Posted By 
By Sia Hasan
Special to the Financial Independence Hub
It’s easy to buy a car without giving the purchase much thought. Every car dealer in town is ready to roll you off the lot in a brand new car today. If your credit score presents a problem, they’ve got a cheaper used model for you. Should your credit preclude that, there are any number of “buy here pay here” stores ready to roll you off the lot no matter what’s on your credit report.
But are you making a wise investment? People with lots of money got it by asking themselves that question before every purchase, be it a car, a house, or a hamburger. When it comes to a car, the answer to that question takes some research into the vehicle and a hard, truthful look at your financial situation.
If you are like most people, the first part of the answer is much easier to obtain. Ratings and reviews can tell you about the reliability, safety, and warranty. Armed with that information, it’s fairly easy to pick a car that’s not likely to cost you your left kidney. The second half of the equation requires putting the wishful thinking on the shelf and giving yourself an honest answer as to what you can afford.
Here are five important considerations when investing in a vehicle:
1.) Run the numbers
Before you even step onto a car lot or start reading the auto ads, know your budget. To figure this, add up the cost of all of your basic needs, like housing, utilities, food, cellphone, etc. Be sure to include the less basic but important needs, like saving for retirement, taking a vacation, saving for emergencies, going on a date, etc. Be honest with yourself. When you add in the cost of your new car, remember it’s not just the payment. How much it will cost for gas, insurance, maintenance, and repairs must also be included. Once you know what you can afford on a monthly basis, any number of online calculators can show what purchase price is in your range.
2.) Buy or lease
Most consumers are better off buying because they can gain equity in the car and eventually pay it off. With leases, the payments never end. The lease term expires and then you need another car. Also, mileage caps are restrictive and terms can be confusing. If you drive very little and don’t need the car for the long-term, leasing may make sense. Also, if you plan to drive a new car every two years, leasing may work better because, unless you’re a cash buyer, you’ll always have payments anyway.
3.) New or used
New cars drop a third of their value as soon as the proud new owner drives off the lot. Some of the best car deals out there are for 1- to 3-year-old cars. They’ve taken the initial depreciation but are still in good shape. Check a used car’s history through its VIN before buying. Tools like the Ford VIN decoder help.
4.) Line up pre-approved financing
Car dealerships make big money on financing. They add up to 3 percentage points to the interest rate, which is theirs to keep. To avoid paying hundreds or even thousands in extra interest, get your own financing before walking in the door. Credit unions offer some of the most attractive rates.
5.) Negotiate the price, not the payment
Dealership managers tell their salespeople to get the customer focused on payment. This allows them to stretch the term of financing to meet the payment, often without discounting the car. One advantage of pre-approved financing is that the dealer can’t focus the negotiation on payment. With a preapproval, your only concern is the price. If you research the invoice cost of a new car or the Kelly Blue Book value of a used car, you’ll know when a good deal is on the table.
Buying a new car is exciting. Everyone loves the feeling of driving new wheels. When emotions drive the buying decision, consumers pay too much. By preparing beforehand by following these five steps, you’ll get that car of your dreams without breaking your budget.
Sia Hasan is a tech entrepreneur by day, and a freelance writer by night. Her passion lies in business technology, efficient and sleek programming, and customer relationship management. When she doesn’t have her nose pressed against her computer screen, you can find her spending time with the loves of her life, her two dogs, Pixel and Vector.
