The internet is a revolution in the way most major purchases are made, including buying cars. Even if you don’t want to shop online, it’s now possible to thoroughly learn how to get the best deal when buying or selling a car using the resources available online. But finding the lowest price and the best car is not just about objective research and getting the best deal. There are some personal questions you should ask yourself in preparation for buying a new car. Here are the top six questions you should ask yourself (and the steps you should take) before purchasing a new car to ensure you get a good deal.
Are you upside down on your current car loan?
You may know people who decided to buy a new car, only to find they couldn’t afford it because they were “upside down” on their current loan. Welcome to a 60-month (or longer) car loan. Historically, the standard auto loan term was 36 months. Gradually, terms have become longer to enable more people to qualify for loans they can’t afford by lowering the monthly payment. However, while the monthly payment may be more manageable in the short term, a longer loan period ultimately means paying more interest in the long run. Often, a lower monthly payment isn’t your friend in the long run, especially on assets that depreciate rapidly like cars. If you try to sell your car before the loan term ends, you may find its value is less than the remaining amount owed on it. To buy a new car, you will have to pay off the original loan balance or roll it into the new loan, resulting in a very costly new car in the end. Buying a car that depreciates quickly is another thing that can leave you “upside down” on your loan. You can do more research on depreciation at Edmunds.com.
Have you researched the trade-in value of your current car?
While it’s tempting to compare the trade-in value of your old car with the price of the new car, you should keep the trade-in process for your old car and the purchase of your new car as two separate transactions by getting a trade-in offer before discussing the price of the new car. Some dealerships may offer you a good trade-in value but might lower their offer on the price of the car you’re buying to offset that. To avoid this potential trickery, you should know the trade-in value of your current car and decide whether you prefer to sell it yourself or trade it in.
Have you researched interest rates on auto loans?
Don’t evaluate the deal based on the monthly payment. That calculation is a common trap and a standard sales technique. The interest rate is where most of the cost of the auto loan resides. Find out how much you will pay over the life of the loan in principal and interest. If the dealer offers a good interest rate, know what credit score you need to qualify for that rate. It’s not uncommon for a new car buyer to be quoted a rate, complete the paperwork, and drive off in their new car only to receive a call a few days later saying they didn’t qualify for the quoted rate and their payment will be increased accordingly. Know in advance what rate your bank – or any bank or credit union of your choice – will offer on a new car loan before deciding between the bank and the dealer. Hint: the bank or credit union usually ends up being the better deal between the two.
Have you…
Have you considered the benefits of buying a used car?
There’s nothing like the feeling of buying a brand new car, but as always, you need to consider the cost. Cars depreciate sharply in value in the first year – by as much as 20%. Consider these numbers: the car you pay $25,000 for today may be worth only $15,000 in just two short years.
Do you know the true cost of owning a car?
Don’t find out too late that you can buy the car, but can’t afford to own it – due to operating expenses, insurance, fuel consumption, annual taxes, and other ownership costs. You’re not ready to buy a new car until you research and consider this information. Often, new car buyers do not account for the higher costs of repairs and maintenance for some models, tires that cost twice as much as those on other cars, higher fuel costs, and higher insurance (based on make, model, and even color). One of the most important considerations is the repair record of the make and model. Research the history of problems with the car from other owners concerning the transmission, brakes, electrical systems, and other components. Know the costs of routine repairs and maintenance.
Have you evaluated any offers from the dealer or manufacturer such as rebates or low-interest rates?
A $2,000 rebate on your new car may sound good, but it may not be better than a low-interest rate deal the dealer might offer instead. Don’t let yourself be fooled by the temptation of cash up front. It’s not always the best option. You can learn how to evaluate these offers so you come away with a good deal. You can also find out more about the rebates and offers manufacturers provide that the dealer may not tell you about (instead, they ensure the savings go to them as the seller).
Conclusion
Do your homework. Don’t roll over negative equity from an old loan into a new loan just because you’re tired of your old car. Get a trade-in offer before you discuss the price of the new car. Then use all the information and knowledge you’ve gathered to negotiate a good deal.
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Sources: Consumer Financial Protection Bureau. “Can the dealer raise the interest rate after I drive the car home?” Carfax. “Car depreciation: How much does it cost you?”
Source: https://www.thebalancemoney.com/questions-before-buying-car-1289603
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