Before you go out to buy a new car, you have to ask yourself a few questions. People usually buy their vehicles on impulse. I know it sounds a little weird, but many people visit an agency “just to look” and drive off in a brand new vehicle. You have to analyze your financial situation before stepping on a car dealership.
Just keep in mind that if you arrive, choose a car, and drive away in one day, you could be spending thousands of dollars that you didn’t have. If you don’t rush and make wise decisions, you can save a lot of money.
It begins by wondering where you are with your current vehicle. Are you the owner and you don’t owe anything? If you are, you have to see if your finances are good enough so that you can make payments. If you are not, start by seeing if you need to keep your payment level and insurance where they currently are. The space you have in your budget will determine the type of vehicle you are looking for.
Then see if you owe more on your vehicle than it is worth. This is also known as being upside on your loan. This is often caused by 5-year loans. You are paying almost only interest in the first few years – also known as the years that your vehicle suffers the most depreciation in value. You are not paying off the loan very fast, but the value of your car is going down.
If you owe more than the car is worth, you will have to pay the balance when you trade it in or roll it over to the new car loan, which adds to the amount of the new loan. And since that vehicle will depreciate quickly, you’ll probably be upside down from the start with your new car.
You have to know the trade-in value of your current vehicle. Take a few minutes to look it up on the internet. When you go to the agent, treat the exchange as a separate transaction. Get the trade-in value before talking about a new vehicle or the price of a new vehicle. Many agents will offer you a good trade-in value, and then increase the price of the car you are buying. Often times, it is better to sell your vehicle than to hand it over to pay for a new one.
Do you already have financing? Don’t just go to the agent for financing. You have to know what other lenders can offer you. Find out the current interest rates for car loans. See how much you can spend on a vehicle. Look at the interest rate and how much you will be able to pay on the loan. Find out what is the best interest rate the agent has and how much your credit score has to be in order to qualify. If you have that score, then apply.
Make sure all the paperwork is in order. It’s common for car buyers to get a quote, sign the papers, and drive off only to get a call saying they are going to have to pay a higher rate because they didn’t qualify. Find out what your bank will do to help you, and then let the agent compete with that. Normally, your bank will be cheaper.
Do you know how much the car will cost you? Not just the monthly fee, but also the insurance, license plates, and maintenance costs. Some vehicles will be more expensive than others to drive, maintain, and insure. Consider how these costs will affect your finances.
Don’t rush when buying a new vehicle. It will save you time and stress.
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