First, what is your budget? Set a limit and stick to it. Keep in mind this amount should include changes to fuel consumption, maintenance, and insurance costs. Insurance premiums can vary dramatically depending on the type of vehicle you choose (and no, that red colour does not affect this!). Do your homework ahead of time and call your Insurance Agent or Broker for a quote before signing off on that new black Dodge Ram.
If you’re financing, get pre-approved. You can also finance you vehicle from a source outside of the dealership. Again, do your homework here. What is your credit score? Who can offer you a better interest rate? Take the time to find out and if your credit score is not where you want or need it to be, take any necessary steps to improve it before making a large financial purchase. In the long run you will be significantly better off by taking the time to improve your credit score than locking yourself into a high interest loan.
The difference between just 1% in your interest rate can make a huge difference!
For example, a $40,000 loan over 5 years at 4.5% = $4,743 paid in interest.
The same loan at 6% would equal $6,399 in interest.
That’s a difference of $1,656. There’s probably a lot you could do with that extra money besides throwing it away in interest.
Also be wary of rushing in to a high interest loan. This very same loan at an interest rate of 16% would cost you an additional $18,363.34 in interest. Your $40,000 depreciating vehicle now cost you $58,363.34 (and just imagine a loan at 29%!).
If something seems too good to be true, it is. Are you driving away in a brand new fully loaded vehicle with $88/month payments? What sounds like a steal of a deal might just end up leaving you feeling robbed.
Even with a 0% interest rate and a very long term (possibly 8 years or 96 months), you will end up paying $8,448. This is ideal if your loan is for $8,448. However, if you just purchased a $30,000 vehicle, the math simply does not add up and you have likely entered into a balloon loan agreement.
What is the balloon? The $21,552 you still owe and is immediately payable upon the end of your term.
The worst part is that it is often extremely difficult to find a reputable bank or finance company to provide a loan on vehicles over 7 years old (which yours now is). It can be all too easy to get stuck in a revolving and repeating cycle of rolling the “negative equity” from your old vehicle into, what’s that? A brand new one! Now your new financing has $21,552 tacked onto it and before you even drive off the lot, you owe more than your vehicle is worth.
Consider how much time you spend in your vehicle. Take a moment and really consider it. It’s probably much more time than you realize. Similar to house hunting, you need to take your time to ensure your vehicle is the right one for you.
Purchasing a vehicle is a big deal.
Before making a final decision, ask yourself:
Follow these tips and we promise you will have a great vehicle purchasing experience. Happy shopping!