Whether you are ready to trade in your older car for a shiny new model or you just got a new job and need to purchase a reliable set of wheels to go along with it, the ins and outs of buying a brand new car can be confusing. By doing your research ahead of time and preparing for the purchase, you can help avoid major financial issues. Here are five tips you need to know before buying a new car.
1. Do Your Cost Research
Before ever setting foot in a dealership, you should research the car models you’re considering online to get an idea of the MSRP (manufacturer’s suggested retail price). However, you should also be aware of the invoice price of the car, which is the amount the dealer pays to the manufacturer. Within these two numbers there’s often ample room for negotiating a lower price. You should also check the manufacturer site for available rebates that the dealer may not reveal.
2. Get Preapproved for a Car Loan
While dealers offer financial, you can usually get a better deal from your own bank, especially if you have good credit. Learn your credit score by getting an annual credit report, then take that information to several sources to find out how much auto financing you’re approved for and the interest rate you can expect to pay. Compare that information to the financing offered by the dealer, which is typically more expensive. Interest rate markups are common, which means that you get approved for 4.5 percent through the dealer but they charge you 5.5 percent and keep the extra point as profit.
3. Consider Your Lifestyle
Because a new car is a major purchase, you should think about not only which type of vehicle is the best for you now, but what you’ll want to be driving five years from now. You might love that tiny red sports coupe, but if you take a lot of road trips, travel frequently for work, or plan to have a family, it may not be the wisest purchase.
4. Read the Reviews
Make sure you’re considering cards based on more than the information provided by the manufacturer and dealer. Third party sites, such as Consumer Reports, U.S. News and World Report, and Edmunds.com, provide unbiased reviews of all the major auto makes and models. This includes information not only about features and trim levels but also reliability, value, and safety.
5. Forget the Monthly Payment
When considering affordability, don’t focus on the car loan will fit into your monthly budget. Dealers may encourage you to stretch out your loan term to get the monthly payment you need, which can cost thousands over the life of the loan. Instead, go into the dealer with your preapproval and focus on cars that fit those criteria for a cost that’s comfortable not only each month, but overall.
With these five tips, you’ll soon be driving off the lot in the car of your dreams, without the financial damage that often occurs with new car purchases.