Today, I have a guest post from David Walker, founder of CarUnderstanding.com.
Buying a car, whether it is new or used, is the next expensive purchase to a house. The cost doesn’t end with the actual purchase, but there are other expenses to worry about such as insurance, financing, maintenance, repairs, and fuel. That is why before you shell out cash for a brand new or used car, make sure you have set your budget and done your research. This will help you avoid spending too much for unnecessary purchases and get a deal that is suited to your needs. Purchasing a car is another major decision that will affect your lifestyle. True, a car is a necessity, but it also depends on how bad you need it. Take note that owning a car takes a lot of responsibility, so you have to be psychologically and financially ready to own a car before you jump into that purchase.
Here’s some financial advice for when you’re buying a car:
Budget, Budget, Budget
Rule of thumb when making any purchases – always set a budget. There are still other expenses you have to worry about after purchasing your car so don’t go for the limit. No matter if it is a brand new car or a used car, there should be a limit on how much you are willing to pay upfront. In the case of used cars, make sure that the budget you set is less than the cost of a brand new car.
Here is a list of websites that may help you plan your budget:
- Edmunds.com – Gives reviews and pricing information for brand new and used cars
- Kelly Blue Book – Estimator for used cars
- Carsdirect.com – Gives information including pricing; you can also compare different models
- Truecar.com – Gives pricing information and deals from local car dealers
Once you have set a budget for a car, set aside the down payment, so you have it ready when the time comes. This also helps you adjust your budget accordingly. Remember, you still have to pay for the monthly installment and insurance premiums.
Research and compare
After you have set a budget, check the market for a list of cars suited for your needs. Consider the size of your family, how often you use the car, and where you usually travel. Be it a brand new car or a used car, make a list and compare their prices. You may also want to look into the extras such as GPS, airbags, transmission, and type of fuel. It is best to have at least five options to choose from.
Check your credit score
Banks, credit unions, and lenders look into your credit history and factor it when processing your loan. The better your credit history is, the better deal you get and the easier it would be to get a loan. The logic is that people with better credit history are good payers.
Chances are, you won’t be paying cash upfront. Make sure you also look into financing options. Dealers offer financing options but may be more expensive due to commissions. Compare different interest rates with banks, local lenders and credit unions.
Shop for discounts
There are many discounts offered to those who want to purchase cars. There are cashback deals, student discounts, military members or veterans, and discounts for members of credit unions. Check the current offers of car dealers and see if you qualify for any of them.
Look for insurance
One way that you can save on insurance is to bundle it with your home insurance. Most insurance companies offer discounts for bundles. Ask your family or friends to refer you, too, so you can get referral discounts as well.
Decide if you want to buy or lease
When you buy a car, you gain true ownership as soon as the last payment is made. But if you lease a car, once your lease terms are done, you have the option of purchasing it so you gain ownership. If you are the type of person who changes cars every two or three years, a leased car is best for you. Consider how long you plan to keep it. If you are frequently traveling and have a habit of leaving your car in storage, leasing a car is better.
Inspect and test drive
Once you purchase the car, there is no turning back, so make sure you are comfortable driving it. Brand new or used car, give it an overall inspection plus a test drive. You should be fully satisfied with it before you purchase it, or else you might regret it.
Negotiate and say “no” if needed
Once you are equipped with facts based on your research, you already know what you want. When shopping for a brand new car, dealers may offer you another model which is more expensive. Don’t be blinded by the “extras,” make sure you really need them or are practical. When buying used cars, don’t be afraid to negotiate with the seller. Negotiate at least 10% to 15% of the offer. But don’t be too stingy because the car may have practical extras installed on them.
If you have an existing car, decide what you plan to do with it. Are you going to trade it in or sell it? It will help you finance the new car that you’re buying.
Now that you have seen the financial advice, do you think you are now financially ready to buy a car? If you’re thinking that, “I never knew there were so many things to consider!” – yes, there are a lot. That’s just the tip of the iceberg; be prepared for the rest of the costs.
What are your thoughts on this article? Please feel free to share this article with your friends. Who knows? You may have a friend out there who’s planning to purchase a car. I hope that I was able to answer any misgivings that you may have had. Feel free to air your comments and suggestions by sharing them.