Buying a new or new-to-you vehicle is an exciting accomplishment! Whether you’ve purchased several vehicles or this is your first one, it’s common to dread the process. However, with a little knowledge under your belt, you can walk into the dealership with confidence, knowing what the entire process entails.
How Much Can You Afford?
It's important to know how much you can afford to spend before you visit a dealership, so you don’t overextend yourself. Once you are in the moment and find a vehicle you love, it is hard to say no to a salesperson. Start with a pre-approval for an auto loan before you even start shopping for a vehicle. You can do some research ahead of time and know the price range of the vehicles you are interested in. You’ll also need a dollar amount for the loan application. Once you are preapproved, you’ll know how much you can spend and the rate you qualify for; this is important because it is the cost of borrowing the money you need to purchase the vehicle.
Knowing how much you can afford will save you from looking at vehicles outside of your price range. Remember, the cost of a car doesn’t end at the dealership. There are several expenses that you need to factor into your monthly cost.
The most considerable expense will be the auto loan itself. Take a look at your monthly budget and use a Simple Loan Calculator
to help determine what loan options and decisions may be best for you and your wallet.
Your insurance payment is an additional cost that you will need to factor into your monthly payment. Car insurance payments can vary. Work with your insurance agent while you are car shopping to get an insurance quote on the vehicle you’re considering before making a final decision.
Keeping your car running at its best is essential to protecting your investment. You will need to allow room in your budget for regular service appointments, including oil changes, tires, brakes and more. Some vehicles have higher maintenance costs than others so do your research and ask questions at the dealer to understand those expenses.
Taxes and Registration
Taxes and registration are necessary but fixed expenses, understand what these numbers will be and factor them into the cost of your car.
Auto Loan Down Payment 101
Your down payment is an amount you pay upfront or with a vehicle trade-in towards the cost of your new vehicle. Any cash you put down on your vehicle purchase helps to lower your monthly loan payment. It also helps to show your creditworthiness. If you have a lower credit score, you may want to consider having a larger down payment to put yourself in a better position for loan approval.
You can also consider trading in a vehicle as a down payment. Be sure to do some research and find out what your vehicle will likely be worth in a trade-in situation before you walk into the dealership. You may find that selling it privately will result in more cash towards your new vehicle, but it is more labor-intensive.
Something to keep in mind: It's important to understand that vehicles are depreciating assets, which means that the second you drive off the lot, it begins to lose value. It is estimated that brand new vehicles depreciate by 20% during the first year of use
. If you pay 5% or less as a down payment on the vehicle when you purchase it, you will already be "upside-down" on your loan, meaning you owe more than it's worth.
Elements of Your Auto Loan
An auto loan allows you to borrow up to the value of a vehicle upfront and pay it back in small increments over a set period of time. When you look at the paperwork for your loan, there will be several numbers that are important to understand. These numbers work together to result in your monthly payment. Learn about TruStone’s Auto Loans.
- A principal is the total dollar amount for the vehicle that you purchase.
- Interest is the amount the lender charges you for the loan. It’s the price you pay to spread the cost out over time instead of paying for it all upfront. You'll find your interest rate also can be called APR, or annual percentage rate. The lower the APR, the lower your interest payment. Your credit score, the price, and age of the vehicle, and the length of the loan could all affect the APR.
- Fees are any additional charges outside of the loan expenses. These could be dealer fees, or fees to cover the state’s cost to register your vehicle, assign it a title, and issue license plates.
- Loan term. Auto loans can generally range from 12 to 84 months in length. You will pay less in interest overall on a shorter loan term, but the monthly payments will be higher. Conversely, you can obtain a lower monthly payment with a longer loan term, but you will pay more over the life of the loan.
How to Get the Best Deal on Your Vehicle
Here are a few tips to help you get the best bang for your buck:
Not surprisingly, weekends are the busiest days
for car dealerships. If possible, try to visit the dealership during the week. You’ll find that the salespeople will have more time to answer your questions and work with you on negotiations.
Shop Month End
Dealerships generally have monthly quotas to fill, and salespeople earn bonuses on the number of vehicles sold. These two factors can work in your favor when you shop at the end of the month.
Buying a new vehicle at the end of the year can yield a great deal as dealerships are motivated to move older models off the lot to make room for new inventory.
Do Your Research
Once you know the type of car you want, use online resources to learn the retail value of the vehicle. This can confirm that you are paying a fair price or help in negotiating with the dealer on the price. It’s also easy to search for similar cars for sale to determine if your price is a good deal or if you should keep looking.
Don’t Feel Pressured
If you aren’t getting the deal you want, don’t be afraid to walk away. You may be surprised by a later phone call offering you a better deal. Also, your dream vehicle may be at multiple places, so don’t feel tied down to any particular dealership
Now you’re all set for those new wheels! With a better understanding of how auto loans work, you can now walk into the dealership with all the knowledge you need to make an informed purchase that you will be happy with for years to come.