Buying a car anytime in the foreseeable future? Awesome. Take heed, though: Don’t let those sumptuous curves and/or the oh-so-comfy interior trump all else (items like affordability, reliability, resale value, maintenance costs, fuel economy and so forth) in your decision to buy a new or used car. Learn to prioritize.
1. Take a lesson from the recent sub-prime mortgage crisis: Budget!
Sure that sexy, sleek Beemer looks and drives great, and will likely lend your ego a substantial boost. However, don’t fall into the trap that millions of unsuspecting motorists do every year—buying a car based on emotion and impulse and disregarding the fact that they may struggle to make the monthly notes. And who likes the Repo Man?
Best practice: Ensure the payment never exceeds 20% of your net income (and it’ll come as a total killjoy to some, but net income = your gross monthly income – taxes – all other bills).
2. Get the most bang for your buck
Know in advance what kind of interest rate and payment you could acquire from your bank; then, see how the dealer’s financing stacks up against it. Research the invoice cost and MSRP on the car(s) of interest, and have a pre-formulated plan to negotiate the lowest price on the automobile. If that fails, be good at playing hardball with what will probably be a very crafty salesperson.
3. Is maintenance an every-three-month ordeal?
Back in the day, people had to haul their cars in every 3,000 miles or so to have it serviced. While most modern cars go significantly longer with no scheduled maintained required, there are still some that require more frequent pit-stops to the dealer (lest the warranty on your new beauty is voided!). Find out either independently (via online sites) or from a knowledgeable salesperson.
4. The internet is your best friend
In fact, it’s a treasure trove of valuable information on virtually any make, model, and year automobile. Use it. Research all the usual suspects: Overall customer satisfaction (Consumer Reports is a great source), ratings, reliability, reviews (Edmunds is excellent), warranty, fuel efficiency, options and accessories, residual value and so on.
5. New or used?
This is obviously one of the fundamental decisions; each has its pros and cons.
- Have that certain charm and excitement about them that used ones simply lack—and nothing beats that lovely (albeit highly toxic) new-car smell.
- Come with a full warranty (almost always at least 3 years/36,000 miles)
- Are customizable: e.g. To sunroof, or not to sunroof.
- Can usually be financed for longer periods than their counterparts
- Are especially attractive with incentives/rebates attached.
- On the downside, new cars take the brunt of the car’s depreciation. Drive a new car off the lot and BAM—you almost instantly kill anywhere from 10 to 20% of the MSRP (kellybluebook.com) that you just paid 5 minutes prior. Absurd? Yes! Reality? Yes!
- While some people like their cars already “worn in,” some don’t. Go figure.
- Have already absorbed the lion’s share of the depreciation—depending on how old it is and the particular make and model. Some cars (particularly imports and most (imported and domestic) SUVs and trucks) depreciate to a certain point and then hold their resale values exceptionally constant. Others, well, they just continue to dump money indefinitely.
- In many cases, you can buy a like-new used car for a ridiculously good bargain over the brand new price.
- On the flip side, as you know, some people treat their cars like shit. While you can do plenty of things to avoid getting a lemon (e.g. searching Carfax, buying ‘pre-owned’ from a reputable dealer/individual), you’re never quite 100% certain that there isn’t anything wrong with the car.
- The finance term allowed is usually shorter.
6. Everyday practicality
Don’t kid yourself about what your new car’s everyday responsibilities will entail. Determine whether it will play the role of a people-mover, midlife-crisis speed demon, cargo carrier, or vacation car (or other) that best meets your long-term interests. Again, the don’t-let-impulsive-emotions-overbear-on-your-decision part comes into play.
7. Realize that the latest body style will net the most money upon resale
Demand is typically highest for the latest iterations (body-styles) of cars. If tempted to buy a 2011 Corvette, for example, but the newest body is coming in 2012, opt for the 2012: Even if it means waiting a few months (unless, of course, resale value isn’t an object and you can afford a new car every six months or so…in such case, by all means—buy with reckless abandon).
8. As related to #3, ascertain beforehand the average price of parts and costs to repair existing ones on the car(s) of choice.
Too many folks too often get into a nice car with attractive payments, but learn somewhere down the road the near-astronomical costs for parts and repairs for their baby.
9. Pay as much upfront as possible and minimize the financing term
This is especially true when opting for a lengthier payback period. Don’t get stuck upside-down (i.e. owing more $ than the car’s worth) with a car payment because you took out the loan for too long on a car that depreciates faster than desirable.
10. Test drive
Thoroughly test drive the car whether it is new or used. Determine whether factors like ride quality, sportiness, features, and so forth meet your expectations.