Got Wheels?

I recently replaced my car.  Not a fun chore for me.  It means I have to study up and get informed.  In this world of the internet, you can at least do this from your home before you even step foot on a car lot.

Some of you may relate to this sense of dread.  You may know your mechanics, but hate dealing with the salespeople.  Others it may be an adventure – you’re getting a new toy or you like test driving cars.

Whatever your mindset, do your homework or you may have buyer’s remorse.  You need to do your homework whether it is a new car or a used car.  The initial steps in your car buying homework are the same for new and used cars.

  1. Determine what you need. Do you need to haul kids?  Want to do off-road driving?  Need good gas mileage, reliable car or have good resale thvalue?

Make a second list of what you would like body style, color and luxury options.

In my case, we live where you need all wheel drive or 4 wheel drive.  That is a need. I prefer the hatchback to the trunk.  I want the heated seats – it’s awesome in the winter.

  1. Determine what you can afford.  You also need to factor in costs for tax, title and  registration.

What are you able to pay for a down payment?  What value does your current car have for trade-in?  (More on that)  What financing costs are there for carrying a loan?

DO NOT shop for a car by how much of a car payment you can make.  The salesman will match that by stretching out your car payments.  You will pay more for the car because of interest.

DO take into consideration how much you can afford in a car payment.  A rule of thumb is that your total debt payments not be more than 36% of your gross income.

So if your pretax income is $75,000, total debt payments should not exceed $27,000 a year.  If you have existing debt payments of $20,000 you can afford $7,000 annually or $583 a month for car payments.

I would encourage you to run a car payment for half the life of your car.  If you plan to own it for 8 years, use 4 year term for the loan.  Once you have paid off the loan, continue to make the “loan payment” into savings.  That provides you more cash down on your next vehicle.  Eventually, you can pay cash for your car – some dealers give discounts for all cash deals.

If you plan to finance a portion of your car purchase, check with your own bank or credit union and see what rates and terms they are providing.  The car dealership may have a better rate because of their volume and relationship with a financial institution.  Do your homework!  Know if the deal they offer is the best you can get.

  1. Know your trade-in value. Your current car has some value.  Use the Kelley Blue Book website to determine the range of what you might receive on your trade-in.  Answer the questions for scoring the quality of your car – excellent, very good, good, fair or poor.

Kelly Blue Book gives you a high and low price range for a trade-in or for a private party sale.  The private party sale will be higher.  If there is enough difference, you may want to sell it yourself.

Do your homework – know the value of your trade-in.  My experience with car dealerships is there is little wiggle room in their asking price.  But there is more room for upward adjustment on the trade-in.

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