Are you getting ready to buy a new car? While making such an expensive purchase can be intimidating, following the right steps and preparing your finances in advance can make finding and buying a car fun.
If you’ve thought about replacing your vehicle or buying one for the first time, follow these car-buying steps to buy a set of wheels you’ll love.
Before we dive into our tips for buying a new or used car, it’s helpful to consider how current economic and supply chain issues might affect the process and your decisions.
Buying a car today requires some additional considerations. According to Kelley Blue Book, new car average transaction prices hit record highs, over $48,000, for the fifth straight month in August 2022.
The main reason for this is that currently, demand for vehicles exceeds supply. In addition, recent steps taken by the Federal Reserve to quell inflation mean the cost to borrow has also gone up. The average amount drivers were financing in the second quarter of 2022 was $40,290 versus $35,587 in 2021, according to Experian.
Before you look for cars, you should look at your bank account. While you may want the newest, fanciest, coolest car on the market, that may not be what’s right for your budget. Look at your savings for a down payment and determine what you can afford for monthly payments.
A higher down payment leads to a lower monthly payment. Planning ahead and saving can help you afford a nicer car or get lower monthly payments. Knowing what you can afford and how it fits into the rest of your budget should guide your purchase decision.
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There’s a direct correlation between your credit score and the auto loan you’ll be able to secure. The lower your credit score, the higher the risk you’re perceived to pose to lenders. It’s easy to get a copy of your credit report and score from one of the major credit-tracking companies such as Equifax, Experian, and TransUnion.
While you’re shopping around for a car, make an effort to use the time to improve your credit score by paying down your credit card debt and ensuring you settle any unpaid bills.
Ideally, you should start looking for a car before you desperately need to buy one. If you just keep on driving your existing vehicle until it breaks down, you’ll not only find yourself without transport, but you’ll also wind up with a vehicle with an ultra-low trade-in value. In such a scenario, you’ll also be tempted to rush into buying a replacement car without properly researching your financing options.
That being said, don’t buy a new car too soon. For example, if you still owe a significant amount on your existing vehicle, it’s more sensible to wait until your current loan is paid off, so you can save a little cash for a down payment on your next car.
Next, consider what you really need in a car, truck, or van. If you’re into pickups, you may want the newest and best in class. But you probably need a reliable, affordable truck that can get you to work and back while safely carrying anything you need in the back.
Outside of safety, which should always be a priority, it’s okay to lower the bar a little bit on features to get the right vehicle for your needs and budget.
New cars are likely going to be the most reliable and defect-free options on the lot. However, they also see a rapid decline in value when you drive them home for the first time and over the early years of ownership. Late-model used cars often provide a win-win for your budget and your desire for recent features.
Savvy shoppers often buy a recent, used vehicle with relatively low mileage even when they can afford a brand-new model. This can easily save you thousands of dollars compared to buying new. Consider what you can do with all of those savings before spending on a new car!
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Before you even think about going car shopping and visiting dealers, start reading online reviews on different vehicle brands, models, and financing options.
Cross-shop vehicle dealerships of the same brand in your area, as each one will have its own inventory, prices, and deals. For example, if you’re keen on buying a new or used Jeep, ask at least two or three local Jeep dealers for their best prices, and give the other dealerships the opportunity to beat them. Also, consider expanding your search. You may find a similar car at a much better price an hour or so farther away.
As part of your research process, don’t forget social media and word of mouth. You’ll quickly find that there are many people out there who’ll be more than willing to share details of good and bad experiences with different vehicle brands and dealerships.
Also, scour Twitter and Facebook for special deals posted by local dealerships.
When you lease a vehicle, you’re effectively renting the car for a few years instead of buying it. At the end of the lease, you don’t own the car and have to give it back unless you’re willing to pay more to buy the car after the lease.
Buying a car and keeping it for a longer period of time is usually a far better financial deal. Unless you always want to allocate a significant portion of your budget to vehicles and would have bought a new car every two or three years anyway, the better financial decision is to buy with a loan. After you pay the car off, you can keep it payment free for years to come.
At the car dealership, the salesperson will likely show you an offer focused on the monthly payment. Don’t just think about what you can afford to spend each month. Look at the total cost when negotiating and making a car loan deal.
In recent years, as the price of vehicles has continued to rise, the length of car loans has grown longer. Today, it’s not uncommon for dealers to offer loans that last more than six years. Be aware that most of these car loans come with a downside. You’ll usually end up with a higher interest rate, and you’ll be paying a greater amount of total interest over the period of the loan.
The cost of your auto insurance premiums should be taken into account as you calculate the overall monthly cost of owning your vehicle.
If you’re currently driving an older vehicle and are looking to buy a new car, it’s likely that your insurance premiums will likely be higher than what you’re currently paying.
Taking a car for a test drive is a standard step in the vehicle purchasing process. However, you need to make sure you make the most of this opportunity. Most dealers will want you to drive pre-planned test-drive routes but are they similar to the roads you’ll be driving every day? If not, ask to take a drive over to your area. While you’re driving, be alert for strange noises, vibrations, or other drivability issues.
Also, bring along your children’s car seats and any sports equipment you regularly use to ensure they fit comfortably into the vehicle.
If you decide to go with a used vehicle that’s not certified, you’ll want to get a vehicle history report from the likes of Carfax or AutoCheck. This report will give you details regarding the car’s accident history, repair records, and more. If you notice anything of concern, you should reconsider your options.
Even if the vehicle’s repair history is solid, you should still arrange for an independent mechanic to perform a thorough inspection.
If you come across anything concerning or untoward while performing your due diligence, don’t be afraid to walk away. The last thing you want to do is commit to years of payments on a vehicle that doesn’t suit your needs or has mechanical flaws.
Don’t let the dealership pressure or intimidate you. Just state your reasons for not moving ahead with the purchase and remain polite.
As you move closer to finalizing your vehicle purchase and financing arrangements, your dealership will most likely offer you the option of purchasing add-on products and services.
These might include extended warranties and nitrogen in the tires. Bear in mind that if you opt for such add-ons, you’ll be paying additional interest for the lifetime of your auto loan.
Signing all the documents associated with your vehicle purchase and getting the vehicle registered can feel like an onerous part of the car buying process. However, don’t rush it!
Check all documents for accuracy and completeness before you sign them. Remember that once you sign the paperwork, the vehicle is yours. Even in the event that you later discover that its condition was misrepresented, you’ll probably still be stuck with the car. Some vehicle manufacturers have return policies, but they’re usually filled with fine print, which can make returning the vehicle a painful and drawn-out process.
Outside of a home, a car is likely one of the biggest purchases you’ll ever make. When you research the best car for your needs and fully understand your budget, you can confidently buy the right car for you.
Whether it’s a practical sedan, a utility truck, or a van that can hold the entire family, there’s probably a great car out there waiting for you to bring it home.
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