Money Basics

Options: Down payment, car payment, trade-in, or sell

When car shopping, be careful of dealers that offer no-money-down options or a very low down payment. The down payment is the amount you want to initially pay toward the purchase price of the car. If you pay a lower down payment, you will have more to pay on a loan and more interest as well. Put as much money down as you can afford.

Consider these tips as you think about buying a new car and trading in or selling an existing one:

• Don't negotiate based on the monthly payment for a vehicle. If you do, you might end up paying significantly more than the value of the vehicle.
• If you have a vehicle, you may want to trade it in or sell it first to put money toward the down payment of your new car.
• If you are considering trading in your old car, remember to keep the trade out of the car-buying process until after you have negotiated a firm selling price on the new vehicle. If the salesperson asks about a trade in early on, simply say that you are interested in negotiating a good price on the new car and that is what you want to focus on. Once you do that, you can talk about a trade in. Ask for a firm trade-in offer in writing, and be sure the offer is for the actual cash value of the car. Sometimes dealers give an overallowance, or a trade-in value that's worth much more than the value of the car, and then expect to make up the difference by selling you extras or offering financing at a high rate.
• Check your local bank or visit the Kelley Blue Book website to learn more about the average prices for various used cars.
• Remember that you will probably get more money for a vehicle if you sell it yourself instead of trading it in. However, keep in mind that you may incur costs for advertising, and you'll have to spend time making appointments for people to see and test drive the vehicle.
• Whether you are trading in or selling your old car, you may want to get the car professionally cleaned so it looks its best.
• Read and understand your purchase contract. Don't sign anything you don't understand.