If you are planning to buy a new vehicle, most likely you will purchase it using an auto loan from either a private lender, credit union or a bank.. In this article, I will provide a few suggestions on what to consider when buying a new car with an auto loan.
Set Monthly payments NOT weekly
I would suggest that you budget for monthly payments rather than weekly payments. Weekly or bi-weekly payments can get a little overwhelming and hard to manage and keep up with. Opting for a monthly payment plan will allow you to set money aside in a designated savings account which goes untouched otherwise.
Beware of Cash Back Offers and/or Gifts
Some, if not all dealerships will offer cash backs and/or gifts as an incentive. I don’t want to alarm you, but a simple reminder is that these incentives are actually being added to the price of the vehicle you are purchasing. Overall, this means that your loan payment will increase and for more than the purchase price of your chosen vehicle.
Deferred Payment Incentives
Dealerships always have some sort of promotions going on to attract and intrigue customers into buying a vehicle. An example of this incentive is, “No payment for 90 days!” A lot of people think that this is a big discount, but in reality the payments you DON’T make during those 90 days are actually added onto the end of your loan term payment OR a small amount is divided between your month-to-month payments.
Buying Out the Vehicle at the End of the Term
Not everyone can afford to pay off the financial loan during the duration of the loan payment, whether it is 48 or 60 months. If you or someone you know is in this situation, that individual will face a buy-out. You can also face a buy-out when you are leasing a vehicle and are unable to keep up with your obligations. In either case, you will either have to get another loan OR return the vehicle back to the dealership. Ensure that you are able to take on the long-term financial responsibility of your new vehicle as well as for insurance, gas, and maintenance.
Budget for Car Maintenance & Warranty Work
Keep in mind that when buying a vehicle, it comes with an additional financial responsibility such scheduled maintenances. This includes; oil change, recall, checking brake pads, etc. Your local dealership may throw in some service packages before you officially sign the contract, but be aware of the repairs included in the package because you won’t necessarily use all of the services provided. Also, do a little bit of research and find out how much the repairs would cost individually without adding the service package to your contract.
Consider Buying A Used Vehicle
Buying a used vehicle may be a little easier to manage financially due to the nature of depreciation over the course of time and distance travelled for a vehicle. Before you commit to a pre-owned vehicle, you should have it inspected to ensure it is in proper working order. If the vehicle is less than 5 years old, then the mileage shouldn’t be too high and it may still be covered under the original warranty. Ideally, this is a good and safe sign that you can purchase the vehicle. Always take precautions when buying a used vehicle and make sure to avoid “curbsiders” at all cost.
Car shopping is exciting, but without a plan and a realistic budget in place–you may find yourself stressing out over the financing and other various added costs.