Buying a car is an exciting, yet sometimes daunting experience. A car is a major purchase, so “research, research, research” is the key to saving money and making sure you get the right car for you, at the right price, with the right financing. Here are four tips to keep in mind when car shopping.
1. Research before buying
That bright red sedan may have caught your eye as you drove by the dealership, but whipping in to take a test drive could end up as a financial mistake. Knowledge is power when buying a car, so take the time to research the average vehicle price, reliability, maintenance and insurance costs before setting foot on the dealership lot. Armed with comparable prices of the car you want, as well as the value of your trade-in, will help you make the best deal possible.
2. Get pre-approved
Many car dealerships offer financing to make the car buying experience more convenient, but before car shopping, visit with your banker to get pre-approved. Having a pre-approval in hand will reduce the amount of time you spend in the dealer finance office because you already have your loan approved. If they can beat the interest rate, great, but make sure the deal they’re offering really is better than the one you have. Don’t just compare monthly payments, compare the interest rate, fees, and the number of months to pay off the loan.
3. Buy a car you can afford
Before committing to a car payment, create a budget to determine how much you can afford in monthly payments. But, don’t buy based on monthly payment alone. Choose the shortest loan term you can afford that fits in your budget. Dealerships may stretch out the loan term to entice you with a lower monthly payment. It may be tempting to spend more and finance longer, but do you really want to make payments on that car for the next seven years? And remember, the longer the loan term, the more you will pay in interest.
4. Buy used
Let’s face it. A car’s value declines over time, so it’s not exactly an investment. Purchasing a used car helps reduce the effect of some of the depreciation. According to CARFAX®, the value of a new vehicle can drop by more than 20 percent after the first year and you can expect your car to lose roughly ten percent of its value annually. Not every vehicle depreciates at the same rate, so do some research to determine which cars hold their value over others.
If you are considering leasing or buying a car, do the math. Use an online calculator to determine how loan terms, interest rates, and purchase price impacts your monthly payment at moneymoments.com/resources/calculators. Consider the benefits and drawbacks of both leasing and buying. Do your research thoroughly before jumping into any financial commitment.