Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to and post your comments below.



Buying a Car 101

Karen Gibbs

Hi Karen, I’m ready to buy a car but want to know how to select a dealership.  Also, what are your thoughts on dealer financing?
- Paul, Owings Mills

Blue CarThanks for your timely questions Paul.  The new car season is upon us and dealers are looking to make room for the new 2017 models and move older vehicles off their lots.

Buying a car is a major purchase.  It is a “durable good” that can be expected to last three years or more.  Along with the purchase price, you must factor in title, taxes and registration costs, insurance premiums as well as maintenance and upkeep.

The first step is to identify how much you have to spend and what type of vehicle you want to drive.  Many dealers will ask you how much you can afford to pay every month.  I prefer to consider the total cost of the car instead of monthly payments.  Factor in a 20% down payment, a four year financing term with monthly payments not more than 10% of your household income.  Crunch your numbers first so you know how much car you can comfortably afford.

Do you want a new car or a previously owned car?  New cars are more expensive, but have all the new technology.  New cars also lose as much as 10% of their value as soon as you drive it off the lot along with another 10% during your first year of ownership.  The depreciation accelerates from there. says the average vehicle price for 2016 is $34,000.  The average loan amount is $30,000 with many financing the car for an average of 5-1/2 years! With such a long financing period and depreciation, you run the risk of owing more than your car is worth.

Used cars can be “certified” pre-owned (CPO) or not certified.  CPOs are typically relatively new (less than four years old) and with low mileage.  They are backed by the manufacturer and come with extended warranties.  CPOs are generally priced higher than non CPOs.  You want to research the car’s accident history and, by all means, have a mechanic whom you trust check it out.

Once you’ve decided what make and model you want, and have an idea of how much you want to spend, go online and do some sleuthing. Thanks to the internet, you can compare prices online for exactly what you want.  You do have an idea of all the bells and whistles you want, yes?  Make sure you need and will use all those bells and whistles – you don’t want to “over buy”.

Some online resources: and Kelley Blue Book, the largest appraiser of automobiles.

Armed with the knowledge gleaned from your online research, you can now investigate dealerships.  I would recommend reading online reviews to help you pick a dealership.  Does it have the car you want in stock?  What is the dealership’s overall rating?  Are customers satisfied with how they were treated during the buying stage?  Does the dealership offer any perks such as free oil change, car wash, loaner car during servicing of your vehicle?

If you’re still in research mode, visit the dealership during a weekday afternoon when the sales force will have more time to talk with you.  Listen to the dealership recommendations; they can really be helpful in answering your questions without the hard sell pressure.

Before you sign on the dotted line or exchange any monies, have your mechanic give it the once over.  Test-drive the car.  How does it feel to you?  Will it fit your family’s needs?  Will it fit in your garage?

In my next column, I’ll address your question regarding financing your vehicle purchase.

Best of luck, 

- Karen

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