Unless you are going to start collecting 400-foot mega yachts, a vehicle is likely to be one of the largest purchases you will make in your life. By taking the time to properly plan and prepare for buying a car, you can save yourself hundreds or thousands of dollars. Check out these steps to set yourself up for a more secure financial future:
#1 Figure out what you can afford.
Complete a spending plan. As you create your spending plan you can adjust the numbers to see how different transportation expenses would fit into your monthly expenses. You can then plug that monthly number into an auto payment calculator to see how much of a total vehicle price you can afford.
#2 Monitor your credit.
Review your credit reports. You can do a free financial check up here at Tropical Financial or you can check out www.annualcreditreport.com to review your credit score.
#3 Find the right car for you.
Think about how you will use the vehicle. Will you be using it to cross snow-covered mountain passes with hairpin turns and thousand foot drops, or will you be using your vehicle for something more challenging, like chauffeuring your children?
Pay special attention to the safety and reliability ratings. No car meets your needs when it’s up on blocks next to the garage or puts you at personal risk of harm.
Check with your insurance provider. That cherry-red sports car might sound like the key to your eternal happiness, but you might not be as thrilled when you get your car insurance bill.
#4 Consider new vs. used, buying vs. leasing and down payment amount.
Decide whether you will buy a new or used vehicle. Do you prefer the negligible wear-and-tear and increased reliability of a new vehicle, even if it means the value may drop sharply in the first few years? Or would you rather let someone else take on that depreciation by going with a used vehicle, but take the risk of not fully knowing the condition and history of the vehicle?
Figure out if you would rather buy or lease the vehicle. If the idea of always driving a new car matters more to you than likely saving money in the long-run, leasing might be an option to consider.
Think about how large of a down payment you can make. Making a down payment can help you get qualified for a loan, get a better interest rate, get a lower monthly payment, get a more expensive car for the same monthly payment, or build equity (owing less on the vehicle than it is worth) more quickly.
#5 Get financing.
Arrange your vehicle loan before you go to the dealership. You will have a lot to think about when you are at the dealership looking at cars: different vehicles available, test-driving, negotiating a price, etc. Just like you shop around for a good deal on a car, shop around for the best deal on financing.
Avoid subprime lenders. If you can’t qualify for an auto loan with a credit union or bank, consider working on your credit standing first or maybe getting a co-signer and then reapplying for the loan instead of accepting the unfavorable terms provided by a subprime lender.
#6 Determine favorites, contact dealers and check quality.
Find the vehicles that best fit your needs. Websites like cars.com, Consumer Reports, Edmunds, Kelley Blue Book and Yahoo Autos regularly publish articles on the best vehicles to meet particular needs, so take advantage of these free resources. Create a comparison chart to keep track of all the attributes that matter most to you and how each vehicle stacks up.
Use the Internet or trips to dealerships to comparison shop. Once you know which vehicle will suit you best, start looking at particular models and add the prices of each to your comparison chart. Also, do test drives and check vehicle histories. During the test drive, pay special attention to the transmission, shocks, brakes and alignment. If you aren’t sure what to look or listen for, invite a more experienced driver along on the test drive. Write down the Vehicle Identification Number (VIN) and use it to get a vehicle history report from a company like AutoCheck or CARFAX if you are shopping for a used vehicle.
#7 Get the best price on the car.
Know what your preferred models are selling for. Companies like Kelley Blue Book, TrueCar and Edmunds specialize in tracking the average price of vehicles and rebates or incentives available.
Negotiate each piece of the deal separately. Beware of salespeople who roll the different components of the transaction (purchase price, financing, trade-in, extras) into one deal or who make an offer in one area of the deal that sounds too good to be true.
Walk away if you are not happy with the deal. You know what you can afford and ultimately you control this transaction, so let the salesperson know you know where the door is and that you won’t hesitate to use it if they can’t meet your number.
#8 Know your legal responsibilities.
Find out the insurance necessary for your state. The Insurance Information Institute’s website at www.iii.org has a list of the minimum insurance requirement for each state.
Learn what the DMV requirements are for your area. Contact your state’s Department of Motor Vehicles (DMV) to make sure you have the proper license plate stickers or any other items that might be necessary to register your vehicle.
Know what to do if you can’t make your car payment. If you find yourself in a situation where you are struggling to make a car payment, the worst possible thing you can do is to avoid your lender. Instead, work to avoid repossession by staying in contact and asking about hardship programs.
#9 Put yourself in position to succeed long-term.
Establish an emergency savings account. Unexpected expenses have a way of popping up in life and vehicles can be a major source of these.
Save on gas. Consider ways you can get more out of the gas you buy, like using the air conditioning sparingly and removing heavy items from the trunk.
Save on your insurance. Shopping for the best insurance deal is always a good idea, but think about all the ways you could get a better deal, like improving your credit score, buying a used car instead of a new one and avoiding 4-wheel drive and high performance cars.
For more tips and best practices to consider when researching and buying a car, read TFCU's Drive Happy Guide.