Everyone loves that new car smell. From muscle cars to luxury vehicles to minivans and everything in between, buying a car can be an exciting milestone and may even usher in a new era of your life. Of course, purchasing your next automobile is also a major financial commitment, and many find the experience to be overwhelming and stressful.
Are you planning to purchase a car in the near future? Here are a few considerations to make the car-buying process a little easier.
Figure out what you can afford.
The cost of your next vehicle will be a major consideration in the car buying process. An easy way to determine what you can afford is to get pre-approved for an auto loan from your financial institution before you go to the dealership. Through your pre-approval, you’ll find out how much you qualify for, what interest rate you qualify for and what your monthly payments will look like. This will take off some of the pressure from the dealer to buy today based on their financing deals, and will arm you with the knowledge you need to make an informed decision from a place of higher negotiating power. Here are five benefits to getting a pre-approval.
Understand the additional costs.
Before you sign any documents, make sure you understand all aspects of your loan agreement: how much you are financing, the annual percentage rate (APR), finance charges (total amount that borrowing will cost you), payment amount and number of payments, whether there are any penalties (such as late payments or pre-payment penalties), and more. Keep in mind other car-related expenses as well, such as insurance, gas, maintenance, parking and tolls. When crafting your budget, make sure to incorporate expected changes to any of these expenses.
Don’t forget the down payment!
The more money you put down toward a car now, the less you will have to borrow and the lower your monthly payments will be. To make saving for your next car easier, consider having some of your paycheck directly deposited into your savings account. In addition, if you have a car already and are no longer making payments on that car, set aside the same amount you would normally allocate toward your car payment and put that money in savings instead to help bolster that down payment amount.
Decide if the car will be new, used or leased.
No matter what option you decide to go with, there will be pros and cons. A new car will be the most reliable and have the latest safety features. You will also be covered by the manufacturer’s warranty for several years, which will save you money on repairs and part replacements. On the down side, new cars will often be a lot more expensive, and the value of the car will depreciate almost immediately. A used car will be cheaper, to the point that you may be able to buy the car outright with savings, and the value of a used car tends to depreciate less quickly than the value of a new car. However, you may not know the car’s history (always check for a Carfax vehicle report!) and chances are there will be no warranty or a limited/soon-to-expire warranty. Leasing a car gives you the luxury of driving a new car every few years without having to sell your old one, and you may be able to get a lower monthly payment. Meanwhile, the car does not belong to you, it can be difficult to get out of a lease contract, and there are often limitations to the number of miles you drive and the condition you keep the car in.
Weigh the pros and cons based on your own particular preferences and lifestyle, and decide what will work best for you and your needs.
For more tips on purchasing your next car, check out this recent episode of the Making It Count Podcast with Addition Financial on Apple Podcasts, Google Podcasts or Spotify.
If you’re on the hunt for a new financial institution, Addition Financial is a credit union founded by educators with strong roots in Central Florida. With branches in six counties and growing, Addition Financial is part of the Presto! ATM network for added convenience, and has offered continuous service throughout the pandemic and Saturday hours at nearly all branches. Plus, you’ll earn $100 just for opening your first checking account with Addition Financial! Learn more about the perks of credit union membership here.
Valerie Moses is a Senior Relationship Manager at Addition Financial Credit Union, where she manages public relations and various Central Florida partnerships. When she is not at a community event or cheering on the UCF Knights, she can be found at her lifestyle and travel blog, Wellness & Wanderlust, along with her podcast of the same name.
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