Buying A Car In ((EXCLUSIVE)) Full
But many Americans make big mistakes buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.
buying a car in full
"The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
So Reed says having that preapproval can be a valuable card to have in your hand in the car-buying game. It can help you negotiate a better rate. "The preapproval will act as a bargaining chip," he says. "If you're preapproved at 4.5%, the dealer says, 'Hey, you know, I can get you 3.5. Would you be interested?' And it's a good idea to take it, but make sure all of the terms, meaning the down payment and the length of the loan, remain the same."
So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't want to. Keep it simple. One thing at a time.
"Concerning the extended factory warranty, you can always buy it later," says Reed. "So if you're buying a new car, you can buy it in three years from now, just before it goes out of warranty." At that point, if you want the extended warranty, he says, you should call several dealerships and ask for the best price each can offer. That way, he says, you're not rolling the cost into your car loan and paying interest on a service you wouldn't even use for three years because you're still covered by the new car's warranty.
Gap insurance promises to cover any gap between the purchase price of replacing your almost-new car with a brand-new car if your regular insurance doesn't pay for full replacement if your car gets totaled. Van Alst says gap insurance is often overpriced and is fundamentally problematic. If you still want the product, it's best to obtain it through your regular insurance company, not the dealer.
"We're actually living in a golden age of used cars," says Reed. "I mean, the reliability of used cars is remarkable these days." Reed says there is an endless river of cars coming off three-year leases that are in very good shape. And even cars that are older than that, he says, are definitely worth considering. "You know, people are buying good used cars at a hundred-thousand miles and driving them for another hundred-thousand miles," says Reed. "So I'm a big fan of buying a used car as a way to save money."
NPR has a personal finance Facebook group called Your Money and Your Life. And we asked group members about car buying. Many said they were shocked by how much money some other people in the group said they were spending on cars. Patricia and Dean Raeker from Minneapolis wrote, "40 years of owning vehicles and our total transportation purchases don't even add up to the cost of one of the financed ones these folks are talking about."
When buying a new car from a dealership, most people will probably get a loan from a bank or credit union, or they will get a loan directly from the dealer. When you get a loan, though, there are other expenses that come along with it such as closing costs and interest payments. You will always pay a certain percentage on the loan that can end up costing a lot more than just the sticker price by the time the vehicle is paid off.
For the most part, used car purchases are made with cash upfront, especially if the transaction is being done with a private seller on the used car market. However, if you are buying a certified pre-owned vehicle or a vehicle from a used car dealership, you can also choose to make the purchase using a lender. Just like with a new car, cash might be a better option.
One thing to keep in mind when buying a car is that buying it is often the cheap part. You will also have to pay for registration, car insurance, automotive maintenance, and a host of other expenses that come with car ownership. If you deplete your entire savings buying the car, you may not have enough left over to pay for the other requirements. You might be better off using some of your savings to make the down payment on the loan and then using the rest to pay for the true cost of ownership of the vehicle.
Do Your Research:The best thing you can do for yourself when buying a car with cash is to thoroughly research the car market. Knowing what is available in your price range and what cars will suit your needs within your financial limits will help you make the right choice.
Decide Between New and Used:Before you start shopping for the car you are going to buy with cash, you should already know whether you want to buy new or used. Most likely, you will be searching for used cars if you are planning on buying it outright. However, if you can afford it, buying a new car in cash can be a better bet since you can be sure that the mileage will be next to nothing and you get the benefit of the factory warranty.
Consider the True Cost:The most important thing to think about when buying a car with cash is the true cost of ownership. When you buy a car, no matter what it is, you will have to pay for extra things that make it street-legal and driveable. Insurance, registration, maintenance, and other fees can all add up quickly. If you spend all of your money on the car itself, you may find yourself in a tough spot when the time comes to put it in your name and get it ready for the road. Knowing the true cost of ownership will help you plan ahead.
With our used car rankings, shoppers can compare pre-owned vehicles by their overall scores and individual factors car buyers tell us are critical to their buying decisions. These factors include predicted reliability, safety, performance, and interior comfort and features.
If you're buying from a private party, you have no choice but to find your own financing. The process can be different for private-party buyers, so be sure to talk to your lender about what they'll need to move your loan application forward.
Community banks offer many of the same auto-lending services as large banks, but they do so with a smaller geographic footprint, fewer branches, and often a more personal touch. Like credit unions, community banks are great places for borrowers who need a bit more help to finance their used car purchase successfully. With their roots in the communities they serve, many will be able to offer tips about other businesses in the area that can help you through the car-buying process.