Purchasing a new car can be an exciting milestone in anyone’s life. Unfortunately, it can also be stressful if you don’t have the best car-buying tips for the best way to approach the purchase and financing. Consider these steps to save you money and reduce your stress during the purchasing process.
Check Your Credit Score
Before shopping for a new car, it’s smart to know what your credit rating is. Your score impacts the likelihood that you will get approved for a loan or lease, and it can also serve as a good indicator of the terms that the financial institution may offer.
Generally, a high score can help you get approved for a loan, and an excellent score can help you secure a better interest rate.
Checking your report early is also a great way to make sure that there are no errors on your record. If you catch a mistake early enough, you can get it resolved before it causes issues during the purchasing process.
Try To Improve Your Score
If you find out that your credit rating is not as high as you’d like, take action to boost your score. The factors that most scoring companies use to determine your score are credit history, bill payment history, debt to credit ratio, available credit limit, and current debt.
To improve your score quickly, try lowering your existing debt by paying off as much of it as you can. At the same time, ask your credit card company for an increase in your credit limit. Both of these moves can lower your debt to credit ratio and boost your score.
Set a Reasonable Budget
In today’s world, it pays to be financially responsible when making a big purchase. When determining how much money you are comfortable investing in a new car, take a broad look at your entire financial picture. Also, don’t forget to include the extra costs you may incur with a new vehicle, such as:
- Auto insurance
- Car maintenance and repair costs
- Fuel expenses
- Financing charges
- Fees for registration and new plates
If this is your first car, these expenses will be new. However, if you are replacing an older vehicle, you may actually save money in a number of categories, such as car maintenance, repair, and fuel costs.
Also, if you are trading in your current vehicle, you can use the money you get to offset some of the new vehicle’s cost. Since this is a key piece of information when determining your budget, consider using an online valuation site to get an idea of how much your car is worth.
Consider Your Financing Options
When it comes time to finance your car, you have several options. First, you can pay in cash. Unfortunately, most consumers are not in a position to do this. Also, even if you have enough money to buy the car outright, you need to determine the opportunity cost. In other words, is putting the money into a new vehicle the best use of your money, or could you be generating more income with that cash by putting it somewhere else?
A second option is to get a car loan. With this option, you borrow a lump sum of money to pay for the car, and the loan and interest are both paid back over time. When you approach a loaning institution for a loan, the three variables will be:
- How much money do you need to borrow?
- What length of time do you need to pay back the principle and interest?
- What interest rate do you qualify for?
If you decide that a loan is your best option, it’s wise to obtain pre-approval before visiting the car dealership. Once you are armed with pre-approval, you can shop with confidence and peace of mind. You are also more likely to be taken seriously and will be in a better strategic position when it comes time to negotiate the price.
A final choice for financing is to get a car lease. When you lease, you aren’t actually purchasing the car. Instead, you are paying the right to use the vehicle for a set number of years. The lease usually requires a down payment and monthly installments, similar to a loan. While the monthly payments may be lower than with a loan, you don’t gain any equity, and at the end of the lease, you must return the car to the dealership. While it may be possible to purchase the vehicle at the end of your leasing period, it is usually more expensive to do this than it would have been to buy the car in the first place.
If you are in the market for a new car, it pays to be fully prepared. Check your credit score, calculate a reasonable budget, and determine the best form of financing for your new purchase. By having all the necessary information to make a wise decision, you can relax, feel in control during the shopping process, and enjoy your new car!