Perhaps your car is getting old and costing you a lot in repair bills, or maybe you’d like a larger vehicle to fit your growing family. Whatever the reason, the purchase of a car is likely to be your second-largest expense after housing.
So, if you’re considering buying a car in the year ahead, it’s wise to plan carefully.
Do a 15-minute inspection
Your car may seem to be running well, but take a few minutes to give it a once-over. Start by getting down on your knees and taking a look under the car. See if there are any rusty holes in the exhaust system or any signs that grease is leaking onto your driveway. Check the tires to see if they still have plenty of tread or if they have signs of uneven wear. Then, pop the hood. Are any of the hoses cracked or brittle looking? Are any of the belts cracked or frayed? When you start the engine, do you hear any unusual sounds? Most of us haven’t the expertise to do an in-depth mechanical inspection, but obvious signs of wear and ominous noises are indications of trouble to come.
Estimate future maintenance expenses
Expensive repairs could start to eat into your wallet after just the third year of ownership. Check your owner’s manual or consult your dealership for your vehicle’s maintenance schedule. Generally, however, the brakes tend to need maintenance first, at 20,000 to 30,000 miles; the clutch, brake rotors and shock absorbers should be replaced by the time your odometer reads 75,000 to 80,000 miles. By 100,000 miles your timing belt and chain, starter and headlamps should be checked and replaced, and new sealed front bearings, brake calipers, alternator and brake drums should be installed by 125,000 to 150,000 miles. By then, the items you replaced at 75,000 miles may need to be reinstalled. Before deciding whether to trade your car in, have it inspected by a licensed mechanic to get an estimate of what these repairs are likely to cost.
Consider the age of your car
While older cars may have higher maintenance costs, they’re less expensive in terms of depreciation, taxes and insurance. Even major repairs often cost less than new car payments. Runzheimer International, a management consulting firm that measures travel and living costs, estimates that trading a vehicle every eight years instead of every four can save more than $2,400 a year. If you’ve had your car for more than eight years, however, chances are the expense curve is starting to swing in the other direction. Once the cost of keeping your car on the road becomes more than the car is worth, it’s probably time to trade it in.
Find out what your car is worth
You can find out what cars like yours sell for by checking out online listings. Also, take your car to several local dealers and ask what they’d offer for a trade-in. Some dealers will offer more than others in an attempt to get your business. If their offers fall far short of your car’s listed value and it’s still in good condition, you may get more by placing an ad in your local paper or listing it on a website such as AutoTrader.com and selling it privately.
Determine how much you can spend
It’s easy to get carried away and lose track of your budget, so establish what you can spend on a new car before you start shopping. The U.S. Department of Labor’s Consumer Expenditure Survey found that on average, vehicles accounted for almost 10 percent of annual consumer spending, the largest expense after housing when coupled with other transportation-related costs like gas and maintenance. But when lenders evaluate your credit, they don’t look favorably on people whose non-housing debt exceeds eight percent of their gross monthly income. And if you have other debt, such as credit cards, figure less than eight percent of your gross monthly income for your new car. Use the auto loan calculator below to help determine your budget.
Auto Affordability Calculator
Monthly payments are an estimate and are for informational purposes. They do not represent a finance offer. Other tax, license, title, or fees may apply. Disclosures
Get pre-qualified for a loan
Before you go car shopping, it’s wise to get pre-approved or pre-qualified for a car loan. Know in advance how much you can afford to pay. Dealers often offer the choice between zero-percent financing or a cash rebate of several thousand dollars. If you’re pre-approved with a lender for a low-interest loan or home equity line of credit, you may be better off taking the rebate.