Paying off my car was such a great feeling! Owning it outright and leaving those monthly payments behind is freedom incarnate–that is, until my beloved car, which I had spent six years paying off, caring for, and loving, bit the dust.

Just like that, I was in the unexpected position of making a down payment on a new/used car and making monthly car payments again.  I also had to deal with the hassle of deciding what kind of car to buy (new? used?), figuring out where to buy my car (dealership? Craigslist?) , and  dreading the negotiation process that’s always involved with a car purchase.  Plus, like many other purchases, a car reflects your personality, so I had to find a car that screamed, “ME!” All within a set budget, of course!

Although car shopping can be stressful, I was able to devise plan to make it as efficient  and as easy on my wallet as possible!  Here’s my guide on buying a car that will also help you save time and money:  

Do Your Homework Before You Shop Around

There are several resources available to help you shop smartly when buying a car. These resources can give you information on car reliability, safety issues and ratings, and the market value for new and used vehicles. My favorite sources are Consumer Reports, National Automobile Dealers Association (nada.com), and Kelly Blue Book Value (kbb.com). Consumer Reports is valuable because they do independent surveys (they do not take advertising dollars from companies they review). There is a subscription fee to use their services but you can sign up for an online monthly subscription for about $6.95 and the information provided is well worth that nominal subscription fee. Nada can give you valuable pricing information for new and used cars. KBB can give you prices on new and used vehicles as well as check your car’s value and allow you to see cars for sale in your area. Don’t be afraid to check your local Craig’s List for independent people selling their cars – quite often you can find a real deal out there – just be sure to be safe and take a friend with you and meet the buyer in a public area to check out the car before purchasing. If you are interested in the car you can ask the buyer for a documented service check on the car from a reputable service station/dealership and be sure to ask for all maintenance and recall records on the car.

…And then…SHOP AROUND!

Once I  narrowed my new car search to a few models I was interested in and decided that I wanted to make my purchase through a local dealership, I took the time to get quotes from multiple dealerships in my area. Fortunately, this has never been easier in the digital age.  I researched information on what deals, specials, and sales the dealerships were running. Then I asked for the list price of each car I was interested in, absent my trade-in or down payment. I  wanted to know who was going to give me the best base price on comparable cars.

Once I had my list of cars and prices in hand, I was able to test drive each car I was interested in with a target price in mind.  Because I had done my homework, I was prepared to discuss discounts and cash-back offerings and wheel and deal with the sales reps if a car passed my test driving expectations.

Take Charge of Your Finances Before Buying A Car

Did you know that you can figure out how to finance your auto-loan right from your couch? I used to think it was a complicated endeavor and left it to the dealer’s finance team to figure it out. This time, I did my research and learned a few things along the way. Here are  six things you need to keep in mind if you need a car loan:

Your Credit Score

It’s a good idea to check your credit score before you start looking into financing. A good  credit score gets you a better finance rate. Some of the promotions you see advertised at dealerships for 0% financing only apply to people at or above a specific credit score. The fine print or a phone call to your credit card company can help you find what that exact criteria is as it applies to you. For example, CaptitalOne and Discover both provide updated credit scores every month or you can check it on a free website such as Credit Karma. One thing to note, your credit score can vary widely from one place to the next and that’s usually due to lag times in reporting and data refresh. I once had my credit score checked on the same day by two different companies and the difference in score between them was more than 30 points.

The APR

APR stands for Annual Percentage Rate. The APR includes not only the yearly interest amount but also the lender fees and charges, which may occur once up front, or may repeat annually.. When considering loans, don’t compare just the base interest rates – look at the APR, which will be a better gauge for the quality of the loan. Obviously, the lower your APR the better.

The Life of the Loan

Stretching out the life of the loan may help lower your monthly payments. For instance, many car loans are offered in 3, 5 , or 6 year increments. For example, if you finance a $25,000 car, you may be able to lower the out-of-pocket monthly payment by amortizing it over 60 months as opposed to 36-months. Be careful, however, because you will likely end up paying slightly more on the car over the longer loans because you will be paying several more years’ worth of interest fees on the loan.

Credit Unions

Credit unions often offer lower rates than some traditional banks. Credit unions are financial cooperatives in which the members can borrow from pooled deposits at very low rates. Joining a credit union may be an easy and effective way to circumvent many of the hidden and high fees of traditional lenders.

Prepayment Penalties

Some – though increasingly fewer – loans assess a prepayment penalty. This means that if you wish to make extra payments on the loan in order to pay the loan off at a faster rate, you will be charged a small fee each time you make an extra payment. Before taking out a loan, make sure there are no prepayment charges so that if you have the opportunity to pay off your loan more quickly you will not accrue additional  fees.

Early-discharge Penalties

Discharge penalties mean that the bank or loan institution will charge you a fee for paying off your loan early. Obviously, this is not ideal as it can increase the total amount of money you will pay off if you’re able to pay down the loan early. The fee can range from a nominal set amount up to the total amount of interest remaining on the loan – meaning that you won’t actually save any money at all by paying it down early. When you’re shopping for loans, be sure to inquire about any discharge penalties. The loan with the lowest penalty may be your best bet.

Negotiate

Don’t be afraid to negotiate. Car buyers want to get the best price, which is at odds with the dealership’s goal which is to maximize their profit margins. Buying a car isn’t as simple as  walking into a department store and picking out a shirt. A savvy consumer can talk the price down, or talk up the amount the dealership is willing to offer on a trade-in in an attempt to lower the car’s cost.

I  missed my opportunity to negotiate at the first dealership I visited , but I was in a better position at the second dealership. I was able to negotiate the price of the car and, separately, the amount the dealer was willing to give me on my trade-in. The monthly payment we ended up with wasn’t that much different than  the first dealership, but the long-term out-of-pocket cost was significantly lower. Yay!

Leave Emotion Out of It

Buying a car should not be an emotional decision. You may have test driven the car of your dreams (like my husband did), but don’t let the salesperson know that (like my husband did)! Treat the negotiations like a business transaction and they won’t be able to exploit emotional weaknesses (like the salesperson tried to do to my husband!). This is, at its heart, a business transaction and should be treated as such. This was hard, because we both really, really loved one particular  car; that love ended up working against us until we became wise enough to hide it.

Buying a car can be stressful, it’s true. But it can also be fun! I learned to prepare in advance by doing our homework, scoping out prices, practicing negotiating techniques, and getting pre-approved for financing from an independent institution. Since we belong to a credit union, we were able not only to obtain financing in advance at a great rate, but set up a car savings plan to help us budget our money more wisely.

All this led to us breezing down the highway in a new car in no time!

 

Image credit: Mirjana Jesic

 

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