Taking the time to properly plan and prepare for buying a car can save you hundreds of dollars and set yourself up for a more secure financial future.
- Figure out what you can afford.
Complete a budget. Adjust to see how different transportation expenses fit into your spending plan. You can plug that number into an auto payment calculator to see how much vehicle you can afford.
- Monitor your credit.
Use the credit bureaus’ annual credit report service to get your reports free at www.annualcreditreport.com, or call 877-322-8228. If you would like a certified credit counselor to review your reports with you, call BALANCE at 888-456-2227.
- Find the right car for you.
- How will you use the vehicle? Will you be crossing snow-covered mountain passes with hairpin turns and mile-high drops, or for something more challenging, like chauffeuring your children?
- Note its safety and reliability. A car won’t meet your needs if it’s up on blocks or puts you at risk.
- Check with your insurance provider. That cherry-red sports car might sound like the key to eternal happiness, but you might not be as thrilled with its insurance bill.
- New, used, or leased? Down payment amount?
- Do you prefer the reliability of a new vehicle, even if the value drops sharply in the first year? Or would you rather let someone else absorb depreciation? You could go with a used vehicle if you are comfortable with not fully knowing its history.
- Buy? Or lease? If driving a new car matters more to you than saving money in the long run, leasing might be an option.
- Think about down payment. It can get you qualified for a loan, reduce your interest rate and monthly payment, help you get a more car for the same monthly payment, and build equity.
- Get financing.
- Arrange a loan before going to the dealer. Once at the dealership, you’ll be thinking about different vehicles, test-driving, negotiating prices, etc. See your credit union for better loan options first.
- Avoid subprime lenders. If you don’t qualify for an auto loan with a credit union or bank, work on your credit or get a co-signer. Don’t lock in on unfavorable subprime lender terms.
- Determine favorites, contact dealers, and check quality.
- Websites like cars.com, CNBC, Consumer Reports, Edmunds, Kelley Blue Book, and Yahoo Autos list the best vehicles for particular needs. Identify attributes you want most and how each vehicle stacks up.
- Comparison-shop. Once you know which vehicles you might want, add prices to your list.
- Test-drive your short list of cars and check vehicle histories. If you aren’t sure how to evaluate it, invite a more experienced driver along. You can get a used-car history report from AutoCheck or CARFAX.
- Get the best price on the car.
- Kelley Blue Book, TrueCar, and Edmunds track vehicle price averages and identify what rebates or incentives are available.
- Negotiate each piece of the deal separately. Beware of dealers who roll different components of the transaction – purchase price, financing, trade-in, extras - into one deal. Beware if the deal sounds too good to be true.
- Walk away if you are not happy. You know what you can afford; you control this transaction, so let the salesperson know you won’t hesitate to walk out the door.
- Know your legal responsibilities.
- Find out your state’s insurance requirements. www.iii.org, has information for each state.
- Check with your state’s DMV to make sure you have the items necessary to register your vehicle.
- Put yourself in position to succeed long-term.
- Build an emergency savings account.
- Consider ways you can get more out of your gas tank: Use air conditioning sparingly; remove heavy items from the trunk; keep your tires properly inflated.
- Shop for the best insurance deal, and think about how to get a better deal: Improve your credit score; buy a used car instead of a new one; avoid 4-wheel drive or high performance cars.
- If you are struggling financially, the worst thing you can do is to avoid your lender. Avoid repossession by staying in contact and asking for help.
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