Buying a Car? Financial Facts to Know
Having a firm understanding of the financial aspects of getting a new car can help eliminate surprise costs
Getting a new car can be an exciting experience, but the process of financing it isn't exactly the fun part. In fact, for some, this part can even be borderline nerve-racking. However, it doesn't have to be if you go in prepared. Following are some finance-related things you should know when you begin the process of getting your new car.
Decide if you want to buy or lease
First off, you'll need to determine whether you want to buy your new car or lease it.1 Both options have their pros and cons. If you decide to buy, you get to own the car and have no limitations on miles, customization, etc., and you don't have to worry about getting charged fees/penalties. You can even build up the vehicle's trade-in/resale value if you take good care of it. However, you will likely have higher monthly payments and repair costs over time.
If you lease a car, you'll have lower monthly payments, and you can get a new car in a couple of years. You don't have to worry about trading or selling it. Plus, you won't have to worry about repair costs, since you'll be protected by a warranty. However, you will have limitations on mileage, so leasing may cost you more in the long run.
Know your budget
You need to know what you're willing to spend on a vehicle, including what you will be able to afford for a monthly payment. Work with your bank on the appropriate payment. Calculate this amount beforehand so you can be sure not to buy a vehicle that will require you to pay more than you're willing to afford on a monthly basis.
Know what you're able to spend on a down payment
You'll also need to know going in how much you can afford to spend on a down payment. This will affect your financing options, including your monthly payment. Obviously, the more you can put down, the better your options will be. It's wise to save some money before you go car shopping for your down payment alone.
Know your credit score
Your credit score will also have a major impact on your financing options.2 The better your credit, the more flexible lenders will be. Find a service that will give you a credit report for free to make sure you're in good shape. The average credit score needed to buy a new car is 713.3 For a used car, it's 656.
Know the price range on the type of vehicle you're looking to purchase
It's wise to do as much research as possible before setting out to buy a car. Figure out what kind of vehicle you hope to own and find the price range for what this vehicle sells for. This will help you better shop around and eliminate any major surprises once you're on the lots.
Know the price range on "Plan B" vehicles
As long as you're doing your research, look up information on some other types of vehicles that you're willing to consider, in case you can't find what you're looking for or your first choice is too expensive. Explore price ranges and other features for these vehicles. As you're looking into alternative vehicles, you might even find that you like one of these better than the car you initially thought you wanted.
Research other costs that come with owning the vehicle
Don't just look at how much these vehicles are selling for. Look at reviews and other information about them and try to find out about any other costs that are associated with owning them. This includes insurance rates, common repair costs, upkeep, etc.
Know the insurance rate you will be paying for the vehicle
In addition to the monthly car loan or lease payment, be sure to budget for insurance on your vehicle. If your car is leased or financed, you’ll be required to carry a certain amount of insurance to help protect the leasing company or lender in case of accidents or theft. Check with insurance companies online to get an idea of how much coverage will cost for the vehicle you have in mind.
While figuring out all of the financial aspects of getting a new car is not as much fun as the shopping and driving off the lot, having a firm understanding of these factors will make the whole experience much more pleasant, and help eliminate the element of surprise.
1. This Two Cents blog article includes some pros and cons of leasing and buying.
2. This Two Cents blog article describes how to check your credit report for items that may be lowering your score.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC