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Buying a Car - Part II

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5. Test drive and check out the car

If you find a good car at a reasonable asking price, make an appointment and take a test drive. Also visually inspect the car as much as possible. If you are quite serious about buying the car, bring it to an auto mechanic for a thorough pre-sale checkup. It costs around $40 - $80 but will be well worth it if they catch some major issues, like the engine or transmission.

Ordering a Carfax report may also reveal some hidden problems of the vehicle's history, like altered odometer readings or a salvage title.

It is equally important to test drive a new car. You want to make sure it has features you wanted, has enough trunk space, its braking is responsive, and you can sit comfortably. Just go to a dealership and asking for a test drive of a particular car. Don't leave your contact information unless you are inclined to buy a car there, because you will most likely get tons of unwanted emails and promotional flyers.

6. Negotiate a price

Already made up your mind? It is time for the fun part. Remember, while buying a car - new or used - just about anything is negotiable.

Your target should be the dealer's bottom-line cost plus 2-3% profit for them. Yes, they do need to make money - you just don't want to get ripped off. How much profit depends on the model, the timing of the year, and many other factors.

Dealers will tell you their version of cost, usually by hiding their rebates, but some will just lie about the numbers. There are also a score of dealer tricks to pressure you, embarrass you, or lure you to buy the car on the spot, at the highest possible price. You just have to do your own homework and trust your research.

A very good approach is to let several dealers bid for your business, and pick the best offer.

Some people simply dislike the car buying experience, and opt to use a no-hassle service such as or Costco by paying a little bit more.

Buying from an individual is usually less stressful, but expect to negotiate as well.

7. Buy the car

After you settle on a deal, a salesman will lead you to their finance department to "do the paperwork." But there are potentially more traps. You will most likely be offered a list of hot deals for mechanical add-ons. In almost all cases you should just say "no." However, if there is something you really wanted, like a running board for SUV's, you may want to hear what the offer is. A DIY or a third-party installation usually can save you at least 30%, though.

Another common pitch is to sell you an extended warranty. Depending on your own situation, it may be worth it. Do a thorough research on the car and read about other owners' opinions before heading to the dealership.

If you are buying a new car, you should have already secured a car loan with your bank or credit union, unless a better financing deal is offered by the manufacturer.

Your paperwork should also include new car registration and license fees paid to your state.

A private seller may demand cash or a cashier's check, which is understandable. Make sure the seller gives you all the documents required to complete the transfer of title and license plate. States may have different requirements on buying a used vehicle - read them carefully at DMV's website.

8. Buy car insurance

After picking up your car, the first thing you want to do is to buy auto insurance. Most states require liability insurance to operate your car, but you may want to consider more coverage than the minimum limit. Here is a brief description of the most common coverage and terms used in auto insurance:

  • Bodily Injury Liability: Covers other people's injuries or death during an accident which is your fault. Claims may include medical bills, long-term care, loss of income, lawyer fees or the like. It does not cover you, however. Although most states mandate Bodily Injury Liability, the minimum requirement may be too low to provide sufficient protection. So if you can afford, this is the one thing you don't want to save money on. You should target $100,000 per person and $300,000 per accident.
  • Property Damage Liability: Covers repair or replacement of other people's properties, usually a car, but could be a house or a fence, that is damaged by your vehicle. It is a good starting point to consider at least $30,000 coverage.
  • Uninsured- and Underinsured-Motorist Coverage: Provides coverage if you are hit by a car without insurance, or without sufficient insurance. It covers yourself and any passengers in the vehicle with you.
  • Collision Coverage: Covers repair or replacement of your car after an accident. Requires deductible. Not worthwhile if you have an old car.
  • Comprehensive Coverage: Covers your vehicle (and your belongings inside the vehicle) if it is stolen, damaged by flood, fire, or anything other than a car accident. Requires deductible. If your car isn't worth much and you can easily replace it , there is no need to spend money on a comprehensive coverage every month.
  • Deductible: An upfront cost out of your pocket before your Collision or Comprehensive Coverage kicks in. The higher the deductible you select, the more you will save on your premiums.
  • Personal-injury protection: Covers "no-fault" accidents, only available in certain states.
  • Rental Car Reimbursement: Covers rental cars when your own is being repaired or otherwise non operable. Not worth the cost in most cases.
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