I’m Thinking About Buying a New CarWhat Do I Need to Know?

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I’m Thinking About Buying a New Car – What Do I Need to Know? 2

Buying a car can be daunting.

To help navigate this potentially confusing process, we’re going to follow Tiffany, a recent college graduate, through the process of finding and buying a new car.

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Step 1: What are your needs

For instance, Ti�any might dream of speeding down the highway with the top down in her new convertible; or she might want a pickup truck to hook up her horse trailer and take her horse to the country for a trail ride.

But before Ti�any goes o� and buys the car of her dreams, she first needs to consider:

Like many car buyers, Ti�any starts with dreaming what her ultimate car or truck would look like.

What kind of car do I need for everyday driving?

Ti�any is a recent computer science graduate, and she’s just landed her first job.Now she wants to buy a car.

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Step 2: What should you buy?

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To get the answer, Ti�any needs to honestly look at what type of driving she does.

If, for instance, she’ll be using her new car for commuting then she may want a vehicle that’s cheap on gas. If she doesn’t want to be at the mechanic’s shop too o�en, then she’ll probably want a reliable vehicle, which may mean new rather than used. If she frequently carpools or takes road-trips with friends then she’ll probably want a good rear seat for passengers. Other items to consider include: standard safety features, technological enhancements, such as navigation, iPod input or built-in WiFi, as well as size of the vehicle.

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Step 3: Prioritize your needs

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Now that Ti�any has a list of wants and needs, it’s time to prioritize that list.

If good mileage is important then Ti�any can research what vehicles get the highest gas mileage through the Fuel Consumption Ratings Search Tool on the Natural Resources Canada website.

Doing some online research will give Ti�any a good starting point for determining which models are good on gas, meet her other needs, and are within her price range. Then she can make a short list of vehicles that match all her needs.

Step 4: New or used?

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Next, Ti�any will need to decide whether or not she wants to buy a pre-owned or new vehicle.

While Ti�any will save money by buying a used vehicle, she’ll need to consider whether or not the headaches of buying used—higher mileage, more wear and tear on the vehicle, possibly higher repair bills and unknown problems—is worth it. One way to do this is to check out a car’s reliability by going online to Consumer Reports, JDPower or MSNAutos. What Ti�any learns is that not all cars are built well—even the same make or model of cars can have years with more problems than most. So, skipping this step could mean that Ti�any gets stuck with a lemon that’s in the shop more o�en than on the road.

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Step 5: Consider price

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Whether Ti�any buys new or used, she should also keep in mind that all cars depreciate.

That means she’ll want to consider how much she pays now and how much the car could be worth down the road.

For example, if she bought a six-year-old Toyota Corolla for $7,000, she could potentially sell this same car in four years time for $3,000. However, if she were to buy a five-year-old Mercedes Benz E-class for $25,000 and then drove it for five years, she may only be able to sell it for $6,500—meaning a loss of $18,500 in depreciation during that time.

To determine whether or not a car will hold its value over time, Ti�any will want to look up trade-in values. She can check the Canadian-BlackBook.com and then make a list of what cars hold their value.

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Step 6: Lease or buy?

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Even as Ti�any narrows down the list of cars that are right for her, she may be considering whether to lease or buy.

A lease is like a long-term rental. Ti�any would agree to use the car for a specified number of months and for a maximum number of kilometres. At the end of the lease, she’d return the vehicle, pay any end-of-lease fees and walk away. The monthly lease payments will typically be less than monthly financing payments, for the same vehicle. That’s because Ti�any is only paying for the depreciation on the vehicle while she drives it, whereas financing payments are loan payments based on the full-value of the car.

A lease will work in Ti�any’s favour if she drives less than 25,000 per year (most lease agreements only cover 25,000 kilometres per year) and if she wants to drive a new vehicle every couple of years.

If, however, Ti�any plans on keeping the vehicle longer than a couple of years, she wants to tow anything with the vehicle, or she wants to customize the car, she’d be better o� buying.

Step 7: Calculate your budget

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Financial experts recommend that Ti�any keep all her debt payments—including car lease or monthly financing pay-ments—to less than 36% of her gross income (the amount of money she earns before taxes and other deductions).

Since Ti�any is earning $60,000 at her new job, she can spend up to $21,600 per year, or $1,800 per month, on debt payments. If Ti�any were paying $1,100 in rent and $200 in student loan repayments that would leave her a budget of $500 per month for her new car. If Ti�any were to buy her car outright, that $500 per month budget would then be used to pay for gas, maintenance and insurance. If she plans on leasing or financing, she would need to include those costs into her maximum monthly car budget. Ti�any will also need to add in incidental car costs. If she plans on commuting into her job, located in downtown Calgary, for instance, she could end up paying an additional $600 per month in parking. If she rents a condo she may also need to factor in additional monthly charges to rent a parking spot near where she lives.

Step 8: Save money on car/truck insurance

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Ti�any knows that she needs to add car insurance into her budget as well, but wants to find ways to save money.

Another option is to consider increasing her deductible. The deductible is the portion of a loss a policy-holder is required to pay before insurance kicks in and pays the balance. A higher deductible means Ti�any will pay more towards a claim or the cost of a repair. But by assuming more responsibility in the event of a claim, Ti�any is rewarded with lower annual insurance rates. One final way Ti�any can save money is by keeping her car insurance rates low by avoiding tickets. Even one or two tra�ic tickets can prompt an increase in insurance premiums.

One option she could explore is to call her broker and find out how much she’d save if she were to bundle her car insurance with her home or tenant insurance.

A broker can help Ti�any shop and compare several car insurance policies to get the best rates and come up with a plan that fits her budget.

Step 9: Picking the perfect car

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With her budget inplace, Ti�any can narrow the list and focus on finding her perfect car.

This is when her research will really pay o�. By finding out which cars have better mileage, cost more to insure and are more reliable, she can save some serious cash. For example, by choosing a Subaru crossover rather than a Buick SUV, Ti�any will save at least $200 per year on gas. If she avoids buying an Acura, her annual insurance payments could drop by as much as 20% with some insurance companies. And if she doesn’t buy one of the top 10 most stolen cars, she could further reduce her annual insurance costs. “When it comes to cheaper auto insurance, family-friendly four doors are usually your best bet,” explains Althea Chang, Forbes.com Auto Trend Tracker. Even if a sedan is not on Ti�any’s dream list, the key to picking that perfect car is for her to do her homework and choose based on her needs and budget. That’s when she is ready to decide whom to buy her car from.

Step 10: Start online to find a deal

To start her search, Ti�any will probably go online.

All dealerships will let her build her ideal car online before she even sets foot in the showroom.

Building her dream virtual vehicle will help Ti�any determine the features and possible financing that would best suit her needs—and give her a target that will help her negotiate the best deal at a dealership. Checking with dealerships around the area may also give Ti�any bargaining power with her local dealer.

All dealerships will let her build her ideal car online before she even sets foot in the showroom.

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Buying a new car

Step 11: Private sales

If buying used, Ti�any can still start her search online.

Sites like Autotrader.ca or Kijiji.ca advertise hundreds of vehicles for sale and o�en list pertinent information such as mileage and features. The key is to remember that the best deal doesn’t always mean the cheapest car. The goal is to find a well-maintained car in good condition at a reasonable price. Ti�any’s cheapest option is to try and find a vehicle through a private sale—either from an individual or through independent used car lots. Taking this route will require a lot more due diligence. Ti�any will need to ask the seller a number of questions, such as when did they buy the vehicle and if they are the first and only owner? She’ll need to confirm the current mileage and whether or not the vehicle was involved in any accidents or had any major repairs. (At home, Ti�any can look up the accident record of the vehicle on www.carproof.com.)

She’ll also need to check the vehicle registration to make sure the person selling the vehicle is authorized to do so, and to confirm that there are no liens—outstanding debts—against the car.

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Buying a used car

However, she should consider paying for this inspection even if the vehicle is less than 10 years old—because a full vehicle inspection by an independent licensed mechanic will provide details on whether or not the vehicle is mechanically sound or requires extensive repair work. If the private-sale vehicle passes inspection, Ti�any will want to see the maintenance records, if available, before negotiating a final sale price for her “as-is” vehicle.

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Ti�any may be required to complete a mechanic inspection.

Step 12: Buying pre-owned certified

Another option is to purchase a used vehicle through a dealership.

Typically dealer pre-owned vehicles are priced higher but usually have better maintenance records since they are o�en one-owner trade-ins or lease returns.

Also, the dealership will thoroughly check out and fix any mechanical issues before releasing these vehicles for sale. Just remember, though, that even a certified used vehicle can come with problems, so Ti�any will want to confirm the dealer’s warranty on the car and make sure she reads and understands what is covered.

The dealer may ask Ti�any if she wants to buy an extended warranty on her pre-owned vehicle. The value of this extra protection needs to be weighed with the extra cost. For instance, if it costs Ti�any $5,000 for an additional three-year warranty on her car but it would only cost her $2,500 to replace the motor should the drive-train break, the extra warranty protection may not be a cost-e�ective option.

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HAPPY DEALER

Step 13: Buying a U.S. vehicle

One final option is to purchase a car from across the border.

While this is an especially attractive option when the exchange rate on the Loonie is in your favour, Ti�any has to keep in mind all the extra work required to legally register the vehicle in Canada. Some cars are not permitted, while others require modifications (which increases the costs).

If she chooses this route, Ti�any will also want to consider asking a few additional questions. For instance, how was the vehicle stored and was it located in a part of the U.S. that experienced extreme flooding? (These vehicles are prone to faulty wiring and massive corrosion.) The easiest way to check if the vehicle Ti�any wants to import is allowed is to go to the Registrar of Imported Vehicles website.

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Step 14: I bought it! Now what…

A�er all her research, Ti�any finally settled on her perfect car.

But when she arrived at the dealership to drive it away she was surprised to learn she wasn’t allowed. That’s because no one can operate a vehicle without valid insurance. To get valid insurance, all Ti�any needs to do is call her independent insurance broker as soon as she is ready to buy a car. The broker can process the paperwork and confirm valid insurance coverage before Ti�any gets behind the wheel of her new car.

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Ti�any may want to register her vehicle with the manufacturer or dealer to get automatic notifications of any future recalls.

She can always check to see if there any recalls on the vehicle by going online to Transport Canada’s recall search. Just type in the make, model and year and all recall notices pop up.

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Step 15: Enjoy!

Ti�any is super-excited about her new car and is glad she went through a thorough process of evaluation prior to purchasing. Stay safe on the road, Ti�any!

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