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In the market for a new or used car? It’s a big financial decision, so it pays to take your time and do some research before you commit.
Try following these steps to make sure you’re getting a car you can afford and that will meet your needs now and into the future:
1. Set a budget. Before setting off for the dealership, determine what you can afford. Add up your monthly expenses and subtract the total from your monthly income. Look at what’s left, leaving room for savings goals. That’s roughly what you’re working with for your car payments, auto insurance, fuel, and related costs. Consider this amount when thinking of a monthly payment that you’re comfortable with, and then use our calculator for “How much car can I afford?” Keep in mind that most financial advisors recommend spending 15% or less of your monthly income on car-related costs.
2. Weigh the pros and cons of new vs. used. New cars will cost more upfront, but you might get a lower interest rate on a car loan. (Note: DCU offers the same low rates for new and used vehicles). You can also expect to pay less on maintenance costs and enjoy a free warranty period. Plus, newer cars come with the latest safety and technology features. Opting for a used car can give you more options for your money, meaning you may be able to afford a more premium model. But you may not know its history and it may not come with a warranty. And if you finance the purchase, you might pay a higher interest rate. Many experts say a good compromise is opting for a certified preowned car. These vehicles cost less than new cars, have low mileage, and come with a manufacturer’s warranty.
3. Research models and features. Make a list of qualities that are must-haves, such as large cargo space, a high safety rating, or long-term reliability. Then, seek out cars that match those needs and fit within your budget. From there, you’ll be set to start looking at cars in person. If you’re considering a used vehicle, DCU offers a partnership with the online car-buying service, Carvana.
4. Test-drive cars. Try to drive all the cars you’re considering on the same day to better compare them. Test a number of qualities over the course of at least 30 minutes: Make sure the car is comfortable, drives well on different road surfaces, brakes and accelerates to your liking, and has good visibility.
5. Secure financing. Car dealerships may offer their own financing, but you could be missing out on a better rate if you don’t do comparison shopping. Many dealers mark up their auto financing to boost profit margins, so chances are good that you could get a better deal from your local credit union. Securing financing before you shop can give you some leverage when you start negotiating.
6. Negotiate terms. When negotiating, consider the total price of the car, not just the monthly payment. Negotiating the monthly payment makes it easy for the dealer to sneak in extra costs for the lifetime of the loan. Clarify whether the price being discussed includes taxes and fees or not. Get a breakdown of any fees and be ready to walk if you feel like you’re being given a bad deal.
7. Review the paperwork. Check your documents carefully to be sure the final price includes everything you negotiated with the salesperson and there are no additional fees. If the paperwork has incorrect information or blank spots, wait to sign until they are complete and correct.
Arrive at the dealership with a preapproved loan from DCU. We offer low rates and flexible terms for both new and used vehicles. Explore our rates, read reviews, and apply online.
Please note, membership is required to accept a DCU vehicle loan.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
Before you visit a dealership or contact a seller, take time to consider where to get your auto loan. It can make a difference in how much you wind up paying for your car over time.