Buying a car is both an exciting and exhausting journey. There’s joy in imagining the road trips and the many adventures you’ll make with your brand-new wheels. But there’s also stress in looking for the best car loan rates, getting hustled by the dealership, and thinking about regular maintenance.
Keep the excitement and joy by working hard on making your purchasing adventure hassle-free. To make that happen, you need to set aside spontaneity and avoid basing your decisions on intuition. Trusting your gut is a fast way to get car loans with higher interest rates and get scammed at the dealership.
Instead, go slow and thorough. Create a purchase plan based on your actual needs and solid research. Here are five considerations that can serve as the foundation of a car purchase plan.
1. Assess Your Needs and Capacity
Your new car should fulfil your needs and be within your economic capacity. This is a necessary first step when buying a vehicle to avoid an excessive purchase. That self-driving electric SUV might dazzle and tempt you. But if you don’t need it and it’s beyond your means, you’ll regret the purchase later.
Here’s a quick checklist of how to assess your needs:
- Use and Utility – Think of what you’ll do with your car more than half the time. If most of the time you’ll use it to go to the office and back home, maybe you don’t need that rugged 4×4. If you have a baby or a toddler, a child-safe car is a better fit.
- Passengers and Storage – Assess how many passengers your new vehicle needs to bring most of the time. If you have a family, you need a car with enough seats and storage space for your kids’ things.
- Climate and Traffic Conditions – Your place’s general climate and traffic condition affect your vehicle choices. If you live in a cold-weather area, a vehicle that can handle long winters and has good insulation would be a good purchase. A fast acceleration would find little to no use in urban areas with stop-and-go traffic conditions.
- Spending Capacity – Your spending capacity should be a top consideration when choosing a new car. Remember that a car purchase is not a one-time expense. Aside from your loan premiums, you must consider insurance, extended warranties, maintenance, and fuel. It’s not always about the price of the vehicle. A cheaper car with horrible fuel efficiency might impact your finances more in the long term.
2. Consider Alternatives
Before you go to your dealership, think of the alternatives to purchasing a car. For dense urban areas, relying on public transportation is always an option. Commuting via bus or train is generally cheaper than driving. Bikes and other active transport are other good options if you live inside the city.
But if you are in a suburban area where cars are necessary to get anywhere, consider leasing instead of buying a vehicle. There are certain advantages and disadvantages to leasing a car.
- Monthly Fees – Lease payments are almost always cheaper than car loan payments. With a lease, you’re paying for the depreciation and rent. This is less expensive compared to loans where you’re paying for the full value of the car.
- Maintenance Coverage – Often, the leasing company shoulders all the expenses regarding car maintenance and repairs. Because most leased cars are brand new, it’s still under the manufacturer’s warranty.
- Car Type – You can get a newer, higher-end vehicle with a lease for the same payment as a loan of a lower-end car. This also means you can get an “upgrade” every two or three years after your lease has ended, with a minimal increase in fees.
- Ownership – With a car lease, you won’t get ownership of the vehicle. You can’t customize the car. At the end of the lease, you must return the car in pristine condition, without any modifications. No ownership also means you have not built any equity in your vehicle.
3. Plan and Budget
If you have decided to purchase a car after weighing your needs, capacity, and alternatives, it’s time to plan and budget. You can simplify your plan and budget into three components.
- Tasks and Calendar – It’s important to make a task list for your car purchase. List down everything that you need to do related to owning a car. Include minor tasks such as preparing your garage. If you’re trading in an old car, add your last-minute maintenance tasks to your list—a well-maintained car can fetch a higher value. Put these all in a calendar. The most important thing is to follow through.
- Income versus Expenses – Finalize your budget by pitting your income against your current expenses. Look at how much a car loan and the maintenance costs will add to your monthly payments. Fit your purchase within your means.
- Narrow Down Your Choices – Given all your considerations, it’s time to shop for a car before even going to a dealership. Research your choices online and narrow it down to what fits best to your needs and economic capacity.
4. Look for the Best Financing
Shop for car loans and get a quote from at least three providers. It’s prudent to go to your bank or credit union first to get pre-approval. By getting pre-approved, you have a card up your sleeve to use in negotiating with lenders and dealers.
Look for a loan that is within your budget. But avoid terms of six years or more. Cars depreciate over time. A term of six years or more puts you at risk of paying for a debt worth more than the vehicle.
5. Negotiate Like a Pro
Finally, whether it’s the dealership or a private sale, negotiate like your life depends on it. The dealership will always upsell you and may offer you a more expensive deal. The key is to keep it simple: settle on a price, and don’t be afraid to walk away.
Buying a Car is an Adventure
Building a relationship with your new car starts even before you buy it. Plan your vehicle purchase diligently, and you’ll feel excitement and joy throughout your ownership rather than stress and regret.