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Once you have reached financial independence, one of your first goals may be buying a car. It’s a major financial milestone that should not be taken lightly. Here are a couple of things to keep in mind when taking this important step:
New or used?
There are pros and cons to each. If you are fresh out of college and have just started your career, you are probably still figuring out your finances. Generally, used cars cost less than new cars. It is estimated that a new car depreciates by 20 to 30 percent in its first year. A used car, however, has already depreciated by the time you buy it, so you can take advantage of a lower price tag.
Make sure you also consider maintenance and repairs when deciding between new and used. Many dealers will offer some repairs and maintenance coverage if the car is under warranty, regardless of whether a car is new or used. But if you’re buying a car from its owner and not a dealership, you may not be clear on where you stand with the warranty. And since used cars are older, they may require more maintenance, which can cost you a considerable amount of money. Regardless of whether you buy new or used, you should understand the terms of the warranty so you can make the most of your purchase.
When buying a car, you also need to consider insurance. In some cases, it may cost more to insure a new car. But a used car can sometimes cost more if it doesn’t have certain modern safety features. It’s important to check with your insurance agent.
How should I pay for my car?
If you’re buying a car, it is always best to pay cash. If you can save up enough money to do it, you can save a lot on interest and other finance charges associated with auto loans. But, realistically speaking, you might need to get a loan—especially if your car dies and you have not had sufficient time to save enough money.
While you may not have enough savings to finance the entire purchase of a car, consider putting down a considerable down payment. This will reduce your monthly car loan payments, which can help you stay within your monthly budget.
How should I get a loan?
One of the first things you can do is get pre-approved for a loan. That way, you know what price range to look in. You can bring the amount that you are pre-approved for to dealerships to help you get the best offer possible. Or, if you shop around for loans, a dealership may be able to offer you a lower interest rate once you present a competitor’s number. Remember, a car loan is a major financial commitment, make sure to comparison shop to get the most favorable rates and terms anytime you are buying a car.