I have bought two cars in the last three yeas. I learned something new each time. I bought a brand new Honda Civic DXG in 2008, and I bought a used Honda Accord in 2009. I thought I’ll share some of my lessons :).
Used vs. New
I believe this decision should mainly be based on your preference, and what your planned purpose is for the car. When I decided to buy my first car in 2008, I needed to travel long distance for work, so my main concern was reliability and safety. I couldn’t afford to take the chance of an occasional break down, so I went with a new car from a manufacturer known for well made cars. In 2009, I needed a second car, that would mainly be used to do various errands, and visiting friends and family. So in this case I went with a used budget friendly car . Money should also be a determining factor in buying a used or new car. If you have money to spare, I suggest go for the brand new shiny , new smelling and loaded with things you’ll never need or learn to use car . If you are watching your budget or want to get the most value for your money go with a used car.
Cash Vs. Financing through dealer or Bank
I bought both of my cars. For one , I put a portion as down and financed the rest at a 1.6% rate. For the other I paid cash. Having done this, If I can go back and redo this I would fully finance a car if I am buying it brand new. Now a days dealers have great rates for new cars. Remember you can get a loan from the dealer of the car or a car loan from the bank. I have found that dealers have a lower rate for new cars. The rate for some cars starts at low as 0% . How cool is that? Now why would you pay cash for a car that you can finance at 0% is beyond me. Here is a rule of thumb for deciding if you should finance your car or not. If you have any debt that has an interest rate that is higher than the finance rate of your car , than you should finance that car and pay down the debt. Lets take a look at an example to crystallize this rule of thumb. If the interest rate on your mortgage is 2.75% and if you can finance the car at 1.75%, than I would recommend financing the car, and paying the portion of the money you had for the down of the car toward your mortgage. By doing this you just reduced your interest by 1% . Generally this rule should apply to any debt you have, you should always always pay down your highest interest rate debt first.
Buying vs. Leasing
This is a another big factor many people consider when buying a car. Most resources will tell you the best option depends. I am going to take a stand and flat out tell you forget leasing. Leasing is cool if you want to pay for just the use of the car, and trade it into something new every few years, AND you don’t care about getting the most out of your money. I doubt you will be reading this post if this is the case. There are also other things you must must consider if you still decide to lease a car. Leases at times require a lot of up front money, early termination of a lease is costly, there can be mileage restrictions that can mess you up, and it can be costly if the vehicle gets stolen or if you make unallowed changes to your vehicle.
There are many articles that talk about the pros and cons in buying/leasing, financing/paying cash for a car, but not many that talks about the process of buying a car from the start to end.
Here is what you should do and what you can expect:
1. Before you let car lust drive your price , sit down and realistically ( remember realistically) determine the amount of money you can spare for a car. Whether it be what you can afford monthly or the amount you have saved up. Remember this amount consists of your car payment, monthly gas bill and insurance for your car.
2. Once you have determined what you can afford than check out the various car maker’s websites, as well as auto trader ( if you are looking for a used car). This should help you understand the market value of the car you are looking to buy.
3. Visit a few dealers, test drive the car and just talk to them. Interestingly some auto dealers have this practice of you putting down a certain amount deposit before you can negotiate a price with them. In this case don’t put down a deposit unless you really want to buy the car. Test drive the car, don’t be shy to ask . Also be prepared to walk away ( don’t let panic or the thought of losing a good deal rush you into a decision). Another note here, don’t wait to buy the car until you really needed. If you do this, you are more likely to rush into a decision.
4. Once you have reached a point where it doesn’t seem like the dealer will bring the price down, try to negotiate for other items. Sometimes they have the flexibility of throwing things in the deal for you such as insect guard , rust proofing etc .
5. Now the deal is reached, the dealer will hand you over to a finance person who will try to sell you all the services under the sun. Before even going in here decide on the services you really need, and only stick with those services. You can also negotiate the price of these services as well. It never hurts to ask. Some of the services include 5 year warranty, rust proofing, and many many more.
6. Once you have completed this portion of the sale, go over your invoice carefully to ensure everything is accurate. I have found extra services on my invoice that I didn’t really agree to, so make sure to do this. At this point they will let you know when you can pick up your car 🙂 .
7. However, before you can pick up your car, you need to have your insurance for the car. Google up insurance companies in your area, and get a quote from them all. Make sure to mention your work place, school, and any professional organization that you belong too. These items can help decrease your insurance cost. I have found the cheapest one for me to be TD Insurance. You can get this done over the phone. Now you are all set 🙂 !