When you decide that it’s time to buy a new car, it can be exciting. As you start to do some research to figure out which car is perfect for you, you also want to consider your finances. We’re going to share with you seven essential financial decisions you need to make when researching a new vehicle to buy.
1- Determine the Overall Cost
It can be very easy to get stuck on the sticker price of a vehicle and forget all the other costs that come along with it. You need to take into account what your monthly car payment will be, your insurance premium, gas, and maintenance fees. You want to be working off this combined total when it comes to determining what monthly payment you can afford.
2- Get Multiple Loan Quotes
It can be very easy just to run to the dealership and apply for financing there. However, getting financing from a local bank or credit union typically comes with a cheaper interest rate. This means that you’ll pay less money over the life of the loan for your new car. It’s a good idea to get multiple different quotes from different banks just to see where each bank’s interest rate lies.
3- Decide on a Down Payment
When you purchase a new car, you can decide to put a down payment on it when you get your loan. A down payment is a pre-payment for a portion of the total cost of your vehicle. This helps eliminate the amount of money you’ll need to pay for the auto loan. It’s essential to decide whether you want to invest any money upfront as a down payment or not. Typically, those who invest in a down payment can get a better interest rate on their car loan.
4- Know Your Loan Term
Before you really start diving into getting auto loans, it’s important to decide how long you want to have a loan. In general, the shorter your auto loan term, the more expensive your payment will be. However, you’ll typically pay less in interest over the life of the loan. Most auto loans are given for between two and five years.
5- Research Similar Vehicles
When you finally decide on the make and model vehicle that you want, it’s important to do further research on its price. You should be finding similar prices at different dealerships for vehicles of the same make and model and close model year numbers. Knowing what the average price is upfront will help you to better negotiate a final purchase price at the dealership.
6- Keep It Under 25%
While it’s very easy to get carried away when determining the budget for your new car, you need to keep one thing in mind. A good general rule of thumb is that your total car payment shouldn’t exceed 25% of your income. When we say car payment, this includes your gas and insurance as well as your monthly auto loan payment.
7- Decide Whether to Sell or Trade
If you already have an existing vehicle that you plan on replacing with a new one, you have two options. You can take your existing vehicle to the dealership and use it as a trade-in for your new vehicle. This can be a very easy process. However, you’re likely to get a much lower value than if you were to sell the vehicle on the private market. However, keep in mind that you will have to put in more time and effort to sell your old car on the private marketplace than if you were to just take it to the dealership as a trade-in.