When it is time to buy your first car, you know it. Your job requires you to commute. Your hobbies are farther from home than you can jog. Maybe you just finally have the funds to buy a new, or new-to-you, set of wheels. Any of these life events can prompt you to decide to head to the auto lot to find yourself a new car or truck. But before you hit the streets, there are a few things that you should know so this major purchase can be a good memory, rather than a hard lesson.
1. Appreciate Depreciation
Depreciation is what happens when a new car rolls off the dealer’s lot. The value of the car goes from the price you just paid for it directly down to “trade in” the very moment you put it on the road the first time. In general, new vehicles lose the most value (25% or more of their dollar value in the first year of ownership) but used vehicles can lose value as well. If you finance the purchase, depreciation can mean you owe more than your car is worth for some time…years in some cases. If you plan to hold on to your car for its useful life, then this may be a cost you are willing to bear to buy your car new.
Research Tools: Reviews, Car Values and More
These sites can help you research and even shop for your car or truck.
If you are likely to change out your vehicle before its useful life is over, then looking at clean used cars may be a better idea. Many cars can be purchased that still have warranties, or have a brand warranty, especially if they were lease-return vehicles. Those can be low-mileage, and with complete maintenance records. So, if you’d rather leave the depreciation off your loan, you might consider shopping for a used version of your model of choice.
2. Keep Your Head above Water
When a person’s loan is “underwater,” it means that they owe more than the item is worth. Your car loan would be underwater if your down payment was not enough to cover the immediate depreciation of driving a new car off the lot. Zero-down car deals are notorious for this. It is for this reason that many financial institutions offer “gap insurance,” to cover the difference between what is owed and what the vehicle is worth, in case of accident or disaster, for example.
3. Pre-qualify for Auto Loan and Insurance
The ace up your sleeve in every automobile negotiation should always be pre-qualification for your auto loan. Once you have calculated the amount you are comfortable borrowing, and the term you are interested in, you should apply, even if you have not found the exact vehicle you are looking for. That way, you can avoid delays in funding should the right car appear at a good price. Without tipping your hand as to your loan amount, you are in the position to negotiate for a dealer’s most favorable price or terms.
Beyond doing research to see what the price of the car you are interested in is likely to be, your internet connection can be your best financial tool. InTouch offers a selection of auto calculators for you to use to see what loan features you prefer. For example, you can compare a low interest rate to a cash back offer. You might simply want to estimate how much monthly payments would be. You can also check out what loan term is more likely to work for your monthly budget. Use all of the available tools you can to make sure that you have considered your car purchase from all angles.
The final piece of the puzzle is making sure that you are insured. You are required to have auto insurance, both for state requirements and as part of your loan contract. Get to know which insurance vendors offer good rates for your favorite few models and check the difference between rates for new and used vehicles.
Buying a first car can be like climbing a hill: It looks easy from a distance, but much harder up close. When you take advantage of the tools that your credit union makes available to you, and shop smart, you will find that you are already halfway there.