It’s always best to make big decisions from a position of power rather than a position of weakness. That principle holds true even when buying a car: don’t wait until you’re desperate and in need. Start looking for a new car before your old one gives out, before a salesperson can back you into a corner, and when you have time to shop for the best deal.
Insiders say that shopping for the best deal should take place at the end of the month or the end of the fiscal quarter because salespersons are potentially hoping to make a deal that will help them meet their quota or earn them a bonus. In addition, if you’re able to find a compatible vehicle that remains on the lot as an unsold model from a previous year – manufacturers rarely make major changes from year to year – that could be your sweet spot for a great deal.
Exploit every advantage you have in order to squeeze the best deal possible out of a car purchase. Do lots of advance research to best compare models and customer satisfaction software with dealerships. And try not to let the process become too personal, as we often confuse our vehicles with our personal identities when in fact a purchase or sale is simply a financial and business transaction.
The basic components of buying a new or used car are:
- Budgeting,
- Financing,
- Warranty, and
- Trade-in.
Budget: Cost Of Car Ownership
On average, car ownership in the United States costs $700 per month or nearly $8,200 per year. Consider all that it entails: loan payments, insurance, gasoline, and maintenance, plus parking and perhaps tolls. Experts recommend keeping the cost of transportation at or below 15 percent of your net monthly income. Before purchasing a car get a clear picture of what you can afford – rather than how large a loan you may qualify for. Do some calculations regarding your annual driving habits, how much you’re likely to spend on gasoline and maintenance, get insurance quotes, and determine your monthly loan payment for different vehicles before making a decision.
Financing: How Do Car Loans Work
Get prequalified for a car loan before shopping so that you can compare the rate and terms your bank offers in order to compare with the dealership’s figures. Things to know about car loans and payday loans:
- Long-term financing (5-7 year loans) isn’t always good because your monthly payment will be low but you must focus on the total amount you will pay over the life of the loan, which will be much higher due to interest.
- If you get financing through a car dealership they may not give you the best interest rate that you qualify for (according to your credit record) which can cost you thousands of extra dollars over the life of the loan.
- Don’t get persuaded to roll a trade-in of your old vehicle into the deal because the salespersons are likely to just massage the numbers a little to appease you, something that rarely works in your financial favor.
Car Warranties
Do some research before going out to shop for cars in person. Determine which years and models have good track records for low maintenance costs and reliability, as well as which vehicle is likely to suit your lifestyle three, five, or more years in the future. Experts say to avoid extended warranties as part of the purchase to minimize the figures swimming before your eyes. Additional manufacturer’s warranties can be purchased later, as needed, rather than added to the financial soup where they become clouded by hocus pocus. Many used vehicles do not come with warranties but those that are Certified Preowned may. In all cases, it is worth comparing the available warranties side-by-side from the comfort of your home rather than in a loud, busy car dealership where salespersons may try to move figures around to appease your desire for a deal.
How Does Trade-in Work
If you still owe money on a loan for your current vehicle, it’s probably not a good time to buy a new car. This situation is called being “underwater” and is the worst position to bargain from. Rolling over a car loan into a new vehicle and a new, larger loan is frowned upon as financially irresponsible and is likely to cost you lots of money over the long term through high-interest rates. Furthermore, you’ll be seen as an easy mark by salespersons who will try to manipulate your lack of financial acumen. When disposing of a used vehicle that you do not owe money on, be wary of those dealerships that promise a minimum of $3,000 for a trade-in: they’re able to move figures around in other places to make up for any “deal” they give you on your old car. Find out what your trade-in is worth by getting an honest estimate from a company like CarMax that could buy it outright. If the dealership does not offer the same amount, sell it to someone else.
