5 rules for buying that first new car

By Des Toups

We wouldn't be doing our jobs unless we told you that buying a new car, especially when you're newly arrived in the work force, is a very bad idea.

You're considered a bad credit risk and an even worse insurance risk. Payments, insurance, registration, maintenance and gas will consume a disproportionately large amount of your paycheck. You'll be car-poor, condemned to Friday-night cruising because you haven't got the cash for a date. You'll be eating cat food when you're 70 because you skipped the 401(k) to pay for new rims.

So please, ride the bus. Keep your old car. Buy a better used car. Flush dollar bills down the toilet until the urge passes. Just don't buy a brand-new car.

But you're 22. What do we know, right?

Turns out, we know enough to help you buy a brand-new car so that you don't come to regret it . . . much. We'll keep things simple, recognizing that you might not do your clearest thinking on the showroom floor. You'll find lots more specific advice in the links below, but these are the basics. If you forget all else, remember these five rules:

Don't trade your old car -- sell it

Chances are you're still behind the wheel of whatever the 'rents packed you off to college in, one you kept running by working counter shifts at the coffeehouse. Chances are it's had indifferent maintenance and more than a few scrapes with curbs, posts and other beaters.

To a dealer, it's next to worthless, though he may tell you otherwise. Any car not good enough for a new-car dealer's used-car lot goes straight to auction, where it will sell for a figure so low it would shock you. But another dealer, lower in the pecking order, will snap it up, mark the price up a thousand or two and make a nice profit that could have been part of your down payment.

Even with nicer cars, you're leaving money on the table by letting the dealer have your car to sell. And without a trade, buying a new car is a simple, how-much-here's-a-check transaction, rather than financial three-card monte with you as the patsy.

Arrange financing before you go to a dealer

This is more about protecting your choices than anything else. Check your credit score and get approved for a bank or credit union loan first; that way, when the red mist descends at the dealership, you won't feel compelled to take what the dealer offers. You can negotiate harder if you know your credit passes muster. If the dealer can do better than your bank, fine. But typically those 0% deals go to buyers with long, stellar credit histories and a home of their own, not to people like you with short credit histories.

If your credit is marginal (a credit score below 620 or so), stick with a bank. Auto dealers can work any number of tricks with financing -- seen the signs that read "We Finance Anybody"? -- but most of them are hard to understand and all of them are expensive. If a bank won't make you a car loan, you really, really should not be buying a car. If your credit requires a co-signer, fix your credit before you try to buy a car. Please.

Unless you enter a dealership intending to lease rather than buy, don't switch horses midstream. Leasing requires its own homework, it's rarely a good deal for first-time buyers, and in these tight credit times, it's quickly disappearing as an option.

Continued: Make insurance arrangements early

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