5 Steps to Save Big on a New or Used Car
GreenPath Financial Wellness
Earlier this year, it was reported by Fitch Ratings that Americans with lower credit scores are falling behind on auto payments at an alarming rate. While auto sales have cooled this past month, and some deals are out there for remaining 2016 models and incoming 2017 models, you still have to do your homework before stepping on the showroom floor.
Here's a few steps consumers should consider, who are in the market for a new or used car:
Step 1 – Research
Many people buy cars based on what they look like or what they are familiar with. Instead of buying the same type of car that you’ve always driven, it may be wiser to list the attributes you are looking for, and then do some research. Really think about what you want versus what you need.
Step 2 - Find Financing
Once you know what you are looking for, think about if you would like to buy new, used, or lease. What financing options are realistic for you, based on your income and credit? Don’t borrow more money than you are comfortably able to repay. Your credit score will directly impact the interest rate you will pay on your loan.
For example, an individual with a FICO score of 720 is likely to be offered a loan for about 5.75%., while a credit score of 660 will increase the rate to about 9.2%. This will cause the monthly payment to be $15-$20 higher.
Step 3 – Take Your Time
Now that you have a better idea of your price range, start shopping around for selection and dealer incentives for your particular car choices. Do not rush out and buy the first car you see on an impulse. It's better to exercise some patience and be sure about your choice. Be wary of any dealers that make you feel rushed into buying something. Shop online as well as in person --- that helps you compare prices for similar models.
Step 4 – Determine Payment Amount
Getting a lower monthly payment isn’t always the best route. Sometimes a dealer will simply increase the number of months on your loan in order to lower your monthly payment, but that often means you'll pay much more in interest over the life of the loan. Be careful about ending up in car loans that last 6, 7, or 8 years --- that’s a long time to have a car payment (and it’s a lot of interest to pay!)
Step 5 – Consider Other Costs
Your total transportation expense will include the vehicle payment, as well as everything else – insurance, gasoline, oil changes, ongoing maintenance, license plate fees, etc. Make sure that you have added all potential costs into your budget. Once everything looks good, you’re ready to buy the car.
By doing your research, knowing exactly how much car you can afford and by taking your time, you can turn your car buying experience into a pleasant one!