Things to know before buying a car
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So you’re in the market for a vehicle? Before you run down to the dealership or start test driving those sweet rides you found online, here’s what you should know before buying a car:
Can I actually afford a car?
Deciding whether a new car is a need or a want can be less obvious than it sounds. If you decide it is a want, think about postponing the purchase. Instead, consider putting that money into a interest-earning savings account, so that when you need a car you'll have a healthy down-payment.
Before taking the leap, consider your budget:
- How would adding a car payment and car insurance impact your budget?
- Do you have savings for a down payment?
- How is your credit score (low credit scores mean higher interest rates)?
- Will you need to pay for monthly parking?
How much should my car payment be?
Your car payment, including principal, interest, and insurance, should total no more than 10 to 15% of your monthly income. Sound like too much math? No worries. To figure out the right payment, check out an online payment calculator to make the math easier.
Pro tip: Once you’ve determined the amount you believe you can afford for a car payment, take it for a test drive. Set it aside in a savings account for a few months. If you can do this and still pay your bills, you know the monthly payment amount works. Bonus — you’ve also saved up a down payment!
What's the right car for me?
Your needs will determine what kind of vehicle you need. Be sure to comparison shop. There are so many sites dedicated to vehicle reviews and dealer information, so you can do your research from the comfort of your couch.
Ask yourself the following questions while you do your research:
- Do you have kids, or plan to start a family soon?
- Do you find yourself occasionally renting or borrowing a larger vehicle?
- Do you need to be prepared to drive in inclement weather throughout the year?
- Do you like to pack your car with friends or rarely have passengers?
- Do you like a sporty drive?
Buying a car shouldn't be an impulse buy. Do your research, know what you want, and know how much you can spend ahead of time.
Should I buy or lease?
Leasing might mean a lower monthly payment, but could affect your insurance premiums.
Learn more about buying vs. leasing a new car.
How to get the best price on a new or used car.
There’s usually wiggle room built into a vehicle’s price. If you ask for the price you want to pay, they may accept the offer - and you could help the salesperson close the deal. There's no harm in asking.
Try not to focus on lowering your monthly payment. Too much emphasis on lowering your monthly payment could cost you more in interest and may extend the life of your loan.
Should I get pre-approved for a car loan?
When you apply for pre-approval, you're better able to determine your price range so you don’t fall in love with a car outside of your budget!
A pre-approval could allow you to know your loan’s interest rate and car payment before you shop.
And, getting pre-approved for a loan gives you a “bottom line” figure that you can use to negotiate.