Buying a car is the biggest purchase most people make in their life. Given the fact that most Americans now own their cars for 10 years or more, if you’re in the market for a new or used vehicle, it’s likely been quite a while since you’ve gone through the process. So how do you avoid a financial pitfall and the chance you’ll be stuck in a car you hate? By doing your homework and taking the right steps.
1. Determine how much you can afford
Buying caviar when you’re on a ramen budget doesn’t make sense in the long run and neither does buying a car you can’t afford. Start by determining your budget. If you will be making payments, how much can you pay every month? Can you afford a new car, or will you have to go used? This step will help you to avoid the depression that may come from looking at expensive rides that you cannot afford and will also ground your search in reality as well as inspire you to find the best deal for the amount of money you have.
Consider your down payment as well as your trade-n value when making a budget decision, but don’t forget that owning a vehicle costs more than just a monthly payment. True cost of ownership accounts for fuel costs, the finance rate and length of the loan’s term, vehicle depreciation and durability, and insurance costs.
Also, if you’re shopping for vehicles at dealerships, check your credit yourself first and be careful about too many checking your credit for you, as this can detract from your credit rating.
2. New or used?
For most car buyers, this decision is based on budget alone, but for many, the cost of buying new just isn’t worth it. Many new vehicles lose more than 10 percent of their value as soon as they’re driven off the dealership lot.
Buying a late-model, used vehicle from an owner who has already taken the depreciation hit for you can be a smart investment. However, used cars require their own form of research, as hidden damage or wear can sometimes be difficult to spot.
3. If buying new, will you purchase or lease?
Each situation is unique, but consider both the financial and long-term obligations between purchasing a vehicle new versus leasing it. Purchasing a new vehicle is significantly more expensive than leasing it, but leasing a vehicle carries special requirements such as penalties for going over the lease contract’s mileage limit.
4. Needs vs. wants
Everyone would love to drive a 500-HP sports car that seats just two, but think about the practical implications of the vehicle you’ll purchase. Begin by deciding whether you want a coupe, sedan, pick-up truck, SUV, crossover or something else. Will your needs change or your family grow in the next five years? Do you use your vehicle for work? Can you afford a vehicle that doesn’t feature good fuel efficiency?
5. Must-have features
Once you find what you actually cannot live without, make a list of desirables that will only sweeten the deal. This list is important when you inevitably come down to deciding which vehicle you are most interested in.
6. Do your research
Now that you have a vehicle type in mind, it’s time to start making comparisons and researching your purchase. If your heart is set on a particular model, are there any comparable vehicles that may be a better value for the money? How much should you expect to reasonably pay for the car? Look up vehicle comparison tools available at sites like edmunds.com or kbb.org and research prices, including your local market.