Many Americans make mistakes when buying a new or used vehicle. A third of car buyers roll up to a used car lot and add at least $5,000 of past car debt onto a new car loan. For those trying to live a life free of debt, this is not a winning personal finance strategy.
Whether it’s your first car or you’re replacing your first car, don’t just rush out the door to your local car lot. Here are our best tips to help to take the headache out of car shopping.
1. Get Pre-Approved for a Loan Before Car Shopping
Before you even step foot into a used car lot, make sure you have a pre-approved loan. A pre-approved loan will help you know how much money you can borrow, what your payments will look like, and how long your loan term will be. In addition to knowing your terms, a pre-approved loan can help you get a lower interest rate on your loan.
One thing’s for sure, getting a loan from a lender outside of the car dealership helps buyers to ask themselves an important question, “How much can I actually afford?” This is a great question to ask before a salesperson flashes a shiny, new, limited model in your face.
2. Avoid Add-Ons at the Dealership
Once you’ve chosen the car you want, the car salesman will take you into a boxed room to settle paperwork and other financial matters. Unfortunately, this is the part of the car-buying journey where honest car buyers lose money and dealerships profit. During this process, add-ons are offered in ways that make it sound like they’re the best option at the time. This is where most car buyers get ripped off by dealerships with offers that can be found outside of the dealership with drastically different price tags.
Some add-ons you need to be on the lookout for include:
- VIN etching
- Tire packages
- Paint protection packages
- Extended warranty
By paying more attention to add-ons at the dealership, you could potentially save yourself a lot of expenses during your car-buying process.
3. Consider Buying a Used Car to Save Money
Buying a used car is a great way to save money. Remember, all of your car expenses should be no more than 20% of your take-home pay. This total includes insurance, gas, and repairs.
Car dealerships always put their most flashy vehicles on display, and for a good reason. They want buyers to feel like they can’t leave without at least test-driving their higher-end vehicles. But if you can’t afford a new car within a five-year loan, it’s best to save yourself the misery and guilt of looking at brand new cars. Instead, visit a used car lot to find your next car.
The car you buy matters, so it’s a good idea to research car models, maintenance issues, and ratings before you commit to buying. In general, used cars come with detailed owner history, less “sticker shock,” attractive financing options, and a lower insurance rate. All in all, you lose a little bit of the wow factor but gain a lot from a financial standpoint.
Looking to Buy a Car?
Car buying doesn’t have to make you want to pull your hair out! These three tips are a good place to start if you’re shopping for a new car.
Are you interested in buying a car but don’t know how to get there? Our financial experts at Metro Community Development can help assist you in your journey. Contact us for more information.