4 Things to Consider When Financing a Car
- June 23, 2020
- By: Greenpath Financial Wellness
Is it time to think about financing a car? It looks like it might be for many people.
The website AutoTrader reports that people are embracing online car buying instead of in-person shopping, which makes sense as we continue to focus on social distancing, health and hygiene.
Financing a car is one of those big life events – whether you are “kicking the tires” in the showroom or on a dealer’s website.
It all starts with making sure we get the best deal possible on the vehicle we want. Then the next step is figuring out the financing and negotiating your car purchase.
We all make the best decisions we can with the information we have available to us. It is in that spirit that we share some ideas to consider when financing a car.
1. Know What’s Possible
When thinking about financing a car, it’s a good time to get an understanding of your full financial picture. This Budgeting Worksheet is useful for tracking your income and expenses, to get a better picture of your current financial situation. By seeing the full picture, it helps figure out what would be possible when financing a car. Having a sense of income and expenses makes it easier to manage this big expense, and avoid the chance for the potential for late auto loan payments.
2. Understand Options
Once you have a sense of what kind of monthly payments your budget will allow, think about if you would like to buy new or used. Does it make sense to buy or lease? What financing options are realistic for you based on your income and credit?
It can be helpful to keep in mind a few “rules of thumb” when thinking about buying and leasing a car. While there are no hard and fast rules, there are some general points to consider. Buying a car is typically a good option for someone who will continue to drive it several years after the loan is paid off, and/or will be driving more than 15,000 miles per year. Leasing a car can be better suited for someone who wants to experience that “new car feeling” every 2-3 years and will be driving fewer miles. It’s useful to remember that when leasing, above-average mileage could result in additional usage fees that add up quickly. Monthly payments and depreciation are also considerations when deciding between buying and leasing a car.
3. Take Your Time
Now that you have thought about options to consider during the car buying process, the fun can begin in looking at vehicle models with the latest bells and whistles. Most people find that it is helpful to take the needed time, without rushing to an impulse purchase. When you exercise patience, you can be sure about your choice.
It’s a more relaxing experience when dealers let you take your time. When the timing of the purchase works for you, it’s a more enjoyable journey. As we noted earlier, many people are shopping online as well as in-person — this helps you compare prices for similar models. Tools like Kelley Blue Book can be helpful in determining the value of a car. Again, time is on your side! This is a big decision and you should proceed at your own pace.
4. Look at Total Costs
When financing a car, it is helpful to remember that the negotiated purchase price isn’t the only consideration. The terms on a vehicle loan are important to consider – such as interest rate and the length of the loan. To get the full picture, it’s useful to take a close look at any additional extras like “extended warranties” the dealer may introduce during the sales process.
Your total transportation expense will include the vehicle payment, as well as insurance, ongoing maintenance, oil changes, insurance, license plate fees and other costs.
Time to Hit the Road?
For many people, knowing exactly how much you can afford can help smooth the way. By taking your time, you can reduce the stress in financing a car purchase.
To help set you up to understand the options, our financial coaches can help assess your situation.
We’ll meet you wherever you are on the road to financial wellness.
It’s free, confidential, and no pressure.