If you're thinking about buying a new or used car this year, August is a great time to shop as dealers are looking to reduce inventory for next year’s models. According to Bankrate.com, buying a car is typically the second most expensive purchase anyone makes, next to buying a home. So as with all large financial decisions, some basic and prudent planning increases your chances of being happy with your car purchase. The following 10 tips can help you buy a car you can afford and choose a model that fits your needs.
1. Determine Your Budget
Buying a car is an expense that needs to be considered as part your overall household budget. A good rule of thumb is to budget no more than 25 percent of your monthly household income for all the cars in your household. Your calculation should include your monthly auto loan payment as well as operating costs such as fuel and car insurance.
2. Narrow Your List to a Few Cars
Begin by researching cars to see if they fit within your budget. Visit the automaker websites and independent auto information sites to assess the cars' features and get an idea of inventory available in your area. Take note of the manufacturer's suggested retail price and invoice price. Pick cars that are at least 5 percent less than your monthly budget to give yourself some room to cover your operating costs, including gas, car insurance, repairs and maintenance. Keep a file of your research. But don't rush to the dealership for a test drive yet. To find good deals, considering buying repos, cars from an auction or vehicles being sold from a rental agency that is renewing or updating their supply.
3. Decide If You're Buying New or Used or Leasing
Regardless of your budget, your research will lead you to choices of new cars that you can buy or lease, certified pre-owned cars or used cars. You will need to decide whixh direction to take, since there are trade-offs with each. You're likely to get the best value if you buy a used car, though you'll most likely pay a higher interest rate, have a shorter warranty period and won't know the car's full history. You'll be able to get a high-end car if you lease, but you won't own the car, and you'll need to be careful to stick within the parameters of the lease to avoid penalties. Buying a new car means you'll get fewer car features for the same amount of money, but you'll get the full warranty and lower interest rates, as well as free maintenance and roadside assistance in many cases. For many, a certified pre-owned car is the ideal compromise. These cars are cheaper than their new car counterparts, but they usually have some warranty left and must meet certain criteria to help ensure their reliability and condition.
4. Determine Your Overall Ownership Costs
Once you have your short list of cars, circle back to see if they really fit into your budget by estimating the ownership costs for each. An auto research website like Edmunds.com will help you with a general overview of the ownership costs for your area, but remember that these numbers will vary depending on your personal situation. Use these numbers for a more accurate budget, but do your own calculation for fuel costs based on the number of miles you drive annually and by calling your car insurance agent to get a quote on the cars you are considering. Make sure you give the agent the exact model, including engine type and other specifications, to get an accurate quote.
5. Nail Down Financing Before You Visit the Dealer
While buying a car with cash is the ideal option, many times it’s not possible. If you are in a position where you need to get a loan, keep these tips in mind. Dealers don't just want to sell you a car; they want to give you the car loan because they typically receive a flat fee or a commission on the car loans they facilitate. They get that kickback regardless of whether the loan is from the manufacturer or a local lender. As a result, dealers sometimes promise a great interest rate before they have final approval, which can get you in a pickle if you sign a contract. Instead, secure financing from a bank or credit union in advance and then compare it with what the dealer offers. Check with local lenders, including credit unions, which offer loans that are 1 to 2 percent lower on average than conventional banks. Many community credit unions are open to anyone living in their area, eliminating the need to work at a certain company or in a specific industry to join. Use CULookup.com to find a credit union you can join.
6. Consider That Automaker's Loan Promotion May Not Be the Best Rate
You probably have seen the ads from automakers for 0 percent interest rates or low interest rates and have decided the car was within your budget because of the low monthly payment quoted, but the likelihood is you won't qualify. Only about 10 percent of car buyers qualify for the 0 percent or low interest rate deals. Even if you do, you may be better off taking the cash rebate and getting your financing at a bank or credit union.
7. Research the Value of the Car
Before going to the dealer, make sure to research the value of the type of car you are considering. There are several auto comparison research sites online that can give you estimated prices. While invoice pricing on auto research websites varies and isn't completely accurate, it's a good indicator of what the dealer paid for the car and is a great negotiating tool during the buying process.
8. Find all Possible Discounts in Advance
Automakers usually promote cash-back rebates that apply to all buyers. Another source of discounts are small rebates that apply to specific groups. These rebates may be available but are not widely publicized. Automakers will often offer additional rebates for students, current and former military personnel, and even certain membership-based groups. These discounts can sometimes be combined with each other as well as with the cash-back rebates. Check the automaker's website for these incentives in their "current offers" section.
9. Don't Rush the Test Drive
Now that you've done all your research, you are ready to visit the dealership for a test-drive. Take your time during the test drive. Ask plenty of questions. Also, take extra time with the car parked to adjust the seats and experiment with the controls and make sure all of your typical passengers are comfortable and any regular cargo fits well.
10. Use Smart Negotiating Strategies
When you are ready to buy, negotiate the sale price of your new car and the trade-in value of your old car separately. Use your research about your current car's value and available discounts so you know whether you are being offered a fair price. Carefully review any and all fees associated with the deal before you sign the contract to ensure they are accurate, and make sure you aren't paying any unnecessary dealer fees. Once you've agreed to the price with the dealer, be prepared to say "no" to all the extras you may be offered. You can always buy them separately later, after you've researched pricing.
Bottom Line: Do your research. Be patient and take your time going over the myriad of vehicle choices and options. Remember that a certified pre-owned or used car is typically a better deal than buying a new car. Also, credit unions typically offer better rates on car loans than banks. To learn more about getting pre-approved for a loan at Select Federal Credit Union, call (210) 223-6561 and ask to speak to a loan officer to help you secure a car loan in advance. Reference: Bankrate.com
Comments