As of mid-2019, the average price for a new car was nearly $37,000. That’s more than half of the median household income, which comes in at just shy of $62,000, making that a substantial amount of money for most. If you need to buy a new car for the family, it’s wise to follow certain guidelines. Before you hit the car lots, here are some rules you need to know.
Knowledge Is Your Friend When Buying A New Car
Doing your research before you shop is a must. Not only do you want to find out what your potential new car is worth on the market, but you also need to discover what it costs to operate and insure it. This gives you a better idea of what buying the car actually means financially, ensuring you are well prepared.
Usually, sites like Kelley Blue Book and Edmund’s are good places to start. You can learn more about a wide variety of models, including some cost-of-ownership data or estimates. However, you may want to call your insurer directly to get a quote. That way, you know if your insurance premium will change and, if so, by how much.
Understand What the Prices Mean
When you shop for a car, you’re going to hear about a ton of different kinds of prices. Along with the manufacturer’s suggested retail price (MSRP), you might come across the invoice price or listings for the fair market price. All of these are different, and that can be confusing.
However, usually, you want to pay the most attention to fair market prices when researching. Typically, these are reflections of what a dealership can reasonably expect to get from a buyer in your area. That makes it a good target when negotiating or can help you spot a great deal.
Figure Out Your Financing in Advance
While you can handle your financing at the dealership, that isn’t an ideal approach. You might miss out on lower interest rates, so it’s best to take a look before you start shopping.
Look at what’s available through banks and credit unions. If you find some with potential, see if you can pre-qualify without harming your credit score. This gives you a chance to see an estimate of what interest rate or borrowing limit you’d receive, which can help you moving forward.
If you find a solid deal, you can apply for that financing before you shop. Essentially, you’ll go through a more rigorous preapproval process that does impact your credit score and lets you know your exact borrowing conditions. Then, once you find the right car, you finish up the process with your lender to complete the purchase.
Don’t Skip the Test Drive
It’s true that you can buy a car completely online. But skipping the test drive isn’t usually a great idea. During the test drive, you can make sure that you are physically comfortable in the car and that it genuinely meets your needs and expectations. You can check out the visibility from the driver’s seat, try out the features, and feel how it handles.
Without a test drive, you might end up buying a car that isn’t right for you or your family. As a result, it’s always best to take the time to do one, even if you want to actually handle the buying part online.
Choose an Affordable Car
It isn’t uncommon for lenders to offer you a loan that’s larger than you need or lasts longer than you’d like. An auto loan is secured, so some banks are willing to push you toward the edge of affordability, and some will even shove you over it.
The length of the loan can also make a car seem more affordable. The longer the loan, the smaller the monthly payment. However, it also means higher interest rates and an increased total amount of interest paid.
Many experts recommend using the 20/4/10 rule if you want to make sure your new car is affordable. That means having 20 percent down, limiting your loan to four years or less, and keeping the total of the principal, interest, and insurance payments to less than 10 percent of your income.
Do you have a tip that can help a family buying a new car without breaking the bank? Share your thoughts in the comments below.
- Top 4 Tips for a First-Time Car Buyer
- How to Save Money on Car Expenses
- What You Should Know About No Credit/Bad Credit Car Lots
P.s. if you are reading this because your last car got totaled, don’t worry. You can still try and sue. If you have a strong case, you might be eligible for a lawsuit loan, which might help fund your new car purchase.