Buying a car is not just about finances — you don’t have to wade too far into this decision before you notice all the other questions that crop up: If the core purpose of a car is to get you from point A to point B, why do some people buy a new car vs a used car? What about the reputation of one brand over another? Or combustion engine vs an electric car?
Buying a car has just as much to do with why you are buying it, as it does with how much money you are willing to spend on it. Let’s take a deep dive into what you really need to know about buying a car.
What you need and what you want
It’s important for you to first think about how often you will drive, how far you will drive, and what seasons you deal with where you live. Most people need a car that is simple, reliable, and has good gas mileage that will get them from one place to another. Some people buy the base model of their car of choice because they know it will get the job done; others will need an all-wheel-drive vehicle with snow tires for additional safety in the winter.
What do you need out of your car, and what do you want? You should take some time to think about that throughout every step of the car buying process. It will help you stay true to your goals when friends, family, and car salespeople are trying to tell you what they think you need and what you should buy.
Budgeting and financing your car purchase
It’s time to take an honest look at your budget. Looking at one’s budget should be the point at which you decide if you can afford a brand-new car, or if you’re better off buying a used car.
A truly wise person buys a car they can realistically afford. In most situations, you’ll likely put a minimum of 10 percent down with a three- to five-year loan. You should plan to spend no more than 20 percent of your monthly take-home pay to pay for the car loan. Looking at your budget and sticking to it can help you stay focused when you are talking to a salesperson who wants you to spend more money at the dealership.
There are two main ways to buy a car: purchase it outright with cash, or finance it with a loan. For either choice, it’s important to consider the added costs of what you need to pay before you drive your car off the lot: taxes, title, and license (TTL), as well as insurance for the car.
If you plan on paying with cash, the process is simple: you pay the exact amount you agree to purchase the car for.
If you decide to finance the car with a loan, you’ll want to understand what the final cost of the loan will be — after interest. A handy loan calculator can help you make an informed decision. The cost of a $5,000 car purchase is vastly different than a $25,000 car. How much you put into a down payment, the loan interest rate, and your monthly payments also affect your total cost.
Don’t get lost in the price of the monthly payment if you decide to finance. Any good salesperson can help you into a monthly payment plan of your choice; it just depends on how long you plan on paying down the debt.
Psychology can play a big part in this — paying $150/month hurts less than $300/month, but over time, you’re probably paying much more in interest for the $150/month option than the $300/month one. Use the loan calculator to see the total cost and it will help you put things into perspective.
The true cost of a car
The cost of a car is more than just its sticker price. As mentioned before, you must also pay TTL and insurance, but what about yearly maintenance costs? For cars that run on gas, it’s important to think about what type of gas your car consumes, how often your car will need servicing, and how much that maintenance will cost. The price of maintaining a Toyota Camry is much cheaper than a Mercedes-Benz E350. If you are looking at buying an electric vehicle, the price of electricity and maintenance are generally lower than a gas-powered car.
We’re not just talking about the normal oil changes, either. Research how much you would pay to repair a dent or a leaky radiator and you’ll start to see how the costs can add up. If you don’t plan on doing the work on your car yourself, it’s incredibly important to know how much it may cost you to get your car serviced by a professional. As a baseline, according to AAA, owning even a small car can cost up to $6,000 a year in gas, insurance, maintenance, and other needs. An expensive purchase price is often associated with expensive maintenance and insurance.
Have you ever considered the price of the “brand-new car” sticker? The true cost of a car should also consider the fact that as soon as you drive your car off the dealer’s lot, it becomes a used car. If the value of a new car depreciates by roughly 20 percent after the first year, why not buy a one-year-old certified pre-owned car? These days, you can rest assured that a one-year-old car is about as good as a brand new one, so why pay more if you can avoid it?
Choosing the right car
After doing the thought exercise on what you “need” versus what you “want,” you probably have a short list of features you are looking for in a car. Choosing the right car means something different for everyone, so making a list of must-have features can help you make the right decision and help you stay focused when a salesperson asks you if you want add-ons.
Once you’ve made that list, you can expect to do more research to look at different car models, and eventually narrow that list down to two or three cars.
If you’ve decided to purchase a used car but you’re nowhere near the level of a car expert, you will want to bring someone who knows their way around a car. Ask a friend, coworker, or a local mechanic whom you can trust to help you inspect the car you’re about to purchase. It’s worth paying them a small fee for their time to save you from possible headaches in the future. Aside from the inspection, it’s always good to get the CarFax report to review the vehicle’s history. You’ll want to avoid cars with histories of accidents as best as you can.
If you’ve decided on a new car, there are a few things you can do to get the best deal. Imagine a situation where you’ve got your eyes set on a specific car — now think about how many car dealerships there are in a 300-mile radius of where you live. Do the research, call around to different dealerships that are considered volume dealers, and see if you can get a lower price than your local dealership, and set up a delivery.
If you spend even five hours of your time to save $1,000 and pay $500 for delivery, would it be worth it? What about spending 10 hours to save $5,000? The possibilities are out there — you just have to do a little bit of work. If all things are equal and the car is brand new, why not find someone who will sell it to you for less?
Other considerations
Everything is negotiable. If you are willing to fight for yourself to pay a good price, then the world is your oyster. Always remember that there are thousands of other cars out there. You can always walk away.
Some other questions you should ask yourself are:
- Could I save up to pay for a car in cash?
- Do I have public transportation that is available to me?
- Do I really care about what others think of me and my car?
- Does leasing a car for a short amount of time make more sense than purchasing a car right now?
There is no doubt that the psychology of large-dollar purchases is very tricky. The pressures of buying a car are sometimes tough to handle, but if you go in with a clear mind and a strong plan, you won’t be led astray.
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