Cars are major investments. We depend on them to get us to school or work, to the doctor’s office or the grocery store, as well as to take us on vacations. Before you buy or lease a car, you should consider:

What kind of vehicle fits your needs;
What features or options you want;
How much you can afford to pay;
Which cars have the best ratings for reliability, safety and fuel efficiency;
Whether to buy a new or used car, or to lease;
Whether to buy or lease from a dealer or buy from a private seller.

Select Your Car’s Features
Cars come in different sizes: full, mid-size, compact, subcompact, minicompact, and two-seaters. There are also small pickup trucks, full-size trucks, vans, minivans, and special purpose vehicles like sport utility vehicles. Generally, larger vehicles use more fuel than smaller ones, but they may be safer in collisions. Sports utility vehicles (SUVs) are known to use more fuel.

Think about the size of your family, whether you are likely to carry passengers often, and the age of those passengers. If you are going to be transporting your elderly parents, you do not want to buy a small sports car. Do you want two doors or four? Are you interested in multiple airbags for added safety? Do you need a four-wheel drive vehicle because you live on a steep country road? Or do you want a car that gets great gas mileage because you frequently drive in stop-and-go city traffic?

Calculate Your Budget
Make a list with two columns: things you definitely want (for instance, automatic transmission or air conditioning), and things you want if you can afford them (like a sunroof or CD player).

Make a second list for your budget. How much money can you afford to spend, and what will your expenses be? Write down your net income after taxes and payroll deductions and fixed expenses, then determine how much cash you have to buy a car outright or to use as a down payment to either buy or lease a car, and what you would be able to afford in monthly loan payments.

You may also want to check with your bank or credit union to find out if you would be eligible for a loan. The lender can help you calculate how much you can afford to spend. Shopping for interest rates now will help you quickly arrange the most favorable financing when you are ready to buy. It is wise to have your financial package ready BEFORE you begin negotiation on the car.

Do not forget that you will have other car related expenses: sales tax of 5% in Massachusetts, registration and title fees, annual excise tax, and insurance. Estimate those amounts and add them to your budget figures. (You can get information on these costs from the Registry of Motor Vehicles, your city or town clerk, and your insurance agent.)

You will also have to pay for fuel and regular maintenance for the car. The U.S. Department of Energy publishes an annual guide that shows the estimated miles per gallon to operate a car under both highway and city driving conditions. For a free copy, you can call 1-800-363-3732 (see www.fueleconomy.gov). Consider your use of the vehicle. Maintenance costs can include oil, engine coolant, windshield washer fluid, belts, plugs or ignitors each year, to name just a few items. As cars become more complex, you may be able to do only minimal maintenance by yourself. Consider tire mileage and battery life, too, for periodic costs. Remember — preventive maintenance, even with labor costs, is much cheaper than waiting until a problem develops.

A Reality Check – the Price of Gasoline
Any research, budget planning or decisions as to make and model of automobiles, purchased, must take into consideration the fuel efficiency you can expect with your specific vehicle choice and whether you can afford the ongoing expenses to use it. The price of fuel has more than doubled since the 2001 edition of this booklet was published. No one predicts that the average 2001 price for gasoline will ever reappear.

Consumers must factor in ALL the costs of owning or leasing a vehicle. This list might include the cost of the monthly payments; the cost of insurance, excise taxes, parking, ongoing maintenance as well as occasional surprise repairs, and now the GASOLINE factor. A vehicle getting a “fair” 20 MPG and driven 15,000 miles in a year can easily cost you $2,400 per year for fuel or $200 a month!

Smart consumers seek cars that maximize fuel efficiency and comparison shop within the class of car they are considering. More and more consumers are choosing hybrid automobiles that switch between gasoline and electric power at appropriate intervals to save fuel costs. Given rising gas prices consumers should make the average mile per gallon rating of each vehicle the first number to consider rather than looking at the number of seconds it takes to go from zero to 60 mph. The result could cut your annual gasoline cost in half, or actually cost you what the 20mpg car cost you in 2001.

Some consumers are even considering the most dramatic option, namely to not even own an automobile or certainly not add a second vehicle to the family burdens. Many consumers now commute and travel by carpool. Not only does carpooling allow consumers to travel inexpensively, but emissions are significantly reduced with more carpooling. The use of public transportation for commuting to jobs, vacations and even non-essential travel is on the increase throughout the country, especially where good public transportation systems are present. Alternatives such as zipcar®, which was started in Cambridge Massachusetts, are steadily expanding in major urban areas. zipcar® is an Internet based car rental system that lets you rent a vehicle for as little as an hour at a time and has strategically place
vehicles throughout urban areas within walking distances to the members of this service.

A car buyer’s best defense against rising gas prices is to shop carefully. Consumers in the used car market place must be especially wary of discounted prices for SUV’s or other car models with the poorest mileage ratings. You might be able to afford this bigger car because the price is so low, but can you afford to keep filling the tank with gasoline? The trade-in value of your “gas hog” vehicle may be much less now than a few years ago.

CAR SMART advocates fuel efficiency and encourages you to review the check list in the appendices on tips for saving fuel by changing your driving habits and by improved maintenance of your vehicle. See appendix A-5 Following these guidelines will save you money and help our vulnerable world in the face of global warming and our country’s risky dependency on imported oil.

Decide on a Make and Model
When you have some idea what features you are looking for and how much you can afford, do some research to narrow your choices to the makes and models you are most interested in.

CONSUMER REPORTS and auto magazines such as MOTOR TREND publish articles that compare different new and used cars. There are also books published yearly that rate the design, comfort, safety, reliability, price, and repair costs of various cars. You can find these publications at bookstores or your local library.

You can also find out whether particular cars have been recalled for safety defects by calling the National Highway Traffic Safety Administration (NHTSA) toll-free: 1-800-327-4236 (see www.nhtsa.dot.gov).

Collect Price Information
Price information is available from a variety of sources. In addition to price comparisons in books and magazines, CONSUMER REPORTS, the American Automobile Association, and other organizations offer pricing services from which you can purchase information about dealers’ costs for specific makes and models of new cars.

If you are shopping for a used car, or you want to know how much your trade-in is worth, the National Automobile Dealers’ Association (NADA) publishes monthly used car (“blue book”) and older used car (“orange book”) price guides (see Appendix A-6 & A-7). They show the average trade-in and retail values of cars, as well as an estimate of the dollar amount that banks will loan toward the purchase of the used car (usually about 80% of retail value). There are also formulas for deducting from the value for high mileage, or adding to the value for low mileage.

You can also look at newspapers to find the advertised prices of cars you are interested in.

Knowing the price ahead of time not only helps you determine what you can afford, but also gives you an advantage when negotiating with the seller.

Research Models and Prices on the Web
The vast majority of websites, offering cars for sale, including manufacturers’ sites, will not allow you to buy a new car on-line directly. Instead, these websites can provide you with information about vehicle makes, models and option packages, as well as details about the price of vehicles. Eventually the on-line process will send you to the nearest dealership to complete the purchase transaction.

The Internet also can arm you with information about new car prices that can help you negotiate a better deal with the seller. Many websites list the “dealer invoice” for various new vehicles. This is the approximation of what the dealer paid the manufacturer for a new car. This information is critical for negotiating a fair purchase price. But, be aware that a “dealer invoice” price listed on a website may not always be accurate. Some manufacturers offer dealers rebates, holdbacks and other financial incentives at various times to increase the sales of particular cars. To be sure you are getting an accurate approximation of the dealer’s cost, use more than one website for finding car prices, and understand the criteria each website uses to calculate this cost.

This same rule applies to pricing for used (pre-owned) cars. Understanding the actual value of a used vehicle is important for getting a fair deal. Carefully examine any vehicle pricing guide that a website offers. Vehicle pricing guides use different criteria to compute a particular make and model’s value. Some guides only list an estimated average retail price of a vehicle. Others provide information on a vehicle’s estimated trade-in value and price if bought from a private party seller.

Consider Whether to Buy New or Used
The decision to buy or lease a new or used car depends on how much you can afford, whether it is your only form of transportation or a second car, how long you plan to keep it, how much driving you do in a year, and other personal factors. New cars should be free of defects and run well for years.

They come with much longer standard warranties than used cars do. Used cars may need more costly repairs much sooner, depending on the mileage and how they have been maintained, but they cost less to purchase and insure.

Decide If You Will Purchase or Lease
Dealers and manufacturers are increasingly advertising leasing as an alternative to buying cars and consumers are increasingly choosing the lease option. Some advantages to leasing are:

The down payment or other upfront costs are less than in a car purchase;
Your monthly payments are usually less than with a car loan;
For most leases, you do not have to worry about reselling the car later. When you return the vehicle at the end of the lease you are only responsible for any end of lease charges.

On the other hand, there are also disadvantages to leasing:

You pay a significant amount of money to use the car during the lease but it is not yours at the end (unless you have and exercise an option to buy the car which may cost you more than buying the car at the outset);
If you lease a used vehicle and there are persistent defects, the leased vehicle is not covered by the used car lemon laws;
There may be limits to how many miles you can drive the car during the lease term. If you exceed these miles, you will pay a penalty. If the mileage allotment is not sufficient you should negotiate a higher allotment;
If you want to end the lease before it expires, there are substantial early termination penalties;
You may be responsible for an additional payment at the end of the lease for excessive mileage, or if the lease company determines there is excessive wear and use, or damage to the vehicle.

New leased cars usually carry the manufacturers’ warranties. Used leased cars may not carry any manufacturer’s warranty coverage. You should check with the manufacturer to verify the length and scope of your coverage.

While the federal Consumer Leasing Act and Federal Reserve Regulation M require that information about the costs, responsibilities, and terms of the lease be spelled out in the contract, you should read and understand the full lease agreement before signing it (see www.bos.frb.fed.us/pubs/leasing).

Make sure you know whether you are buying or leasing a car, and ask the dealer to explain any terms or conditions that you do not clearly understand.

Even in a lease, you negotiate the “sale” price of the car — the price upon which, along with the car’s residual value, your lease payments are based. The negotiating skills discussed later are also important in obtaining a lease.

Know the Difference Between a Used Car Dealer and a Private Party Seller
When you are deciding who to buy a car from, ask yourself:

Is it a fair price? If it is too low or high, why?
Is the car in good condition, or does it need work?
What are the seller’s warranty responsibilities?
Does the seller have repair facilities?
Is the seller’s location convenient?
What is the reputation of the seller?

Private Sales
Private sellers may charge less than dealers for used cars because they do not have salespeople or mechanics to pay, and they do not have the same warranty responsibilities. Always have a trusted mechanic look at any used car you consider buying.

Private sellers are liable to return your money under the “Lemon Aid Law,” if the car fails inspection within 7 days of purchase and the estimated cost of performing the needed repairs is more than 10% of the car’s purchase price.

You can also demand a refund under the Used Vehicle Warranty Law, if within 30 days after you purchase the car, you can prove that a private seller knew something was seriously wrong with the car and acted in bad faith by not telling you (see page 55). Since that is hard to prove, it is often difficult to get your money back from a private seller. Additionally, private parties are not required to repair the cars they sell.

For advice on private sale contracts, click here.

Dealers
Anyone who sells or negotiates the sale of more than 3 cars a year is legally considered a car dealer.

In used car sales, dealers must give written warranties of 30, 60 or 90 days, depending on the mileage at the time of purchase. While there are some exceptions to this rule (see page 50), dealers are not allowed to sell a car ”as is.” It is always a good idea to have a trusted mechanic look at any used car you are considering buying.

Remember, even if defects are covered under warranties, some dealers are more willing to solve problems than others, and some service departments are better than others.

You may also use the Federal Trade Commission’s “Buyers Guide” stickers on the windows of used cars. These inform you whether there is a specific dealer’s warranty, or if the cars come with “implied warranties” only.

Find out if there have been consumer complaints about the dealership and how they have been resolved by contacting your local consumer office, the Attorney General’s Consumer Complaint and Information Section: (617) 727-8400, and the Better Business Bureau. Don’t wait until after you have purchased a car to learn that the dealer has a poor record of customer satisfaction.

The legal rights described in this booklet apply to cars bought in Massachusetts, not in other states.

Read the Auto Ads Carefully
Advertisements on television, radio or in the newspaper can be confusing, since the information may be incomplete or difficult to take in all at once.

According to the Attorney General’s auto regulations (940 Code of Massachusetts Regulations 5.02), the prices that car dealers advertise must include charges for freight and handling, and vehicle and document preparation. Advertised prices do not reflect taxes, the cost of title preparation, and charges for assistance in registering a car.

Car ads often give the monthly loan or lease costs, but the total price may be in much smaller print. Do not shop for a car based only on the monthly cost; always be aware of the full price of the transaction.

Dealer ads for used cars must identify them as former demonstrators, taxis, police cars, lease or rental cars (sometimes called program, fleet, or executive cars) if the dealer knows or should know their histories. Used cars must have stock numbers that individually identify the advertised car.

If limited quantities of the car are available at an advertised price, that must be clearly disclosed. Prices must include all standard equipment unless otherwise stated. Any expiration dates or other conditions for advertised prices must also be included — for instance, if a buyer needs to pay a certain amount down in order to buy the car at the advertised price.

Be wary of ads that say “dealer’s cost” or “invoice prices.” These claims are often false, since the dealer may be getting money back from the manufacturer through rebates, “holdbacks” or promotional fees. Remember that the advertised price is just a starting point in your negotiations.

Be suspicious of classified ads for cars that look like private sales but turn out to be from dealers. The dealers may be trying to escape their warranty obligations.

Avoid “Auto Brokers”
In the last few years, as many people have experienced financial hardships, ads have begun to appear offering help to those who cannot afford to continue to make their car payments, or those whose poor credit histories prevent them from getting financing to purchase cars.

“Auto brokers” say they can help by taking the cars that people can no longer afford off their hands, and arranging for other people to purchase them.

In most cases, when you have a loan or a lease on a car, your contract prohibits you from transferring the vehicle to someone else without the lender’s or lessor’s permission. In illegal auto brokering deals, that consent is never requested or obtained.

As the original loan holder you are still liable if the payments are not made or the car is damaged, even though the car is no longer in your possession. As a new buyer you should realize that the car will never really be yours, even if you make all the remaining payments, since you are not the buyer or lessee of record. In some cases, the car may actually be considered stolen!

And because the “buyers” cannot register and insure the car in his/her own name, he/she may be operating on the original owner’s registration or insurance, or breaking the law by driving without any registration or insurance.