I’m Buying a New (or new to me) Car…What Do I Need to Know?
There’s no denying that a vehicle purchase will be one of a handful of large dollar commitments many of us make just a few times in our lives. Next to housing, car purchases are some of the most expensive financial decisions a person can make – some more frequently than others. Regardless of whether you are the type of driver who keeps their car until the wheels fall off, or if you have to have the brand new model each year, there’s something you can learn here.
Review Your Budget
Before falling in love with a car that you can’t afford, it is always a wise decision to take a peek at your budget. What can your household afford to pay per month on an auto loan? What about the total cost? Sure, a monthly payment is important, but you don’t want to pay on a car for 84 months just to have to turn around a buy a new one – or worse still, something goes wrong with the car before the loan is paid off and you’re stuck paying for a car you can’t even drive.
When you consider your budget, don’t forget to factor in additional costs. This might be a GAP coverage (which I nearly ALWAYS recommend having), an optional extended warranty package, taxes, tags and titling fees, any other fee that might be required by your lender and/or dealership (think transport fees, mandatory protection coverages, document fees, etc.), optional packages, upgrades, and aftermarket options.
If your vehicle will be financed, you will need to have full coverage auto insurance in place to protect the vehicle and the interest of the lienholder. This might spell out to be a hefty increase in your premium depending on the type of vehicle, how much you plan to drive it, driving history and other factors. New cars are usually more expensive to insure than a used car is. Shop around not only for your coverage (as long as it meets the lender’s required minimum coverages) but also for your insurance provider. It may be comfortable to stay with the same insurance company for years upon years, but as your life and needs change, so too should your rates; oftentimes being dramatically lower than what was being charged previously.
Think about the type of car you are interested in. Will you be spending more or less in gas each week? Is your commute changing in the near future? Gas prices fluctuate, but you can always account for some variance in these budget line items so you are better prepared for your usage expenses long after the new car smell wears off.
Let’s not forget about repairs. Even the best-maintained vehicles will be in the repair shop at some point. Luxury models typically call for a higher repair cost thanks to a more complex labor process or simply more expensive replacement parts. This can be true of a new or used vehicle, so do your research and don’t forget to factor all of this into your budget.
Speaking of new or used vehicles, it’s important to consider the “D” word – depreciation. As soon as you drive off the lot in a new car, the value goes down a little bit; it’ll continue to do so as the vehicle ages. Sometimes it makes more financial sense to buy a new car that’s only one model year old. You’ll find more of them as the dealerships bring in the new model year stock in the fall. You’ll have the benefit of a new car at a better price and a softer hit to the depreciation. Of course, some models hold their value longer than others, and the longer you plan to keep a car plays a factor, so it’s not a one-size-fits-all approach. Planning to keep the car longer? Depreciation may not be a big deal for you. If you only want to keep it for a short time, it’s best to choose a car that is famous for holding value longer.
Many new and used vehicles come with perks offered by the dealership for service and maintenance. For instance, saving on regular oil changes if you take the car to their service center. Not only is this a consideration to make for ongoing maintenance on your new ride, but also your budget. Assuming the dealership is a convenient distance from your home or work, it may mean the difference of purchasing from one dealer over another if it comes down to a neck and neck decision.
Don’t feel the need to put down a large downpayment. One sure thing in life is that you will always have bills to pay. Usually, one of those bills is a car payment. Unless you have at least six months of living expenses, maxed out your 401(k) contributions, and have a separate savings fund, it usually isn’t worth breaking the proverbial bank to put money down on a car. Certainly, pay your loan off early and save yourself money if you are able, but putting less down upfront outs you in the driver’s seat (pun intended) with your bill. If you are able to pay extra towards principal one month, fantastic, but you aren’t required to do so – which comes in handy during those months when you have to tighten the purse strings. As long as you’re comfortable with a realistic monthly payment, you should have no need to put down a large sum (if any) of money.
Always Get Pre-Approved
I can’t say this enough. Wherever you plan to get the car financed, ALWAYS GET PRE-APPROVED. This extra step will help narrow down your choices. There’s nothing worse than getting your heart set on a vehicle only to find out that your lender will only approve a lower amount, or a different car, or the final price will blow your budget.
Visiting a dealership armed with a pre-approval can help make the negotiation process go more smoothly. Not only will you save yourself time and paperwork, but you’ll be able to approach the salesperson with a firm offer of what you’re willing to pay – a pre-approval puts you in control.
Browse For Deals
There are plenty of search tools designed to help you find the right car for you. Ours, for instance, will allow you to narrow down the vehicle year, make, model and special features. Most borrowers will not only easily find the car they’ve been looking for, but they’ll also qualify for special discounts when they finance with us, just for using our service.
Thanks to the digital age, you aren’t required to buy a car from your local dealer down the street. Browse and buy online, or take a road trip – it’s entirely up to you. Once you’re settled, you can have the car shipped to a local sister-dealership, or even to your house. Some services even offer a “car vending machine” to pick up your ride. The options are nearly unlimited, so there is no excuse for not finding a great deal.
Final Thoughts
These last tips are strategies I used when I bought my car. I don’t know about you, but buying a car can be a stressful experience; in my case, being the one in control made it much more pleasant and rewarding at the end.
The first thing you should always settle on is the price of the car. Don’t talk about anything else until you determine what that amount is. If you used a car buying service lie ours, bring the certificate that shows the advertised internet price and ask if that’s the best they can offer. You might already be happy to pay what’s listed, but it never hurts to ask for a lower cost.
AFTER you settle on the price of the vehicle, talk trade. If you have a car already and don’t need to hold on to it, ask the salesperson how much they can knock off of the amount financed by factoring in your trade-in allowance.
The dealer GAP and Warranty coverages are typically much more expensive than a private finance company will charge. Your best bet for these extra coverages is to ask your credit union what their rates are. You’ll likely be pleasantly surprised at the savings.
What did you guys think? Did you pick up any new tips? Did I miss any of your tried-and-true negotiation methods? Feel free to leave a comment, or email me.
Krista Kyte is a personal finance blogger and personal banker with over 17 years of experience in the financial industry. Krista is passionate about helping our members understand their financial situations. She writes tips that will help consumers reach and maintain financial security, and start living the life they’ve always wanted.
