4 Simple Steps for New Year Car Shopping
The onset of a new year presents an ideal opportunity for those considering a vehicle upgrade, as dealerships often aim to clear out older models. However, the car-buying process is more intricate than merely walking into a showroom. Prospective buyers must navigate many decisions prior to their visit: choosing a make and model, determining whether to buy new or used, identifying desired features, exploring financing options, and much more.
To make an informed and prudent purchase, it is essential to plan ahead. Here are four strategic steps to help maintain focus and safeguard your financial well-being as you prepare for your next vehicle acquisition.
Step 1: Establish a budget
Before diving into your car search, setting a clear budget is crucial. A helpful approach is to compile a list categorizing your wants versus needs. For instance, if you frequently commute, fuel efficiency may be a necessity, while advanced features like Bluetooth are likely optional. Defining your “must-haves” aids in controlling your spending and clarifies which features you’re willing to compromise on to save money.
When evaluating different models, ensure you stick to those within your budget, even if unexpected financial changes arise, such as job loss. Experian reported that the average new vehicle loan was $32,480 in late 2019, with monthly payments averaging $550. These benchmarks can help you gauge how much you can comfortably borrow and what monthly payment amounts you can manage. (See also: 7 Easy Ways to Calculate Your New Car Budget)
Step 2: Verify your credit standing
Approximately three to six months prior to starting your car shopping journey, it’s wise to assess your credit score. Consistently pay your bills punctually, and obtain a free credit report from Experian or visit annualcreditreport.com to check for inaccuracies and signs of fraud.
Utilize available resources to enhance your credit score, such as Experian Boost, before you venture to the dealership. This tool can provide an immediate boost to your credit rating and helps lenders to view your financial history more comprehensively, including timely utility and telecom payments. (See also: 6 Money Moves to Make the Moment You Decide to Buy a Car)
Step 3: Explore loan options
Over 85 percent of new cars and 55 percent of used vehicles are financed. However, there are various lending sources available beyond dealership financing. It’s prudent to explore loan options from banks, credit unions, and other financial institutions to find the most advantageous terms and rates tailored to your needs.
Your credit score can significantly influence the interest rates available to you — average interest rates for new vehicles stand at 4.21 percent for those in the “prime” credit tier, but jump to 14.06 percent for individuals in the “subprime” category.
Rest assured, you can compare car loan options without negatively impacting your credit score. Inquiries for auto loans are typically recorded as a single inquiry if made within a 30-day window or may not affect your score at all.
Step 4: Obtain a vehicle history report for used cars
Purchasing a used car often results in substantial savings. For example, the average used vehicle loan recorded last quarter was $20,446, roughly $12,000 less than a new vehicle loan, translating to lower interest payments over time.
Nevertheless, it’s essential to be well-informed before finalizing a used car purchase. Therefore, request a vehicle history report, such as an AutoCheck report, to uncover details like previous ownership and any accidents. Such insights can prevent future surprises and assist in evaluating the true value of the vehicle. (See also: 8 Questions to Ask When Buying a Used Car)
