| There's good debt and bad
debt. Cars are bad debt because they depreciate
(lose their value). But, usually, cars are a
necessary debt -- to some degree!
Before we get into the money side of
buying a car, let's run through some really important
basics:
1)
Never buy a brand new
car... Buy used (oh, excuse me, pre-owned)!
Why? Because new cars depreciate 10% the second
you drive them off the lot. If you can
afford to, get a car that's a year or two old with low
miles. Let some other chump take that depreciation
hit for you.
2)
Buy only what you can
really afford. Cool and fast can be pretty
expensive. There will be money for this type of
thing when you are older! Right now, you need
reliable transportation that, understandably, won't make
your friends point and laugh.
3)
Keep in mind all the
extra costs of owning a car:
insurance, gas,
repairs and the yearly registration.
4)
Never, ever, EVER lease a
car: Leasing is for people who really can't
afford the car they are driving. Leasing is a
chump deal. There are many strict rules (like you
can only drive a certain amount of miles) and there are
a ton of hidden fees. This is designed to get you
coming and going. If you want to make a car
salesman have a squealing hissy of delight, just tell
him you want to lease the car.
5)
Contact your family's
insurance agent BEFORE you go shopping and ask for
quotes for the cars you are interested.
Some
cars/trucks are more expensive to insure than others.
Be sure to ask about discounts (good student, teacher,
etc.) They may also give you a multiple car
discount if you use the same company as the rest of your
family (if you live with them.)
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Now, for the main money part...
Few people get to pay cash for cars, so
let's talk about "financing." The
first thing is that you want to set up
your loan with a nice bank or credit union
BEFORE going onto the dealer's lot... and
you DON'T want to get your loan through the
dealer, because they'll charge a higher
interest rate.
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If the dealer is offering something spectacular (like 1%
interest), read the fine print VERY carefully to make
sure it isn't a scam. First of all, those rates
will only be for people with really high credit
ratings... And, second, it may be a variable rate -- it
may go up -- a lot!
Now, for the price of the
car... The game the car salesmen play is to just
talk about how much your monthly payment will be...
But, you can be smarter than this! You want to
talk about the final price of the car. Definitely
check out the Kelley Blue
Book price on the car first. In fact, you can
do most of your car shopping right on the Internet
before you even hit the car lots. Do your
homework! Know what you want and how much you're
will to spend. I also recommend getting a
CarFax
report on
the car before you buy it. This will tell you if
it's been in an accident or not and how many
owners the car has had. (Note that accidents
that were not reported to "the authorities" will NOT
appear on a CarFax report... So, you still have to
have the car inspected to see if it's been in an
accident or not.) And don't let
them talk you into a bunch of extra stuff like extra
warranties and "under body rust prevention."
Paying for the car... Put
down as much money as possible. The more you put
down, the better the interest rate you'll be able to
get. If the dealer offers you a rebate, apply that
to the down payment. Get the shortest term loan
you can afford... They'll try to get you into a 7
year car loan, so you can spend a lot more on the car.
But, remember, you are not going to just think of how
much the monthly payment is -- think of the total price.
And make sure you won't get penalized if you pay the
loan off early.
You can
search for an auto loan using our Google "safe
search" option. Or you can search for a different
topic on Finance FREAK. A new window will open
with your results.
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