Buying a New Car

These days, the average new car costs over $20,000. For that amount of money, you would hope for a hassle-free buying experience and a safe and reliable product. Unfortunately, new car buyers are frequently overwhelmed with the pressure to buy immediately or spend more than planned, and worse--the product you bring home might be plagued with problems ranging from annoying engine pings, to frequent stalls, to safety hazards such as poor acceleration or carbon monoxide leaks.

1. I want to buy a new car, but I'm not sure how to finance my purchase. Do you have any general advice?

Clearly, if you can pay for the purchase outright you'll save money by not paying any interest charges. But if you don't happen to have $20,000 lying around and need to borrow money to buy your new car, consider the following sources:

The car dealer. Many offer generous terms--for example, interest at 1.5% or 2%--especially in the early fall when dealers are anxious to clear out stock to make room for new models. But be sure these low interest deals don't require you to buy expensive extras.
Banks you do business with. Dealer financing isn't your only option. Before you buy, contact the banks where you have your savings, checking, credit card or business accounts. Ask about the going rate for car loans. Also ask about discount rates for loans tied to your other accounts.
Credit union. If you're a member of a credit union (or are eligible to join one), be sure to investigate its car loans. Historically, credit unions have offered some of the best loan terms.

2. Do you have any other suggestions for getting a good deal?

First, if you have an old car you're planning to get rid of, you'll probably get more selling it yourself than trading it in with the dealer. A dealer will give you the low Kelley Blue Book value at most. The Blue Book is an annual publication that lists wholesale and retail prices for cars by year and model. Also, take a look at local classified ads to get an idea of how much your old car is likely to bring in if you sell it on your own. You can also get the value of your vehicle by visiting KBB's online site: http://www.kbb.com.

Second, if you have a poor credit history, you'll need to put a substantial amount down (that is, finance very little) or get a cosigner to get a good interest rate.

Third, resist the urge to buy more car than you can afford--and don't talk yourself into a more expensive car by financing it for four or five years. You'll pay a bundle in interest that way. Know in advance what features you want and how much you're willing to pay. Stick to your guns. Hassling over the price of a new car can be quite unpleasant. If it's not something you enjoy, consider turning to a manufacturer or dealer whose price is nonnegotiable.

3. If I borrow money for the purchase, what should the lender tell me about my loan?

If you get a car loan from a bank, credit union or car dealer, the federal Truth-in-Lending Act requires that the lender disclose the following information, in writing:

your right to a written itemization of the amount borrowed
the total amount of the loan
the monthly finance charge
the annual interest rate
the number, amount and due dates of all payments, and
if any late payment fee or penalty may be imposed.

4. What other information do I need to know before I buy my new car?

Be sure you know the following before you sign any contract:

what the warranty covers and how long it lasts
how you might negate the warranty coverage (such as driving off-road)
whether an extended warranty is available to you, and if so, the following:
- what it will cost
- what it covers
- how long it lasts
- whether it duplicates coverage provided by the manufacturer's warranty
- how likely it is that you'll need it (whether the covered parts have a history of problems)
the vehicle's estimated miles per gallon for city and highway driving, and
the dealer's suggested maintenance schedule.

Don't Pick Up a New Car at Night

Never take delivery of a new vehicle at night. Even though it may be inconvenient to take time off during the day, you'll be able to look the car over carefully in the daylight. At night, even in good artificial light, it's hard to see nicks and dents. Also, you'll miss subtle changes in paint that may indicate that the car was damaged in transit and needed repainting.

5. If I change my mind after I buy a car, do I have the right to cancel the contract?

No. Unfortunately, many people think they have a right to change their mind, drive the car back to the dealer a day or two after buying, and cancel the contract. But the truth is, the dealer doesn't have to take the car back and probably won't, and you'll be stuck with a car you no longer want or cannot afford. Never buy a car unless you are absolutely certain you want it and can afford it.

This misunderstanding is so widespread that California requires the following to be included in new car contracts:

California law does not provide for a "cooling off" or other cancellation period for vehicle sales. Therefore, you cannot later cancel this contract simply because you change your mind, decide the vehicle costs too much, or wish you had acquired a different vehicle. After you sign below, you may only cancel this contract with the agreement of the seller or for legal cause, such as fraud.

6. I bought my car out of state. After I brought it home, I got a huge bill from the state taxing authority. What's it for?

Many people cross state lines to buy a car in a state that has no or a very low sales tax. When this happens, the state that lost the sale also loses sales tax revenue. To counterbalance the loss, that state will often impose a tax, called a use tax, on the purchaser of the vehicle. The use tax rate will be identical to your state's sales tax rate, and if you paid any sales tax in the state in which you purchased the vehicle, that amount will be deducted from the use tax bill before your state taxing authority sends it to you.

7. Soon after I brought my new car home, it started having problems. How do I know if it's a lemon?

An estimated 1% of new cars are lemons. To be considered a lemon, two things must be true:

Your new car must have a substantial defect within a certain mileage period, usually 12,000 miles or one year, whichever comes first. (A few states extend this to two years.) A substantial defect is one that impairs the car's use, value or safety, such as brakes or turn signals which don't work. Unfortunately, minor defects, such as a loose radio and door knobs--even several minor defects--don't qualify.
The defect must remain unfixed after three or four repair attempts (depending on the state) or after the car has been in the shop for a cumulative total of 30 days.

8. What should I do if my new car is a lemon?

If your new car meets the lemon law requirements described in question #7 above, every state gives you the right to take the manufacturer to arbitration, and obtain a refund or replacement vehicle.

To get redress under a lemon law, you must notify the manufacturer of the defect. If you're not offered a satisfactory settlement, you can submit your dispute to arbitration, which is free and designed to take place without a lawyer. Automakers use the following types of arbitration programs:

in-house programs run by the auto makers
programs set up by the Better Business Bureau's (BBB) Auto Line http://www.bbb.org/complaints/BBBautoline.html
programs run by the American Automobile Association (AAA) or the National Automobile Dealer's Association (NADA), and
programs run through a state consumer protection agency.

You probably won't get to choose which program to use--the manufacturer selects it. If you do have a choice, however, know that consumers who appear before a state consumer protection agency usually fare much better than those who use a manufacturer's in-house program or a private arbitration program run by the BBB, AAA or NADA.

9. What happens at a lemon law arbitration?

At the arbitration hearing, the arbitrator hears both sides of the dispute. The arbitrator has approximately 60 days to decide if your car is a lemon and if you're entitled to a refund or a replacement. Consumers who bring substantial documentation to the hearing tend to do better than those with little evidence to back up their claims. The type of documentation that can help includes:

brochures and ads about the vehicle--an arbitration panel is likely to make the manufacturer live up to its claims, and
vehicle service records showing how often you took the car into the shop.

10. What if I don't like the arbitrator's decision?

If you don't like the ruling, you can usually sue the manufacturer in court. You may want to do this if you have substantial consequential damages--that is, damages that resulted from owning the lemon, such as the cost of renting a car while your lemon was in the shop or time off from work every time your car broke down.

Secret Warranties

Many automobile manufacturers have secret warranty, or warranty adjustment, programs. Under one of these programs, a manufacturer makes repairs for free on vehicles with persistent problems after a warranty expires in order to avoid a recall and bad press. According to the Center for Auto Safety, at any given time there are a total of 500 secret warranty programs available through automobile manufacturers.

Unfortunately, consumers aren't told of these secret warranties unless they come forward after the warranty has expired, complain about a problem and demand that the manufacturer repair it.

A few states, including California, Connecticut, Virginia and Wisconsin, require manufacturers to tell eligible consumers when they adopt a secret warranty program, usually within 90 days of adopting the program.