What to Think About When Purchasing Your Next Car
Last week we looked at the advantages and disadvantages of leasing a car. Now let’s review the pros and cons of financing your next vehicle.
- Once the car is paid off, you own it and you may sell it at will and pocket the proceeds.
- Low-to-zero-percent interest-rate loans available for those with a great credit score.
- No restrictions on the number of miles it can be driven.
- The car can be modified to your liking.
- Higher monthly car payments.
- Higher down payment at the time of purchase (in most cases).
- Maintenance and repairs can be expensive after the factory warranty expires (especially for luxury vehicles).
If you are considering financing a car, one of the first things to do is calculate the true cost of owning the vehicle. Edmunds.com offers a helpful tool that allows users to research the true cost of owning any late model vehicle.
In addition, Kelley Blue Book has published its 2018 5-Year Cost to Own Awards list. This well-researched article highlights the best brands and category winners for 2018.
Lastly, if you are in the market for a vehicle lease, Edmunds.com also features a web page of monthly $199 lease deals that may pique your interest.
Since one of the best car-shopping three-day weekends is quickly approaching, now may be a good time to purchase your new vehicle.
Get Ready for Labor Day Weekend
Labor Day weekend is not only the unofficial end of the summer season, but this is also the time of year auto dealerships make every effort to move out current-year models and make way for next year’s models.
Therefore, this particular weekend usually offers some the steepest discounts of the year for car purchases.
Before you go, here are six steps to consider:
Step 1. Know what you can afford. When calculating the affordability of a vehicle, the overall sales price, fuel costs, maintenance, repair and auto insurance expenses need to be examined prior to making a purchase.
A general rule of thumb is that total auto loans for one household should not exceed 20% of the net monthly income.
So, if the net monthly income is $3,000 per month for the household, the total monthly car payments should be $600 or less, whether this amount is allotted to one car or three cars.
Edmunds.com has a calculator that can help you make a good decision. For more information, visit www.edmunds.com/calculators/affordability.html.
Step 2. Don’t be shocked by insurance premiums. When calculating how much for a vehicle you can afford, also include the potential annual insurance costs.
State Farm has a useful website that compiles extensive claims data and generates annual insurance ratings for specific makes and models of vehicles. Visit learningcenter.statefarm.com/auto/vehicle-rating.html.
Step 3. Know what others have paid. So, after you have narrowed your sights to one particular make and model, and you’re not sure what price to pay, visit the following websites:
Step 4. Pre-negotiate your price. If you have a membership with an organization, there are opportunities to take advantage of prearranged pricing for new and used vehicles. Please see some of their websites below:
- AAA Auto Buying Program.
- AARP Auto Buying Program.
- National Education Association Auto Buying Program.
- Costco Auto Program.
- BJ’s Auto Buying Program®.
- USAA Car Buying Service.
Step 5. Shop at the right time. If you’re buying a new vehicle, consider visiting the dealership on:
- The last day of the month.
- The last day of a quarter.
- The last month of the year.
- Early in the week or late in the day.
- Also, shopping during major U.S. holidays may produce motivated sales negotiations.
Step 6. Buy a gently used vehicle from a new-car dealership. Another way to save on a car purchase is to investigate if a dealer is selling its courtesy customer shuttle vehicle or demonstration car.
These types of vehicles are considered “new” because they haven’t been sold (titled) to a buyer.
They usually have low mileage on their odometer of 5,000 to 7,000 miles. Because of these miles you may be able to negotiate a far better deal well below the sticker price.
Good Luck With Your Next Car Purchase!
Purchasing a vehicle can be a significant financial life event.
The experience can be exciting and memorable. I wish you all the best with your future car purchases.
Until next time,
Senior Research Manager, Banyan Hill Publishing