Better Money Habits #5 — Auto
Six steps to make car-buying easier
There’s nothing like that new car smell. Whether it’s a sports, luxury, economical, truck or a family vehicle, the urge to inhale once seated is almost irresistible. Quick question: Is the new car smell worth the extra dollars that one will spend when compared to purchasing a used vehicle?
Whether you hope to upgrade to a car with newer technology or worry your current vehicle is on its last legs, these six steps can ensure your trade-in and car-buying process go smoothly.
- Know the value of your trade-in
If your current car is clean and in working order, it may have value you can apply toward the purchase of a new vehicle. Resources like Kelley Blue Book and the National Automobile Dealers Association can help you determine your current vehicle’s worth before you start your negotiations.
- Consider your budget
Ask yourself these important questions: How much are you comfortable paying each month for the car? Have you considered additional costs—such as maintenance, insurance, gas and repairs? Can you afford a down payment, or do you have a trade-in to use as a down payment? You may be required to put down a certain percentage of the car’s price to secure financing, and paying more up front means you pay less interest in the long run.
“Before buying a car, you should know the total cost of ownership,” said Matt Elliott, Bank of America Michigan market president. “Although buying a used car might be cheaper, the buyer still has to factor in the cost of maintenance and repairs, especially when the car has exceeded the manufacturer’s warranty. Sometimes buying new or leasing, is the best option.”
Ray, can this be a graphic? Tip: Using an online calculator, such as Bank of America’s car payment calculator, can help you estimate how much you can afford.
- Review your credit
Your credit history is one of the most important factors that lenders consider. The higher your credit score, the better interest rate you’re likely to get. Review your credit report or score and make sure the information is correct so you can get the best possible loan rate. You can get one free copy of your report from each of the three major credit bureaus annually by visiting AnnualCreditReport.com.
- Decide on new or used
For many people, buying a used car is a better choice than buying a new car. The first owner of the vehicle has absorbed the biggest portion of the vehicle’s depreciation (the decrease in value), so you tend to get more value for your money. But there’s more to consider than depreciation. The pros to buying a used vehicle are: Lower purchase price; less depreciation; cheaper registration and license fees; potential for lower insurance premiums. The cons for purchasing a used vehicle include: The vehicle may be less reliable than a newer model; potential for higher maintenance costs; reduced or no manufacturer’s warranty; potentially higher interest rate on auto loan or lease.
- Shop for a loan and get approved in advance
Buying a car can go more smoothly if you research financing options before going to the dealership. The terms of your loan—the interest rate and length of repayment—affect what you ultimately pay. Make sure the terms of your car loan comfortably fit your budget.
Tip: If possible, get approved before visiting the dealer. Knowing your approved interest rate can help you negotiate your deal.
- Research any car you’re interested in
Knowledge is power when it comes to negotiating a deal, so consult a variety of websites and visit multiple dealers to learn what you should expect to pay for the car you want. The Bank of America dealer network may also serve as a valuable resource.
Visiting dealerships and taking test drives are important parts of buying a car, but you should also read as many vehicle reviews as you can find. Know whether the car you’re considering has been given high marks for safety and is reliable in terms of needing repairs, among other factors.