Consider these factors to help you get the best deal when buying a car.
Buy new, buy used, or lease? These are just a few of the many decisions you’ll need to make before happily driving away with a car. You can avoid buyer’s remorse by making important financial and practical decisions before signing on the dotted line.
By reviewing the pros and cons of buying and leasing, how to analyze and determine your personal requirements, how to get the best purchase price and financing deal, and the laws that protect your rights as a consumer before you shop, you can be sure to make the right choice.
It's your life, and we'll be there with you at every turn. Viriva has been funding its members' dreams and goals for over 80 years.
- Save on interest charges with exclusive loan rate discount opportunities.
- Get a monthly payment that works with your budget.
- Our team of lending experts will help you drive away confident in your decision!
Shopping for a car can be complicated and time-consuming. It involves balancing your desires with your economic reality, deciding whether to buy or lease, and knowing what is the best deal for you. To make the process efficient and improve your chances of driving away happy, you will need to consider:
- Your Needs – Think about your transportation requirements. Does your car need to be large enough for a family of five, or small enough to fit in tight city parking spaces; tough enough to haul firewood, or chic enough to drive clients around?
- Your Wants – Your desires certainly play a part in the car-buying decision. Make, color, options, and style are all important choices for being happy with your purchase. Read car magazines and websites for ideas.
- Your Spending Plan – It is easy to get carried away and end up with a car that is out of your price range and a monthly payment beyond your capacity. Your spending plan, not a salesperson’s opinion, should dictate your decision. Review your income and expenses to see what you have available each month for auto expenses.
While it is possible to buy a car with no money down, you will end up paying a lot more for it if you do so. The more you borrow, the more the car will ultimately cost.
To decrease the amount you finance, it is wise to make a significant down payment. With enough savings, you may be able to purchase a car outright (typically an option when buying a used car, rather than a new one).
Effective saving begins with first determining how much you want to save, then setting a reasonable date to achieve your goal. Using an automatic deduction can make the process easy. You can set-up a reoccurring automatic transfer to have a set sum deducted from your checking account and automatically deposited into savings. Learn about Viriva's Secondary Share Savings Account option and how it can help you manage your finances effectively.
After you determine how much you can afford to spend, the next step is to decide between buying new, buying used, or leasing. It is important to be familiar with each option’s positive and negative aspects.
While leasing a car may enable you to get “more car” for less money each month than what you might be able to purchase, it is important to remember that leasing means renting. When the term of the lease is up, you return the car. At that point, you have the option of paying any outstanding fees for mileage, damage or purchasing the car outright. Often, you will pay more over time by leasing and then purchasing vs. if you simply bought the car in the first place. If during the course of the lease contract you choose to return the car, very high penalties will likely apply.
Buying a New Car
- You can order the exact make, model, and options that are most important to you.
- There are consumer protection laws on your side.
- The car has value and becomes an asset as the loan is repaid.
- New cars are typically the most reliable.
- Most warranties cover repairs and parts.
- New cars can be very expensive - with a high purchase price, requirements for full insurance coverage, and costly registration fees.
- The value of the car depreciates almost immediately.
Buying a Used Car
- You may be able to use savings to purchase the car outright.
- Used cars are less expensive than new cars.
- As the loan is repaid, the car becomes an asset.
- A used car's history is not always known. It may have been insufficiently maintained, and therefore less reliable.
- Used cars rarely have warranties.
- Older cars tend to wear out - the maintenance cost increases over time.
Leasing a Car
- The monthly payments are comparatively low.
- Leases are relatively short-term, so you can drive a new car every few years.
- Typically, leased cars have comprehensive warranties.
- The required up-front cost of a leased car is low.
- You can often get a luxurious model for a small monthly payment.
- The car does not belong to you.
- It can be very difficult and expensive to get out of a lease contract.
- The cost of insuring a leased vehicle can be very high.
- You must have good credit.
- They come with mileage limitations often 10,000 - 15,000 per year.
- You must pay for any additional mileage or damage beyond basic wear and tear.
Your credit history will have a serious impact on the interest rate you will be offered. The better your credit score, the better rate you will be eligible for. Other factors, such as length of employment, income, and expenses may also be considered when determining the type of financing you may qualify for.
If your credit report isn’t perfect, you may consider having someone with good credit co-sign the loan for you. Be cautious about using this option though, as the cosigner assumes equal responsibility for the repayment of the loan. Any late or missed payments will appear on each of your credit reports.
Some financial institutions may offer special loan savings for first-time buyers. These may enable you to get a loan at a reasonable rate even if you have a limited credit history. Learn about Viriva's exclusive Member Loan Rate Discount options.
Because financing increases the total cost of the car, the loan you get is very important. Make sure you understand the following aspects of the loan agreement before you sign any documents:
- The exact price you’re paying for the vehicle
- The amount you’re financing
- Finance charge
- Annual percentage rate (APR)
- Number and amount of payments
- Total sale price
The total amount you will pay for your car depends on its price, the annual percentage rate (APR), and the length of the loan. When shopping for the best deal:
- Don’t be fooled by an advertised low monthly payment – if the length of the loan is long and the interest rate high, you will be paying more than you may have to.
- Be wary of extremely low promotional APRs. Though you may qualify for particularly low rates at the dealers, it might require you to make a large down payment or the sale price of the car is not negotiable. It may be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.
- Look for the manufacturer’s incentives. Dealers may offer cashback on specific models.
Zero percent financing sounds like an amazing bargain – after all, how can you beat a no-interest loan? Often, you can. Such “deals” frequently come with inflated prices for extended warranties and loan insurance, high application fees, and pre-payment penalties. And because you forfeit the rebate option, you end up paying a higher price for the car. You may also be required to repay the car in three years or fewer – resulting in a very high monthly payment.
Zero percent financing can be elusive. It is only offered to those with very good credit, as determined by the lender, and it is often not available for the most popular cars and trucks.
At an auto dealership, you will be encouraged to use dealer financing. While not all dealer loans are bad, in most cases a loan from your financial institution will be preferable.
Be prepared! Never walk onto a car lot unprepared. Gain a good understanding of price, models, and features by conducting research using car-buying magazines, books, and the Internet. Be sure to compare models and prices in ads and at dealer showrooms. Getting an auto loan pre-approval before you shop is a smart financial move, so you are armed with the knowledge of how much you can spend. Connect With One of Our Expert Lenders for information about Viriva's pre-approval service.
Before you go, you should already know:
- The model you want
- The options you are looking for
- Your transportation needs
- How much you are willing to spend
- How much you can afford to finance
- How much you can spend on a monthly payment
To get the best price on your new car, you will often have to negotiate with the salesperson. Developing your bargaining skills will be worth it to you in the end, as it can often save you 10 to 20 percent of the advertised price. You may be able to negotiate a particularly good price on overstocked or less popular cars. But remember – a deal isn’t a deal if you end up with a car you don’t really want.
If you already have a car, you will likely be selling it and using the profit to pay for all or part of your new car. To get the best price, make sure you know your car’s worth. Check reference books or the Internet to know its value (try www.kbb.com and www.nada.com). After that, you have two options:
- Sell the car yourself. You will usually get the best price this way, but you will have to consider the time and effort it could take to sell the car. Things like placing an ad, talking to and seeing a lot of people, and negotiating with buyers.
- Trade-in to the dealer. This is often the easiest option, though typically not the best deal. To ensure you get the most from a trade-in, do so only after you’ve negotiated the best possible price for your new car.
Car insurance premiums (monthly payments) can be a substantial expense. However, you can improve your chances of getting the best deal.
- Improve your credit score. Insurers may use your credit score to determine the premium. Pay down excessive unsecured debt, pay off collection accounts, and pay your current financial obligations on time, every time.
- Establish long-term residence or become a homeowner – both connote responsibility.
- Avoid tickets, particularly moving violations. Attend traffic school if you can’t.
- Lower your coverage amounts and/or increase your deductible. If you are a careful driver with good driving history, it may be worth the risk.
- Buy a used car – premiums are cheaper.
- Avoid 4-wheel drive and high-performance cars, which often carry higher premiums.
- Compare prices from local and national companies.
Know your rights! The following federal laws protect your rights as a consumer.
- Truth in Lending Act – It requires creditors to provide written disclosure of APR, total finance charges, monthly payment amount, payment due dates, the total amount being financed, length of the credit agreement, and any charges for late payments.
- Federal Consumer Leasing Act – Requires the leasing company to disclose the total amount of the initial payment, the number and amounts of monthly payments, all fees charged, annual mileage allowance, whether the lease can be terminated early, whether the car can be purchased at the end of the lease, the price to buy at the end of the lease, and any extra payments that may be required at the end of the lease.
- Credit Practices Rule – Requires creditors to provide a written notice to potential co-signers of their liability if the other person fails to pay.
- Equal Credit Opportunity Act – Prohibits discrimination related to credit because of gender, race, color, marital status, religion, national origin or age.
For additional resources regarding federal laws, you may contact the following federal and state agencies:
- Federal Trade Commission, (877) 382-4357; www.ftc.gov
- Federal Reserve System, 888-851-1920; www.federalreserve.gov
- Better Business Bureau, (703) 276-0100; www.bbb.org
Some state laws may provide you with additional rights. Contact your state’s consumer protection agency or Attorney General’s office (www.naag.org).
Want more car-buying tips?
Another smart financial move is to get a pre-approval for an auto loan before visiting the dealership. It is a simple step you can take to help you shop with confidence, and it could put you in a better position to negotiate. Connect With Us to get started.
This article is brought to you by our education partner, Balance.