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Buying a car? 6 things to know

Ivan McBride

Americans increasingly prioritize one factor when buying or leasing a car: affordability.

According to recent data, nearly half of U.S. adults say monthly payments are the most important element of an auto loan, and more than half who opt to lease do so because it gives them a lower monthly payment. And 73 percent say price factors into their decision to choose a specific model.

Now more than ever, it’s important to scour the market to make sure you’re getting the best deal. Between higher prices and dozens of different models, makes and lenders, it’s easy to get overwhelmed. Before you make a purchase, consider these tips.

Do your homework.

Before you set foot in a dealership, make sure you’ve asked yourself the right questions. Do you want a used or new car? How much do you want to spend? Do you want a coupe, sedan, SUV, truck or convertible? What technological features are important to you?

After researching the type of car you want, you should look for the right financing options, research what a fair trade-in value is for your vehicle, and use an auto loan calculator to decide whether purchasing or leasing is right for you. Only then should you start comparing dealers for the best price.

Some people like to visit dealers early on to test drive a car and learn more about options, but never buy without doing your research first. Purchasing a vehicle is far less stressful when you’re informed and not under pressure to buy now.

You can learn about features and pricing by looking at manufacturer websites, vehicle reliability reports and car comparison sites like Edmunds, Kelley Blue Book or TrueDelta. Also, always test drive a vehicle before buying or leasing.

Know your numbers.

With more than 100 million Americans with auto loans, choosing the right financing is an important part of the process. But before you find an auto lender, you should know what interest rate they are offering.

According to ValuePenguin, the average interest rate for a 36-month term auto loan is around 3.71 percent APR. Shorter term loans generally carry lower interest rates. The higher APRs of longer term auto loans can leave borrowers “upside down”—that is, owing more on the auto loan than thecar actually costs.

Most manufacturer financing is pretty competitive, but consumers should also consider other options, like credit unions or hybrid balloon financing options that can offer lower monthly payments and more flexibility at the end of the term.

Used cars may not be cheaper in the long run.

The primary difference between purchasing a new versus a used car is cost. While purchasing a used vehicle can make a lot of sense in the short term, you have to keep in mind the potential long-term maintenance and repair costs that come with owning a used vehicle.

Buy a new car right before the new model comes out.

Car prices – especially new cars – aren’t stable throughout the year. If you time your purchase right, you might find that buying a new car makes the most financial sense. Buying the first 2020 model available will always cost you more than buying the last 2019 model on the lot.

You’ll find better deals on this year’s model when dealers are trying to clear them out to make room for next year’s model. The best time to buy is in December, when dealers are trying to clear out their lots to make room for next year’s models (and also at the end of every month, when dealers are trying to make quotas).

When you’re ready to buy, negotiate.

Everything is negotiable, especially cars. Never commit to a payment on a vehicle before negotiating. Understand the value of vehicle protection products like MBP, GAP, prepaid maintenance and other optional coverages.

And always know your non-negotiables – the things you aren’t willing to compromise on. This could be anything from a maximum monthly payment, leather seats or car color. Always be willing to walk away if your non-negotiables aren’t being met.

Know that the price is not always the price.

Once you negotiate the price of the car, then you negotiate financing. Financing includes add-ons like warranty, rust protection, tire protection and oil change services. You don’t have to purchase any of these, but if you’re financing, all of these will increase the negotiated price.

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A car may be one of the biggest purchases you’ll make this year. Make sure you do your research and enlist help if you need it. You don’t want to get taken for a ride.

Ivan McBride is vice president of automotive lending products and sales at PenFed Credit Union.

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