When you feel like you can’t go one more minute driving the same boring car or truck, buying a new car or SUV may be all you think about. Suddenly, you see the model you want everywhere. And the driver always looks happier than you – because he or she has that new ride.
Not everyone has the means to pay for a new car in cash, which can save you thousands right off the bat. But other saving methods, like knowing which fees you could negotiate, searching through different cities, and getting pre-approved, are accessible to nearly everyone buying a new car.
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Even if you are in desperate need, here are some things to consider before buying that car.
Questions to Ask Yourself Before Buying a Car
1. Can I afford the monthly payment?
Obviously, you need to make sure you can afford the monthly car payment before you buy a new car. Yet it’s easy to get so swept up in the test drive and how wonderful your life will be if you can drive this beautiful car, SUV or truck every day.
Find out exactly how much your monthly payment will be and for how many months or years. Deduct the amount from your monthly budget and if you don’t have much left over, think about saving a larger down payment for a new vehicle to purchase later.
2. What could I spend that $400-$800 a month on instead?
The average monthly payment in 2023 for a new vehicle is over $700, according to Experian.
What else could you do with that car payment money? Massages? New clothes? More dinners out? Emergency savings? That money might be better spent on things that make your life more fulfilling or secure.
3. Are these the best loan terms I can get?
The dealership will probably offer to finance your new vehicle, since it can make money on financing. Sometimes, you may get a sweet deal with 0% interest or another low rate. However, on a purchase this large, it makes sense to shop for the lowest interest rate and best loan terms.
You might save hundreds of dollars in interest by stepping away to shop for loans. And you might also change your mind once you take time to think about committing to such a huge purchase.
Avoid hidden fees
You’ll pay plenty of absurd, additional fees at the car dealership. But there are some you can snake out of just by standing your ground. Here are three of them, and how to ditch them…
- Doc fee/conveyance fee, or the cost of the “paperwork” to transfer the vehicle from the dealership to you. The dealership will tell you this fee is non-negotiable. So negotiate elsewhere. It’s quite common for savvy shoppers to demand, “Well, if I have to pay hundreds extra, what else can you do for me?” Be prepared to walk away on principle, and watch the dealer fold – because you’ll have wasted a few hours, but they’ll be out thousands of dollars.
- Advertising fee. If this is actually on the window sticker of the car you want, ask for it to be removed. If you’re hit with it while signing the paperwork, point it out and cry foul. Usually, if dealers are trying to sneak it in, they’re willing to remove it – if they get caught. You’d be surprised how often they’re not called on it.
- Dealer prep fee. Thankfully, the most ridiculous fee is the easiest to negotiate away. Customers have literally arched an eyebrow and simply said, “Really?” Poof, it’s gone. Again, stand up to the dealer. They know it’s a bogus fee. Let them know you know.
4. How will my credit score affect a car loan?
Generally, the higher your credit score, the better your chances of being approved for a better interest rate or, in some cases, being approved for a loan at all.
If your credit score is below 661, you may want to postpone a new car purchase until you can bring your credit score up to a prime (661-780) or super prime (781-850) rating. That way, you’re more likely to receive a lower interest rate and better loan terms when you take the new car plunge.
5. What if I saved a larger down payment before buying a new car?
Rather than jump into an impulse purchase, find out what monthly payments would be on the vehicle you want, but don’t purchase it yet. Instead, deposit that amount into savings each month for a down payment on a future new car purchase.
For example, if you save $545 per month for 12 months, you’ll have $6,540. Can’t afford to save that much monthly? Then you probably can’t yet afford to buy a new car.
6. How much money do I have in emergency savings?
If you lose your job or run up a big medical bill, you must still make car payments. That’s where having emergency savings comes in. You’d hate to have your new car repossessed because you missed payments.
You also may have to tap into savings to pay related new car costs such as sales taxes and licensing fees.
7. How much will I pay to insure this vehicle?
Make sure you factor auto insurance premiums into your total new car purchase. The average annual premium for a 30-year-old, single, male driver is $2,142 according to Bankrate, a financial products comparison and personal finance site.
Find out: How to Save Money on Car Insurance
8. Do I need this car?
If the car you have runs great, is affordable or paid off and you just want something new in your life, maybe going into debt for tens of thousands of dollars isn’t a smart move.
However, if your current car racks up expensive repairs regularly, you probably need a replacement vehicle. But, that brand-new sports car may not be the best replacement.
The average loan for a new car is over $39,000, according to Experian’s Q1 2023 State of the Automotive Finance Market Report. If you don’t really need a new car, consider driving your current vehicle longer while saving a sizeable down payment for when you do need a new car.
9. Have I done my research?
Before you buy a new car, always do your research on the manufacturer and model. And no, that doesn’t mean taking everything the salesperson tells you as fact.
Search auto review and research sites and reports online before closing the deal. You may find that model is known for mechanical problems or that other people who purchased the car, truck or SUV don’t think the vehicle is worth the price.
10. Fly to buy
The best deals may not necessarily be on the car you want or the city you’re in, but CarGurus found the best “fly to buy” deals based on certain cars in specific cities – and most of them are in Florida. Deals differ depending on where you are flying from. For example, the car shopping site CarGurus says Albany, New York residents who fly to Miami to buy a 2015 Ford Mustang can save around $2,065. Flyers from Birmingham, AL to Houston, TX will save $1,375 on the same car.
Reasons to Wait a Year Before Buying a New Car
Rushing into a new car purchase can be a mistake, however. If you put off buying for a year and use that time wisely, you can save money and avoid problems down the road.
1. Get a feel for affordability
You may be so caught up in the fantasy of how much a new car will improve your life that you fail to impartially evaluate whether you can afford the monthly car payment. The average new car monthly payment is $725, according to Lending Tree. Can you afford that?
To find out, take that amount or the amount of the expected monthly payment for the vehicle you want and deposit it into savings for a year instead of buying a new car now. That way, you’ll save a chunk of money while getting a good idea of how spending hundreds of extra dollars a month affects your budget.
2. Save a bigger down payment
Waiting a year to purchase allows time to save a large down payment so you can finance a smaller amount. For instance, if you deposit $500 per month into savings for 12 months, you’ll have $6,000 to put towards a down payment.
A larger down payment can mean smaller monthly payments, too. For example, if you finance $25,000 at a 5.03% interest rate for 48 months, the monthly payment amount would be $576. With a $6,000 down payment and financing with the same terms on $19,000, your monthly payment would be significantly lower: $438.
3. Buy time to pay off other debt
Before you take on new debt, spend a year hammering away at credit card or other debt until it’s paid off. With that pesky debt out of the way, you’ll have fewer monthly payments to worry about on top of a new car payment. When emergencies come up, you’re also less likely to fall behind on payments.
When you pay down credit card debt without charging more, your credit utilization ratio – the ratio of debt to available credit – should lower, potentially raising your credit score for better financing terms.
4. Shop for the best financing
Rather than rush into whatever financing deal a new car dealership offers, spend the next year watching auto financing deals come and go. Find out whether your credit is good enough to snare an auto manufacturer’s advertisedlow interest rate or you need to improve your credit score before you buy.
Shop and compare banks and dealerships to learn what the likely interest rate and monthly payment on a new car will be based on your credit history.
If you’re not buying a new car in cash – and sadly, too few of us do that – you need a loan. The easiest way to save on a loan is to secure it before you buy the car. That might sound like you’re putting the car before the horse, but it’s actually a smart move. It’s called “preapproval” – and here’s why you should do it…
- It’s a sign you’re serious. Car dealers know preapproved shoppers are sharper than those who aren’t. After all, you spent time on the front end securing a potential loan, so you’re less likely to fall prey to emotional (and costly) sales tactics.
- You’re not locked in. Just because you’re pre-approved doesn’t mean you can’t change your mind. Dealers work with their own lenders, and because they specialize in car loans, they can often offer better rates. You’re more likely to get the best deal if you walk in with one already in hand.
- You can shop around. Too many people shop for a new car after their current vehicle dies. They have no time to search for the best terms for a loan. When you seek pre-approval, however, you can check with many lenders. You can usually get pre-approved in 24 hours, and that approval usually lasts for up to 60 days.
5. Improve your credit score
Your credit score determines financing options, so generally the better your rating, the better the financing terms on an auto loan. If you have an excellent or a good credit score, you’ll typically have lower monthly payments and spend less overall than with a fair or poor credit score.
For example, if you have good credit that allows you to finance a new vehicle for $30,000 with a 3.99% APR for 60 months, your payment would be $552 and total interest over the life of the loan would be $3,120, according to Experian. On the same example, with poor credit – and a higher 15.99% APR as a result – your payment would be $729. And you’d pay a whopping $13,740 in interest over 60 months.
6. Do your research
Don’t rush out and buy the first pretty SUV you see. That driver winding along a scenic highway in the TV commercial may look euphoric now, but what about in six months? That could be when a model’s well-known (except to you) stalling engine or faulty electrical system decides to act up.
Check reviews on Kelley Blue Book, MotorTrend, Edmunds, and other online resources over the course of a year before you buy. While you’re at it, type in the vehicle model on a search engine along with “problem” and see what comes up.
Get professional help to clean up errors in your credit report.
Article last modified on July 24, 2023. Published by Debt.com, LLC