Should You Buy A New or Used Car?
When you're in the market for a car, the first step is deciding whether to buy new or used. If you want to minimize the costs, you may decide to buy used. As gratifying as it is to buy new, you can save a lot of money by buying a car that's one to three years old. That's because cars depreciate dramatically in the first two years - as much as 30 to 40 percent.
Consider buying a vehicle that is one to three years old. Ask your dealer to notify you od models you're interested in that are coming off leases. Dealers are very picky about their leased cars and charge for anything over and above normal wear and tear. People who lease are more likely to take good care of the car to avoid these charges. Mileage on leased cars tends to be lower because they have mileage restrictions. When you buy a used car from a dealer, be sure to haggle over the price. The dealer's profit margin on a used car is considerably greater.
Do a Background Check
Before you buy a used car always play it safe and check out its history to make sure you're not buying a lemon. Carfax.com will check its database of over two billion records and produce a report that reveals hidden problems that may affect the safety or resale value of the car. To use this service, all you need is the vehicle identification number (VIN) of the car. The service is really worth the price - it could save you thousands of dollars and many headaches.
What about Leasing?
A lease is like borrowing a car rather than buying it. You make monthly payments for the period of the lease, usually three to give years. At the end of the lease term, you have the choice of returning the car to the dealer or buying it. Even though you don't own the car, you are responsible for insurance and regular maintenance and repairs not covered by the warranty. You'll be required to keep detailed records of service and repairs and will probably be required to have all services performed at the dealership. Avoid leasing a car. You are much better off purchasing a used car.
Paying for a Car
When you're ready to buy a new or used car, you have three basic options of paying for it: cash, loan or lease. Paying cash will save you several thousand dollars in interest charges. Most people finance the car through the dealer or their own bank and make monthly payments. The car is collateral for the loan, meaning that is you miss a payment, the lender can repossess it.
Most dealerships offer car financing. They really want to sell you a car, and will do whatever it takes to make sure you buy it. However, dealer financing normally costs at least one or two percentage points more than a bank or credit union. A better way to get a loan is from your bank or credit union or check and compare interest rates online from companies such as E-Loan. You'll probably get a lower interest rate, and if you walk into a car delaership with a pre-approved car loan, it puts you at an advantage.
The typical car loan used to be three years, but five and seven-year loans have become very common. A long term loan can make you "upside down" on your loan if you decide to trade the car in for a new one in a few years.
Being upside down means you owe more on the loan that the car is worth. If you try to sell it while you're upside down, you'll have to pay cash in addition to the balance on your loan. You can prevent this by paying cash or using the shortest loan period possible, preferably three years.
Car Buying Tips
> Put down as much money as you can. The more you put down toward your car, the lower your interest rate and payments will be.
> Use rebates to make your down payment bigger. Rebates are money the car monufacturer offeres you as an incentive to buy its cars.
> Take the shortest loan term you can manage. Don't get a five year loan if you can afford a three year loan.
> Cars cost a lot of money. Do your research before going to the dealership.
> Save money and buy used. Buying a less expensive car can yield huge savings for your future.