigslist and it turns out to be a clunker, what can you do? Not much.
This is why getting a pre-purchase inspection is an absolute necessity. Read our full guide to pre-purchase inspections here.
Negotiate a fair price
Last but not least, make sure you negotiate a fair price for the car you are buying. Sometimes people think that just because they are purchasing a car from a private party, they can’t negotiate on the price. This couldn’t be further from the truth.
Cars, trucks, and SUVs are some of the few commodities that we negotiate on in the United States. Just because you are dealing with a private party, and not a dealership, doesn’t mean you can’t, or shouldn’t negotiate on price.
If your mechanic notices worn brake pads, or the need for new tires during the pre-purchase inspection, be sure to use that as negotiating leverage. Also, do your research on local market conditions for similar vehicles. The CarEdge Market Price Report should be helpful for you to see what other similar cars are selling for.
If you haven’t already, I highly recommend you enroll in Deal School to learn more about how to specifically negotiate a fair car deal.
