Avoid debt regret when buying a new car

Last fall, June Walbert and I shared some car-buying tips in this column. These included keeping your car payment(s) to 10 percent or less of your gross monthly income, checking your credit in advance, researching your car choices, understanding the total cost of ownership, and driving the car until the wheels fall off.

All this advice is solid. But recent news on the car-loan front has me back on the subject. Recently, The Wall Street Journal highlighted a disturbing trend in its article “Introducing the 97-Month Car Loan.” So with our focus firmly on the loan part of the car-buying process, here are three tips to keep you from disaster.

We don’t need no stinkin’ loan. Being a cash buyer is the quickest way to ensure that car expenses aren’t eating up too much of your budget. Just got a new car? Well, set up a savings account today and start stashing some money for that next vehicle purchase in 2020.

Maximize all the benefits. Interest rates remain low, and you may be able to lock in consumer-friendly rates before you set foot in the dealership. This could free you up to take advantage of a cash-back offer in lieu of accepting the dealer’s financing. Even if cash-back isn’t available, you’ll already have competitive financing in place – financing that the dealer can beat if he wants your business.

A 97-month car loan is not the way to make your car payment manageable. Beyond that, 72- and 84-month loans are now commonplace in the market. According to Experian, the average car note at the end of last year was 65 months. Don’t do it. If you use a loan, shoot for 48 months or fewer and don’t go any more than 60. The longer the loan, the more interest you’ll pay and the more likely you’ll become “upside down” on that loan, driving a car worth less than you owe on it.

To be clear, I’m a car guy. If there’s anybody who understands the temptation to break these rules, it’s me. But please take my advice. Granted, you may not leave the lot with the Italian racer of your dreams, but you won’t be hit with a major dose of financial regret either. Happy shopping!

J.J. Montanaro is a certified financial planner for USAA, The American Legion’s preferred provider of financial services. Submit questions for him online. www.legion.org/focusonfinances

Learn about USAA’s Auto Circle or auto-buying and car-loan programs: (877) 699-2654

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC. Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers. USAA Financial Planning Services® refers to financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner TM in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.