A couple at our church recently purchased a new car, and while they didn’t fall into the trap of getting a 28% APR loan at a buy here/pay here lot for a car that wasn’t worth half of the loan amount, they didn’t get as good as deal as they could have in this economy. Here’s a list of steps you should take before buying a car to make sure you get the best deal possible.
- Get your own financing. If you’re planning on buy a car with cash, you can skip this step, but if you’re planning on getting a loan for your new vehicle, get qualified for the loan first. If you’re not a member of a credit union, considering joining one. Rates for car loans are around 2% right now, and you won’t get much better deals than that for your money.
- Decide how much car you can afford. If you’re paying with cash, you obviously know your limit. If you’re getting a loan, don’t get one for longer than 3 years. Having a car loan for longer than that will make the monthly payments smaller, but you will be “upside down” in your loan, which can be a financial disaster if your car is stolen or wrecked and your insurance will only pay for what the car is worth, not the loan amount. If you can’t afford the monthly payment on a 3 year loan, you can’t afford the car! You can visit a site like dinkytown.net and play with their financial calculator to estimate how much a monthly payment will be.
- Find how how much that car will cost. You could browse listings in the classifieds or on Craig’s List to see what certain cars are being sold for, or you could visit sites like kbb.com and edmunds.com to see what they list a car’s selling price to be. That will give you a little guidance in knowing what a fair price for the car you want should be.
After this, the hunt is up to you. There are many suggestions on haggling over the price of a car and where to go to find a good deal, but with these steps taken care of first, you’re less likely to be taken advantage of. One last bit of advice: you should only pay attention to the actual selling price of the car you want to buy — not the monthly payment. Also stay away from any “extended warranty” that isn’t backed by the vehicle’s own manufacturer. These (along with any number of add-ons they’ll push on you at the auto lot) are there only to line the dealer’s pockets. Just say no!