Insurance 101: How to buy a car from an auto dealership

​There's much more to buying a car than walking into a new-car showroom and falling in love.

 With the average cost of a new car now topping $40,000, according to Kelley Blue Book, it's likely the single biggest purchase you'll make, outside of buying a home. Unfortunately, few first-timers feel confident navigating the multilayered process that awaits them inside the dealership's door.

In a nonscientific office poll, we asked people, "If you could talk to your younger self when you bought a car for the first time, what would you say?" Nearly everyone had at least one auto dealership do-over:

1)     Start the buying process before you go. 

Narrow your choices – needs vs. wants, budget, research – at home in front of your computer, not standing at the dealership, swooning in the new-car smell.

• Be honest about how you'll use the car. If it's mostly a commuter car, reliability and gas mileage should overrule your vision of that rugged 4x4 for weekend off-roading.
• Don't go car-poor. Just because you can afford a bigger payment doesn't mean you should. Hold payments to 15% of your monthly income. Even better, 10%. Know the fair market value of every car you're considering.
• Buy all the safety you can afford. And that might mean not "buying" at all. If your purchase options are an older, used car that lacks critical crash-avoidance features or a high-mileage model that could set you up for expensive repairs, consider leasing a modestly priced new car, instead. These rating sites will help you find safe cars in your price range.
  

2)     The dealer is your friend – to a point.

Friendly customer service makes car buying less stressful. But remember that once the paperwork is done, you'll likely never see your salesperson again. DO seek out reputable dealers that stand behind their product, but don't get locked into one dealership. Visit several, see what they're willing to do for you and be willing to walk away. Also:

• Make sure your significant other test drives the car, too. A car can tick all the boxes during the research phase, but if either of you don't like how it drives, you won't feel satisfied for long. Ask to take it out on the highway and drive some hilly and curvy roads. If in doubt, see if you can drive it home to make sure it fits in the garage.
• Take good notes. Details run together after visiting a few dealerships. You may be able to use competitor offers as part of your price negotiations.
• Get every promise in writing. Did the salesperson say their shop could buff out a scratch at no charge? Include that in the purchase agreement.
  

3)     Get preapproved financing from a bank or credit union. 

That allows you to negotiate the price of the car without dealer financing getting tangled up in the conversation. You also can take advantage of cash-back rebates to reduce the amount of your loan.

• Make sure your financing is good for used cars. Three years old may be the sweet spot to maximize features and budget. That's because depreciation takes a 20% bite out of new cars the first year, 15% the second and about 10% every year after that. A low-mileage, well maintained three-year-old car can save you thousands and likely still have some factory warranty left.
• Don't talk about a trade-in until you've negotiated price. Save it as a final bargaining chip to get your business. There's a lot to consider with a trade-in, from tax implications to your personal safety, and you'll want to explore your choices.
  

4)     Talk to your insurer before you buy. 

Most insurance companies automatically extend coverage to a new car. PEMCO, for example, matches the insurance on the vehicle it's replacing for 60 days or, if it's an addition, extends the broadest coverage for any car on the policy for 30 days. BUT, if you've been driving older cars and have dropped comprehensive and collision coverages to save money, you'll be underinsured for the new car.

• Similar cars can have very different premiums. Once you've found some serious contenders, check their cost to insure on pemco.com or call your local agent or 1-800-GO-PEMCO. Certain makes and models have higher repair costs or tend to be thief magnets and cost more to insure.
• Consider gap insurance if you're financing. Because new cars depreciate in value steeply, it's possible that you could find yourself underwater on your loan if you finance most of the purchase price and total it shortly after buying. (Insurance settlements pay current market value, which can be less than the balance left on the loan.) You can buy gap insurance through us or your lender and drop it once your car's value and loan are in sync.
  

Want to know more? Check out Seven things you never thought about when buying a car (but wish you had).