That new-car smell is intoxicating; unfortunately, it comes with a hefty price tag. When you’re in the market for a new car it’s easy to get sucked into the idea of leasing a brand-new car or 0% dealer financing.
What’s most important, though, is going into the process with a clear understanding of what you need to know from a financial perspective. Let’s look at what a few of those important financial tips are.
Have a payment amount in mind
If you don’t have the money to pay for a car in cash, you need to have a solid idea of how much you can afford in a monthly car payment. Bear in mind, though, you’ll have to pay interest on top of the principal loan amount.
To get a firm figure for what you can expect to pay, you should use a car loan payment calculator specific for your state. It’s most helpful to look at local banks and credit unions to get the best idea of real-time local auto loan interest rates.
Lower payments aren’t always good
Not too long ago, it was common to see the fixed term for an auto loan to be 36 months. Now, we’re seeing a lot of 60-month loans – and even some that are longer. The idea of spreading payments out over five years sounds great in theory, right?
It does, but you’ll end up paying much more in interest than you would on a shorter loan. This is one of the basic auto loan mistakes to avoid. Make sure you’re looking at all of your options before making a decision.
Big down payment
The larger down payment you have, the smaller your loan payments will be and the quicker you’ll be able to pay the loan off. It might take a bit longer than you’d like to save up enough money for a big down payment, but it’s worth the wait. Figure out what your goal is and start working towards it. Set up automatic payments to a savings account or do what you did when you were younger and have a jar to include all of your spare change. You might surprise yourself how quickly you can save up some extra money.
Lease or buy?
Do you know the difference between leasing or buying a car? Leasing a car means you pay the dealership a monthly fee for the privilege of driving that car – just like leasing an apartment. However, unlike an apartment, you don’t have a landlord to cover some of the maintenance costs for the car. You’re still responsible for upkeep, even on a vehicle which you don’t – and will likely never – own. Your car payments will eventually end when you buy off your car. But your lease on a car only ends when you buy out the lease or turn the car in.
Some cars cost more than others when it comes to maintenance. A BMW is significantly more expensive than a Chevy in the maintenance department, even when it comes to something as simple as an oil change. Make sure you’re aware of and can afford repair costs for whatever type of vehicle you’re purchasing, and remember – every car will have problems at some point.
Buying a car shouldn’t put you in undue financial duress, and it shouldn’t be a process where you don’t get the most value possible for your money. The above tips are great starting points to help you get the best value for your next car purchase.