Tips to Help You Save on Your Car Purchase
Be Realistic
The first step to this is calculating how much your household earns. Add up your income from various sources, like your (and potentially your partner’s) salaries, side hustles, etc. If you are replacing an old car with a new one, see if you can get money back on its trade-in value. Be sure to account for your taxes so you end up with your post-tax, a.k.a. spendable, amount.
Then, start figuring out how much your household spends. This includes fixed bills like rent or a mortgage, insurance policies like health, renters, or homeowners, and other loans. Looking at your past expenses can help you figure out how much you spend on groceries, dining out, entertainment, shopping, and more. Consider getting a budgeting app to help you keep track.
After subtracting your average expenses from your income, you will have a realistic amount of how much you can spend on a down payment on a new car (and monthly car payments). If you can’t afford the type of car you like, see if you can trim down your variable expenses to make room for the purchase you want. You can also speak with a financial expert to help you budget.
Consider Affordability
Once you have the purchase price you can spend on your initial car payment figured out, you can determine your loan amount. Unless you decide to buy your car fully in cash, you will have to take out a loan. Borrowing money from lenders that gets paid back at an interest rate probably doesn’t seem ideal, but it isn’t a big deal if you research and prepare.
Figuring out how much you need to borrow depends on several factors, like:
Your credit score: Having a better credit score usually means that you will pay a lower interest rate. On average, having a score of 670 or higher will get you a lower annual percentage rate, or APR, on your total loan amount. You can figure this out from getting a credit report from an agency, like Experian or Credit Karma.
Your loan term: This is up to you and how much you’re willing—or able—to spend on a monthly payment. Simply put, the more you pay each month, the less time it takes to pay off your loan. It might seem attractive to pay a lower amount each month, but know that the longer you stretch it out, the longer it takes to pay off, which could hurt with interest.
Some lenders will give you the option of a seven-year loan, but financial experts generally warn against loan terms longer than five years. If you have a poor credit score and qualify for a high APR and then choose a seven-year loan term, you could end up paying double the sticker price of the car by the end. Yikes!
Using your credit card for your down payment: Credit cards allow you to pay more up front and potentially take out a smaller loan. But if you choose to buy with credit, then be sure to take making payments with your credit card interest into account. You may want to talk with a personal finance advisor before to see if this is a good option for you.
Buying a new or used car: They each have their own pros and cons, but know that new car loans tend to have lower APRs. Check out the next section to learn more.
See More: Car Insurance Quotes
Buy Used over New
If you do need to take out a loan, be sure to think about how comfortable you are with having debt. People who are more debt-averse might want to consider paying for their car in full, getting a cheaper car, or exploring other alternatives to owning a car. If you don’t like the last choice or it’s just not an option, you could try a used car.
If you really want to save on your car payment and avoid taking out a loan, getting a used car is a great option to make that happen. Do your research and prioritize certified pre-owned cars. These are secondhand vehicles that have passed a rigorous and standardized quality check. If the car fails, it is refurbished and repaired to meet standards, usually by the manufacturer.
However, used and new cars each have their own list of pros and cons. A full disclaimer: While used cars usually cost less overall and can be cheaper to insure than new ones, they might not be available to lease. In the end, you still might have to take out a loan if you want to buy one. New cars depreciate quickly but come with newer and nicer features as well as a warranty.
See More: Cheap Car Insurance
Research and Negotiate
When making any major purchase, you want to be sure you’ve done your research so you’re prepared for that big payment amount. In terms of your loan, you can compare interest rates from different lenders using a loan-comparison site to check out multiple rates.
In terms of the car, your budget will help narrow down options. Once you know what models you can afford, be sure to look up prices on various sites so you know how much to expect to pay. Set the maximum sticker price for lower than your determined loan amount because you’ll need to account for sales tax and other fees, which can add up to an extra thousand dollars or more.
Then, be sure to negotiate. Some car-buying sites don’t allow this, but haggle in person if you can. At the end of the day, dealers are there to make a sale. You want a great price on your car just as much as they want to sell it to you. Once you have your budget and extra costs figured out, you’ll have a concrete number or price range that makes it easier for you to negotiate.
See More: Best and Worst Sites to Compare Car Insurance
