Cars these days are a huge step up from their counterparts just 10 years ago in terms of safety features and technology. Shopping for a car can be fun, but many people make mistakes. Even buyers searching for their fifth or tenth car may make mistakes.. Here are a few key things to know as you car shop.
Get Preapproved for a Loan Before You Go to a Dealer
It’s always a good idea to look at auto loan rates and get preapproved for your loan before you even glance at a dealer’s lot. Pre Approval has these benefits:
- Forces you to think about your budget and how much you can realistically spend on a car before a salesperson has you besotted with a vehicle you might not be able to afford.
- Points out any problems with your credit, giving you the chance to shore up your score or fix credit report mistakes.
- Gives you an idea of what fair rates are for you since dealerships may offer loans with increased interest rates.
Do beware of online lenders whose names you do not recognize. Banks and credit unions with names you know are good options.
When you calculate how much of a car loan you can afford, focus on more than the sticker price. Consider costs such as insurance, gas, maintenance, and registration.
Avoid Six- and Seven-Year Loans
Car loans tend to last from two to seven years. Try to avoid anything longer than five years. You’ll pay significantly more in the long term and have higher interest rates. The lower monthly payments may also tempt you into buying a car that is beyond the budget you set.
Perhaps most important: Longer loan terms mean you are likely to be upside down on the loan at some point. You’d owe more to the lender than the car is worth. That is because of depreciation and the fact that most of the money in your early loan payments goes toward interest rather than principal.
If you bought a used vehicle instead of a new one, you might still end up upside down. By the time you paid off the car, it might hold little value.
Being upside down puts you at a significant disadvantage if you’re in an accident and the car is a total loss. You would still owe money on something you cannot use. Being upside down also means negative equity. You might never pay off the loan and be forced to roll it into your next car loan.
Consider Buying Used
Buying a used car can save you a nice bundle of cash, especially if you take out a three-year loan (instead of the five-year loan you might get with a new car). Used cars are reliable, and many feature recent technological advances. You can find one in excellent shape that has just finished a three-year lease.
Of course, you should still do your research and read reviews and ratings. Try to avoid cars that have a reputation for incurring costly repairs.
Read the dealership’s Buyers Guide to find out about any major issues with the car and how to get a vehicle history report, among other things.
Look at Cars Online Before Visiting Dealerships
Review the inventory on dealerships’ websites before you visit the physical locations. Doing this helps you narrow down your vehicle search and saves you time. You also get insight into vehicle prices and add-ons to avoid getting scammed later.
Prepare Yourself To Say No to Add-Ons
Some dealerships wait to make more money until you are simultaneously tired and excited. You’ve spent hours shopping and test-driving cars and finally found one you want. You’re worn out but happy so may be more likely to just say yes to costly, unnecessary add-ons such as rust proofing and gap insurance.
Follow fundamental financial principles when you shop for a car. For example, gather as much information as possible beforehand, seek loan pre approval, and stay within your budget.