Unlike buying a home, buying a car isn’t something you do just once in your life. Typically, you’ll buy at least three to four cars in your lifetime and each situation will be different. Each time, you need to be prepared for the financial responsibilities that buying a new car represents.
Buying Your First Car
For younger generations, who are either in college or joining the workforce, buying a car may be a necessity. It’s also an opportunity to establish your credit and to begin building a good financial foundation. This is important, because it teaches younger individuals how to use credit without letting it get out of hand.
However, it’s important to be prepared for the costs if buying a car. In addition to putting a payment down and managing monthly payments, there’s also the upkeep of the vehicle to consider. Once you commit to a loan, you owe that money, regardless of what becomes of the vehicle. For that reason, it’s equally important to educate yourself on proper preventative maintenance. Ask yourself if you can afford to pay for repairs or damages that may not be covered by a warranty or insurance policy. These are all important points to consider, before committing to an auto loan.
How Credit Affects Your Car-Buying Power
If it’s later in your life, you’ve already established a credit history, either for better or for worse. If you’ve worked on building good credit for a few years, you may be able to use your credit score to buy a car at a better rate.
This is the time that maintaining a good credit history can benefit you, because lenders will give this weight in determining your loan status. In addition to influencing their decision as to whether or not to approve your loan, your credit rating will also help determine your interest rate. The better your rating, the less you’ll have to pay in fees and interest.
For this reason, it’s important to think about your credit, before you need to use it. By making bill payments on time and ensuring that you don’t fall behind, your rating will be higher and you’ll qualify for better opportunities. If you’re concerned about your rating, you can order a free credit score report once each year. This will help you determine which debts need your attention, before you pursue a new auto loan.
More Things to Consider in Buying a New Car
First, you’ll want to look at your current car loan, if you have one. Today, car loans are longer with terms as much as 60 months. While it may seem as though this makes it easier for more people to afford new cars, it also means you’re paying less of the principal balance and paying more interest. This means your trade-in value may not be enough to pay off the balance of the loan.
If this does sound like your situation, you may choose to sell your car for more to a private buyer. This is often a preferable option, even when there isn’t a pre existing loan to consider. By knowing the value of your car and selling it for more, you’ll get a better down payment on your new car than a dealer would have offered on a trade-in.
You might also want to ask yourself just how badly you need a brand new vehicle. In answering that question, consider the fact that a new car depreciates in value from 30-40% within the first two years. By buying a used car that’s two years older, you can actually benefit from that depreciation instead of letting it cost you.
There are many things to consider, when shopping for a new car. Before looking for your dream vehicle, be sure to shop around for the best deals on loans. Smart car shopping begins with interest rates, even before you step onto a car dealer’s lot.
by: Sia Hasan