Next to your home, your vehicle is likely to be the most expensive purchase you ever make; and, if you don’t plan on driving your vehicle until it will no longer move, you will probably purchase several of them in your lifetime. Since vehicles are such a major purchase, it’s important to put a lot of forethought, research, and financial planning into the process. People who stop at a car lot on a whim, test drive a vehicle once, and sign away their life are not showing financial responsibility (unless, of course, they’re wealthy enough to pay in cash!).
The first factor to consider is what kind of vehicle you need and want. Your needs may not always match your wants, so be sure you are making your decision based on what is most practical for your family size, driving habits, location, insurance rates, gas mileage, safety ratings, and other important factors, and not based on the looks or make and model of the car. A dream car you can’t afford the insurance for or doesn’t accommodate a car seat will be a purchase you quickly regret.
Once you’ve narrowed down what vehicle you want and established a price range, start saving for your down payment, if not the entire amount. Here are few facts to consider:
- Cars that are 2-3 years old and under 40,000 are often a better deal than buying a new vehicle. A new vehicle depreciates in market value drastically in the first year while the car itself, if well-cared for, loses little actual value while still offering quite a few years of use.
- A good rule of thumb is saving toward 20% of the entire purchase, preferably in a high-yield savings account. If you need to finance the rest of the purchase, seek a loan you can pay in 36 months or less. Your payments will be lower the longer the term of the loan, but the amount of interest you pay rises with its age.
Set aside the amount you can afford for a car payment on a monthly basis. Not only is this a great way to save quickly for a down payment on a new vehicle; it gets you used to budgeting the expense. It’s not a bad idea to keep setting aside the same amount after your car’s paid off, in anticipation of repair costs.
Shop around for your loan — don’t just go with the dealership’s financier. Banks, specifically credit unions, often offer low interest rates on vehicle loans. If you are already established at a bank, check with them first since you may qualify for special discounts or better loan terms.
Get the best deal on your current vehicle. Another great savings boost for a new vehicle is selling an old one. You will usually get more for your vehicle if you sell it privately than if you trade it into a dealership, so go this route if possible. Keep your current vehicle in good running order and take good care of it so its value doesn’t fall. Check the Kelly Bluebook if you are unsure of what your vehicle is worth so you’re asking enough for it.
Purchasing a new vehicle is an important decision that can have a huge impact on your finances and your credit history for years to come, which is why it’s important to pay as much as possible up front to reduce your loan amount and keep your payments affordable. Saving takes time, planning, and discipline, but it’s much wiser than going into long-term debt with your next vehicle purchase.
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You also need to figure out if you are buying a lemon. After bad luck on used vehicles we now buy new, but keep them for 10-14 years. As long as you do your oil changes on a regular basis, maintenance will be minimal. Keep your tires properly inflated to prevent wear and keep your paint waxed. We also undercoat the vehicle when its brand new. Over the life of the vehicle we have replaced tires and batteries and hoses. With used vehicles we were replacing transmissions and exhaust systems, which is much more expensive.
That’s why it’s probably safer, if you’re buying used, to get a certified used vehicle through a dealership instead of from a private party or business. Many of these have limited warranties in case you find major problems with the car right away. Otherwise, if you buy a car that’s only a few years old with low mileage, you should be pretty safe.
I’ve also had a relative who’s a mechanic come along with me during a car sale. Sure, the car salesman didn’t like it much, but I was more confident in my relative’s professional opinion of the condition of the vehicle than someone who would do almost anything to make a sale.
DO NOT BUY from New Deal Used Cars.
I bought a car and have nothing but problems – some of which they refuse to fix. It came with a 500 mile warranty and the problems started 10-15 miles after I bought it. Of my 500 mile warranty close to 300 of them have been going back to the dealership for band aid repairs.
In addition the cruise control worked once and hasn’t worked since. They gave me a we owe for the flat tire canister (approx. $400), and they purchased a can of fix a flat. I’m contacting the BBB.