For most people, cars are your second biggest expense after housing. We either love cars or love to hate them, but either way, we spend a lot of money on them.
Decide how much car you can afford
Whether it’s your first time buying a car or your fiftieth, always begin the car buying process with a budget. Consider how much you can afford before what kind of car you want. From a financial point-of-view, the less you spend on a car, the more money you have left over for everything else.
Vehicles are not an investment. It’s an emotional thrill to buy a new car, but a used car is a far better value. If you do decide to buy used or lease, remember that a good car salesman will steer you towards the most expensive options. Know your number first so you don’t overspend later.
How much should you spend on your first car?
The internet’s full of car pricing information, so take advantage. At the very least, get competing price quotes online from a site like Edmunds.
Many car dealerships are getting better about price transparency, but most still try to push pricey — often unnecessary — add-ons, and you may still run into a shady salesperson. Learn how to spot the most common car sales tricks and how to negotiate around them.
If you can, always negotiate your price via phone or e-mail.
Do your test driving first. Leave the dealership. Call back the next day and negotiate a price over the phone, or better yet, follow this trick the car dealers hate to secure a rock bottom price. The dealer will hate you, but you’ll get the best price possible.
Should you finance, pay cash or lease a car?
Deciding how to pay for a new car is a personal choice, however, we at Money Under 30 feel that it’s always best to pay cash for a car when you can. When you save cash to buy a car, you’re less likely to overspend — parting with thousands of dollars hurts in away that signing a loan application does not. But there are exceptions. If you’ve already built some amount of wealth, financing or leasing can be advantageous if it allows you to keep cash invested and earning a higher rate of return.
Many times, you need a new car and need to finance. No problem. Fortunately, car loans are fairly easy to get and come at reasonable interest rates. Before you sign, however, you want to make sure you’re getting a fair interest rate and understand how much you’ll pay for the loan.
Learn how to finance a car the smart way
Say “no” to third-party extended warranties that are not backed by the vehicle manufacturer. In general, dealer extras like paint coating and VIN etching are totally not worth it. Save the cash for car washes and comprehensive insurance. Extended warranties, however, are a more complicated decision. The best extended warranties are sold by the manufacturer on new or certified pre-owned cars, and you have to watch out for totally worthless warranties sometimes sold on used cards. Proceed carefully.