Buying a car can be an exciting and slightly nerve-wracking experience. A car is considered a big purchase for most people and a financial commitment that will last a few years. So you have to be wary when financing your car.
There are a few pitfalls you’ll need to avoid. By the time you’re done with this article, you’ll definitely know enough to make an intelligent decision.
Before we get started…
It’s important to remember that a car serves only one purpose to get you from point A to point B. It needs to be reliable and should be within your budget. Very often, people treat cars as status symbols.
A sleek sports car or a luxurious Mercedes-Benz are seen as signs that you’ve made it. If you can afford such cars, then getting one isn’t a problem.
But if you’re going into debt and stretching your finances just to get such a car, you might find yourself severely in debt if you can’t make the monthly payments.
Should you get a pre-owned car?
Ideally, when buying a car, you should get a pre-owned car. There are several benefits that are accrued if you do this. For starters, you’ll not take on the bulk of the depreciation.
Your insurance premiums will be lower and you won’t have to deal with inflated fees that often accompany new cars. Obviously, the car will also be cheaper. You’ll want to get a car which doesn’t have too much mileage on it.
Do not believe the old, unproven assumption that used cars are unreliable and will cost you a lot in maintenance. This is not true. You can find a good pre-owned car if you do your research.
If the idea of getting a used car doesn’t sit well with you, then you’ll probably be getting a new one and will need to be aware of the pointers below.
Tips on financing a new car
In a best-case scenario, you’d have saved up to pay for the car in full without taking a loan. This is fantastic and you’ll not have to pay interest for any loan.
Astute individuals will often save up until they can fully pay for the car, or at the very least, put down a sizeable down payment so that they only need to take a smaller loan for a shorter time.
You’ll always want to keep the term of the loan as short as possible. In this way, if you wish to sell the car, it would not have dropped in value too much.
When applying for a car loan, it’s best to know your credit score. The better your score, the lower the interest rate on the loan. You should also do your research and check out the rates different banks/credit unions are offering for car financing.
You want the best deal. If you can get pre-approved for a loan before even stepping into the car dealership, you’ll have more negotiating power.
It’s important to remember that car dealers profit from financing your car too. Yes, they have their fingers in this pie too. So, if you are already pre-approved, you can get them to offer a more attractive interest rate than what the bank is offering.
Do note: Avoid sub-prime auto loans. Almost always, these are accompanied by higher interest rates.
Before even talking about financing, you’ll first need to shop around and decide on a car that you want. Make sure you’re getting the car at the lowest price possible.
Ask for the dealer invoice. This invoice will show what the dealer paid the auto-manufacturer for the car. Never pay more than 5% above the factory invoice price.
Look at the loan deals the different dealerships are offering too. When choosing financing, do not disclose how much you’re willing to pay monthly because the dealer can always ‘massage’ the terms of the loan so that they profit more from it.
Keep your cards close to your chest when negotiating with car salesmen. They don’t have a negative reputation for nothing.
Exercise due diligence and know exactly what car you’re looking for, how long the loan term should be, what interest rate you’re willing to pay on the car loan, and how much you’re willing to pay for the car.
Should the dealer suddenly offer you terms that are too good to be true – such as cars they’re selling below the factory invoice price, you should immediately be on guard. Almost always, they’ll have some trick up their sleeves intended to earn them a tidy profit at your expense. So go in prepared to stand your ground and get a car on your terms.
It’s also worth remembering that a car costs much more than its sticker price. You’ll have to pay for insurance, gas, registration fees and more. Look at your budget and see if you can afford not only the monthly payments but also the added expenses that come with owning a car.
Last but not least, if you can’t afford the car you want, never lease one. You’re better off buying a cheaper model or just using public transport.
“If you buy a $28,000 car, in four years it will be worth about 11,000 bucks.”Dave Ramsey