In the market for a new, or used and new-to-you, vehicle? It can be an exciting time and purchase – and a time when it’s easy to get carried away with bells, whistles, new models and the accompanying price tag. To avoid taking on debt you really can’t (or shouldn’t) afford, consider these do’s and don’ts.
It might seem obvious, but many people neglect calculating the impact of a payment each month. To know what you can realistically spend, make sure you have a simple budget in place. Figure in the monthly payment as a fixed cost, and see what your bottom-line income is.
Whether you are buying a new or used vehicle, you’ll typically need to have money for a down payment. (In the case of a used vehicle, another vehicle you’ll trade in may satisfy this requirement.)
If you’ll need to take out a loan to finance your new car or truck, prepare before you start shopping in earnest. Securing pre-approval from your bank or credit union can make the process of buying the vehicle much faster, easier and smoother. Plus, dealers often will match or beat a bank’s interest rate.
If you are considering trading in a vehicle, use Kelley Blue Book or the National Auto Dealers Association to determine its value. It will help assure that the dealer offers a fair price for the vehicle.
It’s basic information that you’ll likely pay less and have less need to take on more debt. In addition, consider that cars depreciate very quickly. In fact, a new car could lose up to one-third its value as soon as it leaves the dealership. Used cars also carry lower insurance premiums and personal property taxes.
Leasing can initially seem like a way to drive a better, newer or nicer vehicle for less. But if you break the lease early, it can be very difficult to do, and very expensive. And if you keep the lease for its full term, you’ll have nothing of value to show for all those years of payments. On the other hand, leasing is not always a bad plan. If you keep a vehicle for less than 10 years, it may be less expensive than purchasing, especially if you must take out a vehicle loan (many loans today have terms of five or six years).
Perhaps you have a friend or family member who works for a dealership or car manufacturer. If so, there could be help with an employee discount. If you are a member of the military (active or retired), ask about any discounts. Some dealerships even offer discounts to new college grads. If you belong to a membership warehouse club, check for options there, too.
Online shopping options can help you do your homework, get the best deal possible, and take on as little debt as possible. Along with online car-selling sites (Cars.com, AutoTrader.com), eBay and Craigslist are good places to check. AAA has an auto buying program where someone will even deliver cars to you to test drive. Sites such as Autobytel.com and PriceQuotes.com provide price quotes, which can help in negotiations. Check Edmunds.com for a car’s market value price.
You are the one who has to live with any debt you take on, and with monthly payments for at least a few years if you finance your purchase. Don’t be afraid to walk away if a dealer is pushing you to make a decision that’s not right for you. You will find another vehicle.
You’ll usually be better off putting your money into an emergency fund that you can access to finance car repairs that may be needed down the road.
While buying a vehicle is costly however you do it, it is possible to make sound decisions that won’t put you in more debt that you can comfortably handle. Allowing time to prepare, research and shop can ensure that the process – and ultimate purchase – are good for your personal economic situation.
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