Take The Pain Out of Buying a Car
Many consumers have waited to buy a car in recent years as prices and interest rates have soared. Interest rates remain high, but car prices are starting to come down in 2024. On average, new cars are being sold at 97 percent of list price compared to 102 percent in 2022, according to Kiplinger.com. If you must buy a car this year, here are a few tips to help you buy the car you need at a price you can afford.
Should you buy a new or used car? New cars are typically more expensive, which could make monthly payments harder on your budget. New cars also lose value faster and are more expensive to insure. But buying new lets you get the latest technology and features you want. A used vehicle may be a better choice if you want to lower your initial cost and payments, and if you can find one with low mileage and the features you want. But you may have to replace the car sooner than a new one, and you should know its maintenance and repair history before buying.
Only buy what you can afford. Ideally, your car loan should be less than 15 percent of your monthly post-tax income, and your total car expenses, including maintenance and gas, should be under 20 percent. It’s always best to have a healthy down payment to put towards a new car. It will lower your total loan amount and monthly payments. Other factors besides price that determine your monthly payment are the terms of the loan, which is how many months you will have to pay it off, and your credit score, which determines your interest rate. Use this handy calculator to find your ideal purchase price.
Get pre-approved. Check with your local credit union to find out current rates for new and used car loans and learn about the pre-approval process. With a good credit score, you may be able to get a letter stating the amount you are approved to borrow.
Getting ready to buy. Go to manufacturer’s websites to learn about new features and find out what financing deals are available in your area. Before you visit a showroom, make a list of ‘must have’ features and extras that you would like but can do without. Check the Kelley Blue Book for market value of any cars you are interested in before talking with a salesperson. Your first visit to a dealer should be to test drive any vehicle you are interested in. But tell the salesperson you are just looking, and don’t need to buy anytime soon.
Negotiating a fair price. After you’ve found a car you’d like to buy, it’s time to negotiate. You should visit the dealer armed with a price range you are willing to pay, based on your financial situation and your research.
Many salespeople begin negotiations with the MSRP (manufacturer’s suggested retail price), or ask what you want to pay each month, and if you are looking to trade in a current vehicle or finance the new car. This gives them the advantage of combining the car’s price, any trade-in allowance and financing costs to come up with the amount you name. That means you could end up paying a higher base price. Ask them to give you a written quote for the price only, before moving on in the process or offering to let them value your current vehicle.
Be sure to tell the dealer you are pre-approved for a loan, and may consider financing, but want to discuss a cash offer first. Start with your lowest, fair offer. The dealer may say they cannot meet your price and may counter. The most important thing is to stick to your pre-determined price range when making your own counteroffer. Just know you may have to walk away and play the waiting game or visit other dealers before you achieve your goal.
But it will be worth it when you drive your new car off the lot knowing you’ve closed a fair and affordable deal that works for your budget. Consumer Reports has additional tips for negotiating a car purchase.
If you can’t yet afford a new car or your credit score needs improving, talk to your local credit union for advice. They are focused on helping people meet their financial goals and can help you map out a personalized plan for your situation.