After buying and leasing many cars over the years, I've learned an important lesson. The MSRP sticker doesn't really tell me how much the car will cost me in the end. Even an estimated monthly payment amount leaves plenty of hidden information that will affect my finances long-term. Before I buy a car now, there are seven important questions I ask in addition to the price tag.
What's the Auto Insurance Cost?
Used luxury car prices have dropped sharply this year. As I looked at vehicles for my son I was tempted to buy a German, 6 cylinder car with 260 horse power. But the vehicle insurance for such a car was nearly twice as expensive as that on my sedan, due to the sporty engine. This would have added another $350 to my car cost.
What's the Car Registration Cost?
Vehicle registration tax is assessed based on the value and weight of a vehicle. My husband's SUV, for example, costs $35 more a year than my sedan. Even though I pay my car registration only once annually, I still like to verify the amount before committing to buying a car.
What's the Vehicle Warranty?
After spending thousands of dollars repairing an out-warranty vehicle, I bought a new car instead. This vehicle's warranty was set for 5 years or 60,000 miles. But since I was financing the car for 7 years, I insisted on extending the warranty accordingly. I was offered the option of purchasing an extended warranty at $800, which were bundled into my overall financing.
What's the Down Payment?
I always try to negotiate a vehicle purchase with $0 down. However, I always have a credit card with me in case this proves difficult. In addition, it's important to remember that other factors may add to the down payment. For example, when I traded in my old vehicle with an upside down loan, I needed to supplement $2,000 out-of-pocket to complete the loan pay off.
Can I Buy Gap Insurance?
Many cars depreciate faster than the car loan balance. This is especially true with newer vehicles. To protect myself I always ask if I can buy gap insurance. This type of insurance protects me in case my car will be totaled or stolen. Then, although my auto insurance will cover the market value of the vehicle, my gap insurance will cover the remaining balance on my car loan.
What's the Loan Term?
I've come to realize that car salesmen will always quote me the lowest monthly payment possible, without actually lowering the price. They achieve this by extending the lease or loan term. I, therefore, always ask how many months of financing apply to the quoted price. Thus, for example, when I leased a cheap vehicle I insisted on a short (two-year) term, knowing that I didn't want to drive this car long term. But when I bought my Infiniti sedan, which I intended to keep for years, I opted for a seven-year loan that drastically reduced my monthly payments.
What's the Depreciation Rate?
Before I decide to buy a car, I compare the make and model of previous years to see which cars tend to keep their value over time. Not only does this protect my investment, but it ensures that my vehicle loan will not be upside (or at least not for long).
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