It's that time of the year again.
With some of us already securing the bag with bonuses and 13th+month pays, you might be on the lookout to buy a new car—and there's no better time to do so but now.
We're in a very peculiar time. Given everything that happened this year, that is quite an understatement. However, car buying is in a pretty exciting place when you look at it from a good angle. Car dealers all over the country have been offering eye-popping deals left and right that are not seen before ever in the industry: Buy 1, take 1, massive cash discounts in the seven-figure range, and more flexible payment options.
Dealerships have the supply and they're ramping up to create demand in order to entice consumers, which is always a good thing. This is simply the best time to buy a car.
But don't get too excited that you start overwhelming your brain to make less than ideal decisions. A better deal is always available when you know where and when to look for it. So today, we'll show you how you can hunt for that better deal by making you a smarter car buyer with these six simple tips.
Tip #1 – Consider the cost of maintaining a car
With owning a new car, the financial burden doesn't stop at the purchase. Consider the financial ramifications of buying a car over its expected lifetime, or at least until the time you're going to look for another one. This means charting the cost that comes with ownership which includes:
• vehicle registration
• servicing and repairs
• gasoline or diesel cost
• toll charges
• new tires and batteries
If you are considering buying a foreign car, it is important to note specific parts might need to be imported and specific servicing will likely be required. These factors can add up to be very expensive in the long term.
Tip #2 – Secure a pre-approved auto loan first before you step into a car dealership.
Philip Reed, the auto editor for the personal finance site NerdWallet has good advice for those shopping for a new vehicle:
"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,"
This is crucial in the car buying process, especially for those who don't have enough cash in the bank for such a big purchase. Seeking a pre-approval will get you in the right mindset of "How much car can I actually afford?" Reed says that you want to be able to have a realistic view of the cars you can buy according to your budget before an agent sweet-talks you into buying a car that's beyond your paygrade.
Reed also points out that getting pre-approved also enables you to see how healthy your credit is. So, before you start car shopping, you might want to build up a good credit score/history.
Tip #3 – Shop for the best auto loan rates.
Don't be afraid to get your feet wet researching for the best possible auto loan offers in the market. While getting the first pre-approved offer is fulfilling, there might be a better offer around the corner if you take extra steps in shopping around.
John Van Alst, a lawyer with the National Consumer Law Center, says: "many people don't realize it, but the dealership is allowed to jack up the rate it offers you above what you actually qualify for." Most of the time, bank financing has better rates compared to in-house financing. If you take a bad deal, you could actually end up paying thousands more in interest.
Also, you can actually use your pre-approved rate to haggle for a better one, either from the dealer or with other providers. The pre-approval will act as a bargaining chip. But make sure all of the terms, down payment and the length of the loan remain the same.
Tip #4 – Keep your list simple when you enter the dealership floor.
Once you're done with securing a pre-approved auto loan, you're ready to step onto the dealership floor. But there are a few things you must look into first.
Begin with scanning the prices of the vehicles you are buying. An agent will often want to know if you're planning to trade in another car and whether you're also looking to get in-house financing. 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 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."
Once you settle on a price, then you can talk about a trade-in if you want. But before that, do a little research online first so you know how much your trade-in vehicle is worth in the market. You might be better off putting your new car purchase on hold for a few weeks to sell your used vehicle at a better price than the trade-in value.
Also, don't be afraid to walk away if you feel the dealership is lowballing you on your old car. You have plenty of other good options these days.
Remember, buying a car at a dealership is like a game filled with negotiations. The name of the game is self-control. Keep your cards close to your chest and don't reveal too much. You might just be able to bluff your way to a new car.
Tip #5 – Add-ons from the dealership are a bad idea.
If you've ever bought a brand-new car, you know that the dealership is always looking to offer extras or add-ons that will ultimately jack up the money you need to shell out. Don't fall into this trap.
According to Van Alst, the dealership will try to sell you extended warranties, tire protection plans, paint protection plans, etc. Dealerships make a lot of money selling this on top of your car purchase. These are often very overpriced and you can find the same offers outside at a much lower rate.
"Is this add-on, you know, being marked up 300%? You don't really know any of that," Van Alst says. Just say no to everything. You can always buy an extended warranty later before the normal one runs out. At that point, you can contact other dealerships or providers and ask for the best price. That way you're not adding any more cost above your car loan and paying interest on a service you wouldn't even use.
Tip #6 – Consider buying a slightly-used car.
"The golden rule is that all of your car expenses should really be no more than 20% of your take-home pay," Reed said. And he says that that's total car expenses, including insurance, gas and repairs. "So the car payment itself should be between 10 and 15%."
If a new car, even with a five-year payment term doesn't fit into your budget, you might want to consider buying a slightly-used one.
"We're actually living in a golden age of used cars. I mean, the reliability of used cars is remarkable these days," Reed said. There are also a lot of low-mileage secondhand cars out there coming off repossession that are still in very good shape. Considering buying a used car can also save you a lot of money.
It's also a good idea to read reviews and ratings about which brands and models are more or less likely to run into costly repair problems down the road. For example, some European cars are famously expensive to maintain so stick to Japanese-made ones.
Don't give in to the pressure of always getting your hands on a fresh car off-the-lot. Think about it: what else could you be spending that car payment money on? If you can cut in half, that's a lot of extra savings that could go to your retirement account, your kids' college fund, or whatever else you'd rather be doing with that money.