If you're like most college students anticipating graduation, purchasing a new car is at the top of your to-do list. The good news is that car companies are aggressively vying for your business and offer special incentives for new grads. However, if you do not now how the car buying process works, you are not alone. There are many resources available on-line like Choicenerd.com that help explain the car buying process to first- time car buyers. This article is intended to give you the facts about the car buying process, which will equip you with the information needed to make a sound decision.

Before Entering The Dealership

Before you step foot on a dealership lot there are several things you need to think about, including what type of vehicle can you afford, what type of vehicle is right for you, whether you should lease or buy, and what your credit history consists of.

What type of vehicle can you afford?

The first thing you must determine about your future new vehicle is quite naturally what you can afford. Start out by making a budget for all your projected monthly income and expenses. A "realistic" budget will identify how much money you can afford to spend on a car in relation to other obligation such as food, rent, and school loan repayments. As discussed below, the type of vehicle you choose should make sense when you consider your lifestyle.

As a quick reference point for determining how much a vehicle will cost each month, take the negotiated price divided by the number of months you finance, then for every $1,000 financed add $17. For example a vehicle purchased at $16,000 for 60 months (5 years) will run you roughly ($16K/60 = $267) + ($17*16= $272) = $539 per month.

Be aware of the additional expenses associated with a vehicle beyond your monthly payment. The cost of insurance coverage can make a reasonably priced vehicle unaffordable, based on the high premium associated with drivers under 25. Other factors besides age that will affect your insurance rate include the following: your driving record along with any roommate's, vehicle horsepower, city of residence, vehicle's government safety rating, and the national index of how frequent your desired vehicle is stolen. The fuel economy, or miles per gallon, which is posted on all new vehicle window stickers, must also be taken into consideration with the amount of miles you plan to drive each day. One way to improve fuel efficiency and lower your gas expenditure is to opt for a four cylinder or V6 over V8 and supercharged engines. Lastly, an estimate of repair cost must be factored into the overall expense equation. Choosing extended warranty plans, which prevent you from paying the full repair bill after your vehicle is out of warranty, will also raise your monthly payment.

Independent research companies frequently publish vehicle reliability reports that can be found periodically in local newspapers and consumer-oriented magazines.

What type of vehicle is right for you?

All major manufacturers offer a wide range of vehicles, from two-seater sports cars to eight passenger large SUVs. However, the vehicle type you choose should meet your needs. For instance, if you plan to get married and start a family right out of college, then buying a two-seater sports car wouldn't make a lot of sense, based on the space required to accommodate such things as a baby seat. As another example, if you live in an area where winters are very harsh, you should probably opt for a vehicle with 4X4 capability or at least front-wheel drive over a rear-wheel drive vehicle, based on the increased maneuverability in the snow. Most manufacturers offer special incentives on vehicle lines such as; compact four-door sedan and small SUVs that they target at the youth market, so keep these vehicle in consideration.

Will you lease or buy?

The decision on whether you will lease or buy should be based primarily on the number of miles you intend to drive yearly. When you lease a vehicle you pay only for its use during a specific time (39 months), which will lower the monthly payment. The manufacturer calculates the estimated value of the vehicle after the lease is up. You are responsible for the difference between the purchase price and lease-end value. To arrive at a lease-end value, manufacturers determine the number of miles the vehicle should have on it at the end of the lease and normal wear and tear. Therefore, leases restrict the number of miles you should drive during the year (typically 12,000 miles). Any miles driven over the pre-set 39-month number will cost you extra per mile, a factor that can add up quickly. However, you can purchase extra miles up front for a lower cost. If you are considering leasing, make sure that you obtain a leasing guideline from the dealership. The guideline will spell out the expected condition the lease vehicle should be in at the end of the lease and will highlight any potential surcharges. Remember, anything outside of the guidelines will incur a surcharge. At the end of your lease you have the option to turn the lease in or to purchase the vehicle at the lease-end value.

When you purchase or finance a vehicle, you are agreeing to terms (60 months) that will lead to full ownership of the vehicle when full repayment is received. (Until the vehicle is paid off, it is officially owned by the finance source.) While financing-payments are typically higher than lease payments, you do not have all the restrictions tied to a lease. Note, however, that high mileage and excessive wear and tear will have a negative impact on your vehicle's market value. We caution against financing a vehicle for a long period of time and then trading it back in within a short time. This situation leads to vehicle negative equity, which means owing more for your vehicle than what it is worth. If you get in an accident such that the value of the vehicle has negative equity of $2,000, you are responsible for this amount, not the insurance company, unless you opt for gap-insurance.

What's in your credit file?

Your credit score, which is referred to as a beacon score in the car industry, is a major determinant of your ability to get your car financed. Your credit score is determined from many factors in your credit file, including debt to income ratios, bill payment timeliness, and amount of overall credit.

The big three credit agencies Equifax, Transunion, and Experian report your credit file information to financial institutions, which use the information to gauge your default risk and charge you a corresponding finance rate based on their assigned risk. Understand that the 0% APRs that have become so prevalent only apply to those with good beacon scores. Therefore, a person with marginal credit may end up with a 10.5% APR, which will drastically increase monthly payments. Manufacturers understand that college graduates may have no credit history to qualify for low APRs, so they have special grad-programs that allow you to get low rates on selected vehicles lines. Before applying for vehicle financing, get a copy of your credit report from one of the credit agencies to make sure all information is correct. Any mistakes appearing on your credit file, which are communicated to the three credit agencies, will be corrected and may help your ability to obtain reasonable financing. If you know your credit is bad, first start by repaying past due debts and realize that a financially responsible co-signer may be needed for you to get financing.

As a reference point, the amount financed is the difference of the negotiated buying price minus applicable trade-in value minus customer down payment and rebates. For example, if you agreed to buy a car for $16,000 with a $1,000 trade-in, and a $2,000 customer rebate, then you would need a finance source to lend you the $13,000 for which they would charge you an annual percentage rate (APR).

Use the Internet

As a college student you are fully aware of the resources available to you on the Internet, and searching for a car is no exception. All major manufacturers have web sites that give you vehicle pricing and content information. Most manufacturers give you the option to search your local dealer's inventory and allow you to send your specified dealer a lead. You can send a dealership a lead to answer a question about a vehicle you are interested in or you can choose to go through the whole buying process on-line. Typically, dealers give Internet lead prospects lower prices, so it can be to your advantage to ask for a price quote on-line. Understand, however, that even if you choose to go through the car buying process on-line, you still would want to test drive the vehicle, and you must go to the dealership to finalize all paperwork. Along with manufacturers sites, independent web sites, such as Edmunds.com, offer a wide range of information on vehicles, including vehicle comparisons, write-ups, and trade-in value analysis tools.

Getting The Best Deal

Before entering the dealership lot, you should have a good idea of the vehicle you are looking for, an estimate of how much it will cost you, an estimate value of your trade-in, and a good feel for your credit worthiness. Being as informed as possible is key. By having these estimates already in your head, you are in a better place to question any figures that are either extremely low or high, figures that may indicate that someone is trying to deceive you.

Once you settle on the car you would like to buy by taking a test drive, the dealership will run your credit to determine what level of credit worthiness you fall under. A good credit score, typically over 690, will give you a low financing rate while a poor credit score will force you to take a higher rate or may mean that you cannot obtain financing on your own. Once your credit score has been obtained, the dealership will know what finance rate you qualify for.

At this point, negotiate on the final purchase price. The typical negotiated price of your new vehicle will fall somewhere between the manufacturer's suggested retail price (MSRP) and invoice, which is close to dealer cost. Of course, hot new vehicles may come at a premium while slower high-volume production vehicles may come at deep discounts. If you have received a price from one dealership or over the Internet, you can use that price as leverage to have another dealership beat that price. Also, be aware of any college graduate incentives you may be eligible for as well as any discounts you may receive from your employer, which will lower your purchase price. Most dealerships will try their hardest to give a price that will discourage you from going to their competition, so don't be afraid to negotiate. Also, most dealerships will ask you what price you would accept to complete the transaction today, so have that number ready beforehand.

It is important to know that the dealership can charge you more than the rate for which you qualified. Therefore, your finance rate can be negotiable. In fact, a recent study by researchers at Yale and Vanderbilt Universities uncovered that minorities pay more than 30 to 50% on finance rates compared to whites. Check with your local bank to see what rate they are offering customers of your credit worthiness to get a comparison. It is your decision to choose your financing source, so make sure you opt for the best rate. Also be aware that financing a vehicle for longer terms will lower your monthly payments, but it will increase your finance rate. Use caution in selecting how long you finance your vehicle and always opt to finance for as few years as you can afford.

Now that you have settled on a price and a finance rate, a true payment can be calculated. The process, however, is not completely over. Before you finalize your paperwork, the dealership will offer you extended warranty plans and credit insurance to further protect your new investment. Take the time to determine whether these options should be taken. Any product you agree to will increase your monthly payment, but these elections can be canceled at any time. Canceling options will again lower your payment.

As you can see, the car buying process is not very complex, but it requires you to do some homework before jumping in. When you purchase your new vehicle, make sure you follow the manufacturer's schedule maintenance plan to avoid costly repairs down the road. Lastly, make sure the payments for the vehicle you choose fit into your monthly budget, and stay current on all payments. At all cost, avoid having your vehicle repossessed due to non-payment because repossession will tremendously hurt your credit and your ability to purchase big-ticket items in the future.

Special Car-Buying Programs for Students and Recent Grads

Ford
Qualified graduates get a $400 Cash Bonus when they purchase or lease, and take delivery from Dealer stock of any eligible new 2003, 2003, 0r 2004 Ford, Lincoln, or Mercury, car, minivan, truck, or SUV. This $400 cash bonus offer may be used in conjunction with most other For Motor Company public consumer incentives available at the time of purchase or lease on the model you select. Ford Credit financing is available. The plan includes no down payment and/or 120 day deferred first payment.

GM
Graduates are eligible if they are within six months or graduation or until two years after graduation from a four-year degree program, two-year Associate's degree program or registered nursing degree. Two-year certificate programs are ineligible. Graduate students may quality for the program while they are enrolled in grad school or for up to two years after graduating.

Easy GMAC Financing: Eligible grads must qualify and finance through their participating Chevrolet, Pontiac, Oldsmobile, GMC or Buick dealer and GMAC. Grads must take delivery from dealer stock. All new 2003 and 2004 Chevrolet, Pontiac, Oldsmobile, GMC or Buick vehicles are eligible for the program. No down payment is required. And no monthly payment on eligible purchase for 90 days.

No previous credit history: No credit history is required: Eligible individuals must show proof of income or future income. Derogatory credit is unacceptable.

No monthly payment for 90 days: Finance charges accrue from the date of purchase. Length of finance contract is limited. A minimum amount financed is required. This option cannot be used with GMAC SmartBuy or SmartLease by GMAC.

Any new Chevrolet, Pontiac, Oldsmobile, GMC or Buick: Must apply certificate toward purchase or lease of select 2002, 2003 and 2004 vehicles for eligible college graduates financing with GMAC. Certificate may not be combined with GM Supplier/Employee Discount. Must take retail delivery from participating dealer stock. See your participating Chevrolet, Pontiac, Buick, Oldsmobile or GMC Dealer for details.

Daimler Chrysler
Graduates of 2001, 2002, 2003 get a $400 Daimler Chrysler Grad Program award which they purchase or lease, and take delivery from dealer stock of any eligible new 2003 or 2004 Dodge, Chrysler, or Jeep.

Toyota
Through its College Graduate Rebate Program, Toyota offers a $400 rebate to those who purchase or lease a new Toyota. The deal is offered by Toyota Motor Sales, U.S.A. It is offered through participating Toyota dealers and Toyota Financial Services. Students or recent graduates may quality for addition benefits such as the following two:

• Waived security deposit when leasing
• Free 24-hour roadside assistance for one year

Mazda
Students and recent graduates get $500 cash when purchasing an unused 2002 or new 2003 or 2004 vehicle.

Nissan
The Sentra College Connection helps with the financing of a new 2003/2004 Sentra. The Sentra College Connection offers special APR programs, a $500 cash incentive, and a 90-day delayed payment option. The delayed payment option is not available on leases.

Special Financing: Signature GRADUATE offers a finance choice customized for recent graduates, purchase and lease plans on all new Nissan vehicles, purchase plans on pre-owned Nissans, as well as other pre-owned vehicles less than five years old, security deposit waiver on leases, and a delayed payment option, available on loans up to 60 months, when purchasing a new Nissan.

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