Thinking about buying a car? Do you have questions? Learn the answers to common questions about purchasing a car below.
Do I have to purchase credit insurance to get a car loan?
Some dealers and lenders might offer you credit insurance to pay off your loan if you die or become disabled. Before you buy credit insurance, consider the cost and whether it's worthwhile. Check your existing policies to avoid duplicating benefits. Buying this kind of insurance is usually a bad idea.
Credit insurance is optional insurance. If a lender tells you that you'll only get the loan if you buy the optional credit insurance, you can submit a complaint to your state attorney general, your state insurance commissioner, or the Federal Trade Commission.
Doesn't a service contract cover the same items as a warranty?
Service contracts (sometimes called "extended warranties") cover the repair of certain car parts or problems. These contracts are offered by manufacturers, dealers, or independent companies. They might or might not provide coverage beyond the manufacturer's warranty.
Remember that a warranty is included in the price of the car. A service contract costs extra.
The Magnuson-Moss Warranty Act (the federal law that governs consumer product warranties) includes very broad provisions covering service contracts.
I drove the car off the lot, and just a few days and miles down the road, the car quit running. Can I do anything?
State laws hold dealers responsible if the cars they sell don't meet reasonable quality standards. These obligations are called "implied warranties"—unspoken, unwritten promises from the seller to the buyer. But dealers in most states can use the words "as is" or "with all faults" in a written notice to buyers to eliminate implied warranties. There is no specified time period for implied warranties.
The most common type of implied warranty is the "warranty of merchantability." The seller promises that the product offered for sale will do what it's supposed to. That a car will run is an example of a warranty of merchantability. This promise applies to the basic functions of a car. It doesn't cover everything that could go wrong.
Breakdowns and other problems after the sale don't prove the seller breached the warranty of merchantability. A breach occurs only if the buyer can prove that a defect existed at the time of sale. A problem that occurs after the sale might be the result of a defect that existed at the time of sale or not. As a result, a dealer's liability is judged case by case.
A "warranty of fitness" for a particular purpose applies when you buy a vehicle based on the dealer's advice that it is suitable for a particular use. For example, a dealer who suggests you buy a specific vehicle for hauling a trailer in effect is promising that the vehicle will be suitable for that purpose.
If you have a written warranty that doesn't cover your problems, you still might have coverage through implied warranties. That's because when a dealer sells a vehicle with a written warranty or service contract, implied warranties are included automatically. The dealer can't delete this protection. Any limit on an implied warranty's time must be included on the written warranty.
Is there a "cooling off period" where I can return a car I purchased?
Dealers aren't required by law to give used car buyers a three-day right to cancel. The right to return the car in a few days for a refund exists only if the dealer grants this privilege to buyers. Dealers may describe the right to cancel as a "cooling-off" period, a money-back guarantee, or a "no questions asked" return policy. Before you purchase from a dealer, ask about the dealer's return policy, get it in writing, and read it carefully.
What can I do if I'm unsatisfied with the car I purchased?
Try to work it out with the dealer. Talk with the salesperson or the owner of the dealership. Many problems can be resolved at this level. However, if you believe you're entitled to service but the dealer disagrees, you can take other steps.
If your warranty is backed by a car manufacturer, contact the manufacturer's local representative. The local or zone representative can provide warranty service and repairs to satisfy customers. Also, some car makers will repair certain problems in specific models for free, even if a warranty doesn't cover the problem. Ask the manufacturer's zone representative or the service department of a franchised dealership whether there is such a policy for your car.
Contact your local Better Business Bureau, state Attorney General or the Department of Motor Vehicles. You also might consider using a dispute resolution organization to arbitrate your disagreement. Under the terms of many warranties, this might be a required first step before you can sue the dealer or manufacturer. Check your warranty to see if this is the case.
If you bought your car from a franchised dealer, you might be able to seek mediation through the Automotive Consumer Action Program (AUTOCAP). This is a dispute resolution program coordinated nationally by the National Automobile Dealers Association and sponsored through state and local dealer associations in many cities. Check with the dealer association in your area to see if they operate a mediation program.
If none of these steps is successful, small claims court is an option. Here, you can resolve disputes involving small amounts of money, often without an attorney.
The Magnuson-Moss Warranty Act also might be helpful. Under this federal law, you can sue based on breach of express warranties, implied warranties, or a service contract. If successful, you can recover reasonable attorneys' fees and other court costs. A lawyer can tell you if this law applies.
What does a full warranty cover?
A full warranty includes the following terms and conditions:
- Anyone who owns the vehicle during the warranty period is entitled to warranty service.
- Warranty service is provided free of charge.
- You have the choice of a replacement or a full refund if, after a reasonable number of tries, the dealer can't repair the vehicle or a covered system.
- You only have to tell the dealer that warranty service is needed to get it, unless the dealer can prove that it's reasonable to require you to do more.
A full or limited warranty doesn't have to cover the entire vehicle. The dealer may specify that only certain systems are covered. Some parts or systems might be covered by a full warranty; others by a limited warranty.
What guarantees does a private seller have to provide? A warranty? Anything?
The Federal Trade Commission's Used Car Rule, which applies in most states, requires professional dealers to post a Buyers Guide before offering a used car for sale. The Buyers Guide gives warranty and other information about the vehicle.
Private sellers generally aren't covered by the Used Car Rule. However, you can use the Guide's list of an auto's major systems as a shopping tool. You can also ask the seller if you can have the vehicle inspected by your mechanic.
Private sales usually aren't covered by the implied warranties of state law. So, a private sale will probably be on an "as is" basis unless your purchase agreement with the seller specifically states otherwise.
If you have a written contract, the seller must live up to the promises stated in the contract. The car also might be covered by a manufacturer's warranty or a separately purchased service contract. However, warranties and service contracts might not be transferable, and other limits or costs may apply. Before you buy the car, ask to review the warranty or service contract.
Many states don't require individuals to ensure that their vehicles will pass state inspection or carry a minimum warranty before they offer them for sale. Ask your state Attorney General's office or local consumer protection agency about the requirements in your state.
What should I look out for if I'm considering a car loan?
If you decide to finance, make sure you understand the following aspects of the loan agreement before you sign any documents:
- the exact price you're paying for the vehicle
- the amount you're financing
- the finance charge (the dollar amount the credit will cost you)
- the APR (a measure of the cost of credit, expressed as a yearly rate)
- the number and amount of payments, and
- the total sales price (the sum of the monthly payments plus the down payment).
How can I finance a car?
The two primary sources for vehicle loans are car dealership finance offices and direct lenders, such as your bank, an online lender, or your local credit union.
Dealership Financing
Dealership financing offices can give you one-stop shopping and loan offers you won't find elsewhere. Once you complete a credit application, the finance manager can provide you with options. Car manufacturers have finance companies and offer promotional loan products and rebates, such as low or 0% financing or cashback on a deal.
Getting a Loan From a Lender
If you get financing from a direct lender, the loan proceeds pay the dealer for the car. Some advantages of using a direct lender are you won't have to deal with the dealer's finance office as part of your shopping trip, and you might find a good deal on a loan, especially from lenders with which you have current accounts like your credit union.
With either loan source, your credit scores, credit history, and finances matter. Generally, to get the best interest rate, you’ll need a FICO credit score in the high 600s or better. Having a worse credit score probably won’t disqualify you from getting a car loan, but your loan terms and interest rate won’t be as good.
How can I avoid dealer scams?
When financing a vehicle purchase through a car dealer, you need to be on the lookout to avoid a bad deal. Here are a few financing scams you might encounter and how to avoid them.
Dealer Markup and Prep Costs
Most manufacturer's suggested retail price (MSRP) stickers already include the cost of preparing a new car for delivery to the buyer. This cost covers such mundane services as removing the plastic from the car seats, peeling off plastic and cardboard, and adding proper windshield wiper and other fluids. These services take very little time, but dealers sometimes double-charge by adding another $500 or so beyond the MSRP delivery prep charge.
Dealers also sometimes try to tack on something called an Additional Dealer Markup (ADM), especially on very popular new models. This charge is just another way of raising the vehicle’s price—and the dealer’s profit. Don't let a dealer talk you into this bogus charge.
Unnecessary Additional Services
It's very common for a dealer to try to coerce you to pay for services you don't need. Be on the lookout for added costs, like the following, and don't pay for them.
- Etching the VIN (vehicle identification number) on your windows. This number should already be etched in several other places in your vehicle.
- Extended warranties because "the bank requires it to approve your loan." The dealership is almost guaranteed to back down if you ask them to put this supposed loan requirement in writing.
- Extra life insurance that’s financed through the dealer.
Large Down Payment
If the dealer tries to convince you to come up with a large down payment, be suspicious that the dealer is attempting to sell a car at a higher cost than a lender is willing to finance. You definitely don't want to pay more for the car than it's worth.
"We'll Pay Off Your Prior Lease or Loan"
Car leases are difficult to get out of, and penalty charges are usually involved. While the dealer might offer to buy out your leasing agreement or existing loan, those costs and penalties are typically simply rolled into the amount you're financing for your new car. So, it's not a good deal for anyone except the dealer.
You can avoid this scam entirely by lining up your own financing ahead of time. Or, wait until your lease runs out, or you pay off your existing loan before buying a new car.
"Your Credit Is Bad"
Sometimes, a dealer might deliberately lie to you about having such low credit scores that you only qualify for a higher interest rate. The best way to avoid this scheme is to review your credit reports, fix errors, and know your credit scores before you start car shopping.
"The Financing Fell Through"
Suppose you get possession of the car after being told you qualify for a good interest rate on a car loan through the dealership. After a couple of weeks, you get a call from the dealership that your financing didn't go through at the low rate, but you qualify for a higher interest rate. Then you realize your contract says the deal is "subject to financing."
You can avoid this scam by arranging your own financing through a credit union or bank before you step foot on a dealer lot. And you should never drive off with a car without having your interest rate and loan details in writing.
"Lower Monthly Payments"
After you've taken possession of your car, the dealer calls to say you can get a better financing deal with lower monthly payments. In reality, the dealer will rewrite your financing terms to increase the interest rate but spread the payments over a longer time period, making the monthly payments less. Don't be shy about telling them you're not interested.
Watching out for these scams can save you thousands of dollars over the life of your car loan.