Buying a new or new-to-you car can be an exciting yet confusing time. With so many different options for cars, trucks or SUVs, picking what kind of vehicle you want can be stressful. But add on top of that the fact that purchasing a vehicle is probably the second biggest financial decision you’ll make in your life—only behind purchasing a home—and there’s a lot more pressure with this choice.
If you make the wrong choices financially, you could be paying for it for years and years to come. So to help you avoid coming out of your car hunt with an unreasonable amount of debt on top of you, here are three tips that will help you make smart decisions when financing a car.
The Finances of Buying New, Used or Leasing
Even before you decide what type of car you want to buy, you should first determine if you’ll be buying new, buying used or leasing. Each has their pros and cons, so the decisions will really be dependent upon which option works best for you, your bank account and your lifestyle.
According to Tara Baukus Mello, a contributor to Bankrate.com, buying a used car will often get you the best value, although will may have to pay a higher interest rate. New cars tend to have a lower interest rate, but you’re usually paying a higher selling cost. Leasing a car could give you the chance to drive a more luxurious vehicle, but you won’t actually own it and will have to stay within certain guidelines of your lease. Make sure you consider all these things before you decide which route to take.
Preparing a Down Payment
By saving up for a decent down payment, you can avoid having to take out a larger loan and, therefore, pay a lot less interest on the money you’re borrowing. Ben DeMeter, a contributor to Investopedia.com, recommends putting down 20 percent if possible. This will put you in a great position for a lower interest rate and a smaller principal to pay down. If you have awesome credit, you probably won’t have to put down so much money, but the bigger of a down payment you can make, the better off you’ll be.
Try To Trade-In If You Can
If coming up with cash for a down payment just isn’t working out for you, you could also consider trading in a vehicle you have. By doing this, you’ll essentially be putting in a down payment without having to save any money. According to Ronald Montoya, a contributor to Edmunds.com, you should get the trade-in value of your car before you go into the dealership to make the trade and get your new car. This will ensure you get a fair value on your car.
If you’re able to make the right choices when it comes to financing a car, you could get a great vehicle without taking on too much of a financial burden. Use the tips mentioned above to help you get there.