What To Do Before You Buy a Car
This post is sponsored by Lexington Law.
So you’re thinking about buying a car. It’s not quite as big of a purchase as a house, but still a big financial commitment all the same. I get it! After being car-less for six and a half years, I recently bought a new car about three months ago. Buying a car can feel intimidating, but there is a lot you can do to be prepared!
Before you even get to the dealership and get distracted by fancy features and shiny new upgrades, there are a few things you should do ahead of time. Not only to make sure you’re getting the best value for you, but to make a smart financial choice, avoid unnecessary debt and long-term payments, and be happy with your purchase.
What To Do Before You Buy a Car
1. Know your budget and financing options.
Nothing is a good deal if you can’t afford it. Before even considering what kind of car you’re interested in, you need to know what you can afford.
The more you can put down upfront, the less you’ll have to finance. You can see more on why this is beneficial in the chart below. If your car will cost $20,000 and you can put down $5,000, you’ll only need to finance $15,000.
Avoid financing through the dealership. Go to your bank, or better yet, a credit union, for a quote on an auto loan.
If you have a trade-in, use Kelly Blue Book to determine your trade-in’s value. Don’t get blindsided at the dealership when they try to lowball you. Dealerships may also try to increase your interest rate if they do give you a full trade-in value. Lenders receive a commission for originating the loan with an auto finance company. As you might expect, the higher the interest rate, Go in prepared with numbers. You’ll feel more confident when it comes to negotiating.
Don’t forget to factor car insurance into your budget! Here are 8 ways to save on car insurance for when it’s time to choose your coverage.
2. Check your credit.
Your credit score and history are *massively* important when it comes to buying a car because it’s how lenders determine loan eligibility, interest rates, loan terms, and your monthly payment amount.
With a low credit score, the lender sees you as a bigger risk. You might not be able to pay back the money you’re borrowing, so instead of denying you a loan, they raise the interest rates to accommodate for the higher risk.
According to Lexington Law, the recommend credit score is 660 and above when it comes to buying a car. They suggest that this score will typically give you an interest rate of less than six percent. This tells us that in general, the higher your score, the lower those numbers will be.
If your score is currently below that, it’s worth the effort to try to get it up! And even if your score is above that, any increase before you make the purchase can have a positive impact on your loan terms and monthly payment amount.
Here’s that concept in action:
|Credit Score||Average Loan Rate for a New Car in 2018||Average Loan Rate for a Used Car in 2018|
|Super Prime 781–850||3.4%||4.1%|
|Deep Subprime 300–500||14.9%||19.5%|
As you can see, the lower your score, the more it will cost you. Here’s how much your credit score will impact the total cost of your vehicle:
|Credit Score||Total cost of a $30,958 loan with a 68-month term||Total cost of a $19,708 loan with a 64-month term|
|Super Prime 781–850||$34,079||$21,974|
|Deep Subprime 300–500||$46,025||$31,847|
Source: Lexington Law
As you can see, there’s a dramatic difference between the total cost with a lower credit score.
If you’re struggling to improve your credit score, here’s our guide on how to start improving your credit score in the next six months. If you have unfair negative items on your credit report or aren’t sure how to begin improving your credit score for a better auto loan rate, reach out to the credit repair professionals at Lexington Law.
3. Compare models and prices.
Once you know your budget, your financing options, and your credit is in an optimal place, it’s time to compare prices and models.
Consider what your short and long term needs are for a vehicle. For example, do you have a long commute? Or are you trying to fit multiple children into it on a regular basis? Knowing what you need your car for can help you narrow down the type of car you’re interested in.
Also consider your non-negotiables. You might be willing to compromise on some things but not on others. For example, buying a used car with less than 10k miles on it with a backup camera and heated seats vs buying a new car with neither of these features. There are many online comparison tools to help you see specifications for different models.
Check various dealerships in your area to compare prices. Print these out and keep them in a folder for negotiating when you get to that step.
4. Research the dealership.
Use online rating systems to look at reviews of your local dealerships. Car salesmen are trying to make a sale and don’t have your best interest at heart. You don’t want to feel overly pressured into buying a car that you’ll later regret just because you were pressured. A site like Dealer Rater can help you find a dealership you’re comfortable purchasing from.
5. Prepare to negotiate.
Negotiating at a dealership can feel extremely scary. These people are doing this everyday and seem like they’re backed by an wealth of information and secret knowledge that will ultimately favor them and cost you more money.
The way to combat this is to go in with numbers of your own. Use Edmunds.com to find the manufacturer’s suggested retail price (MSRP) as well as the actual cost that the dealership paid. Print this out to make sure it aligns with what the dealership tells you.
Look beyond the payment at the total cost of your car, including all fees. You can ask the dealership to wave different fees or throw in various accessories, like all weather floor mats, for free.
Ultimately, if the dealership isn’t willing to meet you at a reasonable place, be willing to walk away. Even just being willing to walk away from a sale can help you save when it comes to buying a car.
6. Test drive, check the vehicle’s history, and know your rights.
Before signing absolutely anything, you should test drive the vehicle — even a brand new car. You may have mentally decided on a car, but once you’re there in person, you need to get a feel for the car you’ll end up purchasing. You could even discover it’s not the car that actually fits your needs.
If you’re buying a used car, consider having it inspected by a third party mechanic. This can help you figure out if the reports and repair history accurate or not. You will also be able to discover any fixes or updates needed which you can also use to negotiate a fairer price. You can also check a used vehicle’s history on Carfax.com for previous maintenance and accidents.
Beyond that, make sure you know the full terms of your car’s warranty as well as the laws in your state. Some states have a Lemon Law that helps protect you as a buyer. Don’t get hastily sucked into a purchase that could cost you tens of thousands of dollars.
So there we have what to do before you buy a car. Following these six steps will help you get a safe vehicle for a price you can afford without damaging your financial future. Buying a car is a big step and one you need to be prepared going into!
Doing your research ahead of time and raising your credit score can have a massive impact on the final price you pay for your new vehicle. If buying a car is in your future, reach out to the credit repair professionals at Lexington Law for a consultation. Even raising your credit score a few points can save you thousands, so it’s worth the effort!
Good luck and enjoy your new ride!