Buying is exciting! Be it your very first car or one of many, it is always fun to drive away in something different and new. But buying a new car without proper planning and proper wisdom can end up costing you thousands of dollars.
Before you go and buy a new car, be sure to consider these seven tips that will help you make a good purchasing decision as well as keep your finances in check and healthy.
- Consider maintenance costs of a potential vehicle.
- Be less concerned about your monthly payment and more concerned about the total price of the car.
- Give yourself time to shop and do not be afraid to say no.
- Secure financing outside of the dealership.
- Consider a used vehicle instead of a brand-new car.
- Consider a private sale instead of buying from a dealer.
- Do not forget about taxes!
Sure, maybe you found a good deal on a used luxury car, but that will not change the annual estimated upkeep. Anywhere from more expensive oil changes, expensive tires, and expected part failures and replacements can add up to thousands of dollars a year as an expected expense.
If that does not fit your budget, consider getting a car that has low maintenance costs.
Car salesmen will try to tempt you into a more expensive car by offering low monthly payments. This may seem nice since you would not only be able to afford monthly payments, but you would end up in a nicer car than you originally budgeted on. However, a high loan amount with low monthly payments means the life of your loan is very, very long.
And what does this mean for you? Paying thousands of dollars in interest. You might not feel the costs immediately, but you could end up paying 25% or more than the initial loan value simply because your loan term was so long and interest kept taking on extra payments. Budget a value you know you can afford and do not waiver from that amount, no matter how enticing a low car payment sounds.
If you give yourself ample time to shop for a car, you are more likely to an ideal vehicle at an ideal price. Car salesmen know when you are pressed for a vehicle, and if they sense that you "need" a car, you are likely to be gouged with a high price.
If they do not give you a deal you like, say no and continue shopping. When the pressure is on them to make a sale instead of on you to buy a car, you are far more likely to get a better offer.
During the negotiation of purchasing a new car, the dealer will likely try to run your credit and get your approved for financing through the dealership itself or their specific partners. While this may be a good option for those who would not otherwise be able to get financing, you will almost always find better rates elsewhere.
Good places to secure financing before even stepping foot into a dealership are your local bank or credit union. Not only will you likely get a better interest rate, but you can also use the amount you were approved as a hard-ceiling for any vehicle you may purchase. This reduces the temptation of purchasing a more expensive vehicle than you were anticipating.
It may be tempting to go after a shiny brand-new vehicle but there are a lot of pitfalls in purchasing a brand-new car. Here is a list of just a few you will be challenged with.
1. Depreciation
This term refers to the value of your car. With almost all vehicles, they lose value over time, which is what we refer to as depreciation. When you purchase a brand new vehicle and drive it off the lot, it immediately loses thousands of dollars in value because it is now "used" instead of "new." This means you are also likely already upsidedown on your loan (which means you owe more than the value of the car). Though depreciation happens with used vehicles as well, it is far less severe.
2. Savings
Even a lightly-used car can save you thousands of dollars when compared to the same make and model that is "new." It is almost always worth buying a lightly-used version of the car you want as opposed to buying it brand new.
3. Unknown Vehicle Issues
If you buy a brand-new make and model of a car, any defects or part replacement schedule will be unknown. You have no idea if that car is going to be able to go the distance of hundreds of thousands of miles, or if you are going to look at replacing it shortly after the warranty expires. A slightly older used car will likely have all known defects known, allowing you to either prepare for maintenance at certain steps of mileage.
The benefit of a private sale is that it will almost always be far less expensive than what you would buy at a dealer. The obvious risk with a private sale, however, is you cannot be too certain about the condition of the car or its history. If you go through a private sale, you will want to be sure you have a trusted mechanic on-hand that can inspect the vehicle before purchases are finalized. If the seller is unwilling to let a mechanic inspect it, it likely is not worth your time.
Even if you do decide to get an expensive car based on the monthly payments, you need to be aware of who much you will need to pay with local taxes. You might think you are happy with the upfront cash you needed to buy the vehicle, but when you go to buy tags you could be paying hundreds, if not thousands, of dollars. Unlike dealers, the DMV will not finance your taxes, so be sure you are aware of your local tax rate and have cash on hand.
Some dealers will include taxes in either your loan amount or will offer to pay them as part of a deal. If you are concerned about taxes, bring it up during negotiations!
Following these seven steps will help make your next new car purchase as smooth as possible!
