Content provided courtesy of USAA | By Chad Storlie
Preparing to buy a new or used car is always a major financial undertaking. Buying a used car vs. buying a new car can make good financial sense because it allows you to get a new vehicle (for you!) and not experience the financial depreciation of a new car. However, like all major financial purchases, there are a lot of tips to make a car buying decision much easier. Whether you need to add a second car to your growing family or get that recent graduate in the family their own wheels, here are some tips to help in the car buying process.
What Type of a Car Buyer Am I?
Determining what type of a used car buyer you are is critical for the discussion. For example, do you buy a new car every 2-3 years or drive your car 200,000+ miles and then look for a new one? The point to consider is that buying and selling cars every 2-3 years may not make the best financial sense because of some of the unavoidable car buying costs like taxes, differing insurance rates, depreciation costs and maintenance fees. Before you buy, examine how long it has been since you bought a car the last time. Do you want or need a new car? Making a financial goal to buy a vehicle, pay it off, and keep it for several years before purchasing another car can minimize your cost of owning that vehicle and become a better long-term option financially.
How Much Can I Afford Over the Next 5 Years?
People often look at their car payment within their current budget but then do not fully anticipate the Total Cost of Ownership (TCO) of the car over a period of years against their other financial priorities. For example, I can afford the payments for a new SUV in my current budget. However, my spouse and I are planning on buying a house and starting a family in 2-3 years. Suddenly, that new SUV payment may not work against a house payment and a new baby. Additionally, examine maintenance costs for different vehicle types and do some financial war gaming if you have a major car repair ($3000+) or if gas prices rise by 25%. Also, consider a luxury vehicle oil change vs. a non-luxury vehicle which can mean the difference of $40-$50 vs. $300. Under these conditions, can you still afford the repairs, the car payment, and gas and still meet your other financial priorities? It is vital to fully anticipate all the costs and considerations of a newer car towards your personal financial success.
Do Your Research.
Research your existing car against your idea(s) for buying a new car. You want to look at a trusted, independent source such as Consumer Reports that writes assessments of cars by their model years and tracks the reliability of those cars over time. The point is that cars that look great and cars that are great in terms of mechanical reliability over time are not always the same. Certified, Pre-Owned cars might also be an option as they are generally less than 5 years old, sometimes have an extended warranty and other benefits. In addition, looking at car buying services that find a competitive price for you across the country or using one of the many nationwide car dealerships that offer a single, non-negotiated price can make the car buying process much easier. Your research should point you towards highly reliable used cars in 2-3 different models that you can search for in your car buying process. The goal of car research is to do all your research off the car lot.
Take A Pause in Your Buying Process.
Stop. Take a pause for a week and reexamine your reasons to buy a car, your budget, how the car aligns against your financial goals in the next 3 to 5 years, and how your current car stands against the 2 to 3 models that you selected during your research. The point of pausing before purchase is to give you a chance to evaluate all your purchase considerations, give your budget a final look, talk with your significant other or trusted friend again, and ensure that all your financial stars are in alignment before you go to look at cars.
Get Pre-Approved for a Loan Before Shopping.
Before you even set foot on a dealer’s lot compare auto loans from 2-3 sources to determine the total amount you can borrow, the interest rate and any other fees. Like the Total Cost of Ownership (TCO) there are more considerations to loans than just the interest rate. Good auto loans have low rates, no fees for early payoff, and perhaps refinancing opportunities.