I’ve recently heard a lot about people spending an exorbitant amount on their monthly car loan. Personally, I know several people who spend over $1,000 a month on their car loans while barely making enough to cover that and all of their other bills.
So today, I want to give you some tips for buying a new car so that you can save money on your next car purchase.
According to USA Today, the average new car price is around $37,000, with the average new car buyer paying around $550 a month with loan terms of 69 months. Many people are buying more expensive cars and taking out loans with high interest rates in order to “afford” them.
In fact, according to Edmunds, the current average annual interest rate on in 2019 is 6.19%. I've even seen car buyers with interest rates of 20% and higher.
And, people are extending their car loans for longer periods of time in order to get an even lower monthly car payment. While 72 months used to be a crazy long time to finance a car, terms of 84 months are even starting to become the norm.
Now, I'm not saying that you shouldn’t have a car loan or buy a new car. But, I do want people to be more mindful of their car spending and be more knowledgeable going into the car buying process.
Today's post is all about the best tips for buying a new car so that you can save money when buying your next vehicle. And, many of these tips for buying a new car also apply to buying a used one.
Not all car dealerships and car salesmen are bad. I know this for a fact because my husband used to be a new car salesman (and he was nice, I promise!). My husband knows all about the flack that salesmen get, and he even helped with some of the tips for buying a new car that I’m going to tell you about.
Despite the reputation car salesmen get, the car buying process itself can be really stressful for everyone.
Whether you are purchasing a new or used vehicle, there are several car buying tips and tricks you should know of so that you can walk away with the best deal possible. There are so many options and extras that come up when buying a car, which means there are many ways for you to end up leaving confused or paying more than you should be.
Whether you are buying a $500 car or a $50,000 one, you want to get the best deal available. To make sure you don’t walk away from a deal angry or regretful, it’s important to be as knowledgeable as possible.
Cars aren't cheap, which can leave a lot of room for mistakes and overpayments. You can buy a car that doesn’t meet your needs, is too expensive, and more.
We've had a lot of vehicles in our life, from a really cheap $500 car that ran well (yes, you can find good vehicles for cheap), to expensive new vehicles. And, we’ve used all of the tips I’m going to share with you today.
Before I tell you the top tips for buying a new car, I want to tell you about several ways that car dealerships make their money. These are things to be mindful of:
- Your trade-in vehicle. To make a profit on your used car, car dealerships will offer you less money than they can sell it for. Of course this is normal, but you want to be mindful of this so that you can get the most money out of your trade-in vehicle. Even though it takes a little more work, you can often make more money if you sell your car privately instead of selling it to a dealership.
- Incentives and bonuses from the car manufacturer. This means that if you can buy a car when a dealership hasn’t reached their selling quota, you may be able to get a great deal on your car purchase (this is covered more in my list of tips for buying a new car). Many times car dealerships will take a loss on the vehicle if it means that they will be able to reach their quota.
- Financing the vehicle. Dealerships make money when you finance vehicles through them.
- Extra options. These are things like an extended warranty and upgrades.
Buying a new or used car can be fun and stressful at the same time. You don't want to get tricked or duped, so here are tricks and tips for buying a new car before you start shopping!
Here are my best tips for buying a new car (or used one):
Think about the WHOLE COST of the car.
The most important of these tips for buying a new car that I can offer you is that you should think about more than just the monthly payment.
You should only purchase what you can actually afford. Just because the monthly car payment looks affordable, it doesn't mean that it actually is.
There are car payment terms that are as long as 96 months, which is just crazy to me. A car salesperson may stretch out the car payment so that it looks to be more affordable for you, but you should be aware of the whole cost, which includes things like interest and taxes.
Please, please, please, look at the whole cost and see if that's actually an affordable amount for you to be paying every month.
Even if you aren’t buying a brand new car, used cars can still cost you more than you think in insurance and taxes, so always think about the total cost before you purchase your next vehicle.
Shop around for your own car financing.
If you have to finance your car purchase, make sure you shop around before you agree to the dealer's interest rate. Sometimes the first dealer you visit will have the lowest rate, but sometimes they won't.
You may be able to save yourself hundreds (or even thousands) of dollars a year by simply shopping around. Plus, it's extremely easy to shop around for the best interest rates – start with local credit unions and banks!
I'm in quite a few Facebook groups about personal finance, and this topic comes up over and over again: people who are excited about getting a car loan with an interest rate of over 20%. And sadly, many of these people are buying brand new cars, not realizing how much they are about to pay because they don't know much about personal finance.
20% is not a good interest rate for a car loan – so please don't be excited about that! I am saying this to help you, not to be mean in any way.
You should shop around and make sure you are getting the best possible rate. If you are getting a 20% interest rate on a car loan, then you should probably not be buying a brand new car. There are plenty of more affordable vehicles that are older but still quite reliable.
Visit more than one car dealership.
You can shop around car dealerships both online and offline.
I recommend shopping online before you go to a dealership, this way you can be prepared in advance with the costs, loan terms, extras, and more. While shopping around does take time, you won’t be wasting it on a dealership that can’t get down to the price you want.
Skip the extras at the end.
When you are about to purchase a car, you will be encouraged to buy many small options that you may not need. This may include extras such as:
- Paint protection
- Extended warranties
While you may believe that you need some of those options, you should make sure that you're not just thinking about the monthly cost. The financing manager will offer you these extras in a way that makes it seem affordable. But, these extras only appear inexpensive because they are padded into your monthly cost, so don’t be fooled by how “affordable” they seem.
Yeah, $10 or $50 each month may not seem like much, but it can add up to a lot over a 5 year period!
Trust me, you are paying for these. Dealerships make money on these extras.
Related: 30+ Ways To Save Money Each Month
Figure out how much your trade-in is worth.
One of the best tips for buying a new car if you’ll be trading in your vehicle is to know how much it is worth before you step foot into a car dealership.
Kelley Blue Book is a great resource for researching what you’re old car is worth. While you may not get the exact amount that Kelley Blue Book claims you will get, it can be a good estimator or starting point when negotiating with the car dealership.
Know when to shop.
There are certain times of the month and year that are better for car shopping than others. If a dealership is trying to meet their sales quota, they are more likely to give you a deal than when they've already beat their quota or if it's the beginning of their quota.
This is because car manufacturers will give bonuses and extra incentives to car dealerships who sell a certain amount of vehicles. This gives car dealerships extra motivation to give really good deals if they are close to their quota.
This is one of the best tips for buying a new car that my husband learned from selling cars.
To know the best time to shop for a new car, you may want to make friends with a car salesperson, find out when their end of month or end of quarter is, and so on. Or, you could just ask someone at the car dealership.
Don't be afraid to negotiate.
Even if you get a discount, such as a car manufacturer discount, you should still negotiate. Many times, those friends and family discounts mean that you are not able to haggle at all, which can lead to you actually paying a higher price.
Cars sales are usually meant to be negotiated, whether it is a brand new vehicle or a used one. If you don’t haggle, you will most likely lose out on a lot of money.
Other aspects of the vehicle buying process can be negotiated on as well, this includes your trade-in vehicle, warranties, interest rates, add-ons, and more.
Learn more about negotiating at How To Rock At Negotiating On Everything.
No matter what, you should be a decent human being. This is one of my tips for buying a new car that applies to most other aspects in your life.
Being rude doesn’t get you anywhere. It won't get you the best deal, and it may actually make the salesperson and the dealership not want to help you.
After you purchase a car you are asked to go through the car manufacturer to grade your car salesperson. If the salesperson knows that you might give them a bad grade (for no reason at all), they may not want your deal because it's not worthwhile to them to have a bad score, which decreases their salary/income.
Plus, you should always be nice anyways. Salespeople are just doing their job and trying to make a living, and the majority of them are good people. If you're nice to them, they may be willing to help you out a little more.
Miscellaneous tricks and tips for buying a new car.
Here are several other tips for buying a new car (or used one):
- Never shop when you're hungry or tired. You should always be well-rested and ready for an eventful day.
- For the car dealership to beat their quota, sometimes they will buy a new car themselves and put it on the “used” car dealership side. The car is still brand new, but is now considered pre-owned. This can allow you to save a good deal of money. However, you do want to be mindful of the warranty, because the warranty has most likely started once the car was officially bought the first time, even if it was bought by the car dealership.
- Purchase a car at the end of the car's model year. Dealerships want to move out last year's model to make room for the new ones, which can lead to a good discount.
- Look into car insurance before you purchase. You should contact your car insurance agent so that you are not surprised by a high insurance rate after you make a purchase.
- Figure out what you’ll need to pay in personal property taxes for your car, which varies state to state. You will need to add this into the total cost of your car.
- Don't tell the salesperson what your budget is for a monthly payment. You should always negotiate on price first. A dealership will try to get you into something that will just barely fit your monthly payment budget, which can cause you to spend a lot more money in the long run.
- Be confident. When negotiating, you should always be confident in what you are saying, and do not be afraid to walk away. If it's not meant to be, then it's just not.
What other tips for buying a new car can you share? Leave them in the comments below!
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