Before you go out and buy a new car, you need to ask yourself a few questions. People often impulse buy their cars. I know that sounds a little odd, but plenty of people wander onto a lot just to look and drive off in a new vehicle. You need to take stock of your financial situation before you take one step onto a car dealer's lot.
Just keep in mind that if you walk in, pick out a car and drive away in one day, you could be costing yourself thousands of dollars that you didn't have to spend. If you take your time and make wise decisions, you can save a lot of money.
Start by asking yourself where you are in your current vehicle. Do you own it without owing anything on it? If you do, you need to look and see if your finances can afford for you to have a payment. If you don't, start by looking to see if you need to keep your payment level and insurance where it currently is now. What kind of room you have in your budget will determine the type of vehicle you are looking to purchase.
Then look to see if you owe more on your vehicle than it is worth. This is also referred to as being upside down on your loan. This is often caused by 5-year loans. You are paying almost purely interest in the first couple of years -- also known as the years your vehicle experiences the most depreciation in value. You aren't paying your loan off very quickly, but the value of your car is going down.
If you owe more and the car is worth, you will have to pay off the balance when you trade it in or roll it over onto your new car loan, which adds to the new loan amount. And since that vehicle will depreciate quickly, you will probably be upside down right from the start on your new car.
You need to know the trade-in value of your current car. Spend a few minutes and look it up online. When you go to the dealer, treat the trade-in as a separate transaction. Get the trade-in value before you talk about a new vehicle or the price of a new vehicle. Many dealers will offer you a good trade-in value and then will raise the price of the car you are buying. Often, it is better to sell your vehicle than to trade it in.
Do you already have financing? Don't just go through the car dealer for financing. You need to know what other lenders can do for you. Research the current interest rates for auto loans. Look at what you can afford to spend on a vehicle. Look at the interest rate and how much you will pay back over the life of the loan. Find out what the prime interest rate is from the dealer and what credit score you need to qualify for it. If you have that score, then go ahead and apply.
Make sure that all paperwork is in order. It isn't uncommon for car buyers to be quoted a rate, sign the papers and drive away just to get a call that says that they are going to have to pay a higher rate because they didn't qualify. Know what your bank will do for you and then let the dealer compete with that. Most of the time, you bank will be cheaper.
Do you know what the car will cost you? Not just the monthly payment, but the insurance, tags and maintenance fees. Some cars cost more than others to drive, repair and insure. Consider how these costs will affect your budget.
Take your time when shopping for a new car. It will save you time and stress.
Martin Lukac represents www.RateEmpire.com, an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at www.1AmericanFinancial.com and San Diego loan portal www.LendingSanDiego.com
