Deciding between purchasing a new or used car
|As the sole owner of the car, you'll know its performance and maintenance history from the start.
||The minute you drive the car off the lot, it is worth less than before you bought it. Most cars depreciate in value by 40 percent in their first three years.
|If you are financing the purchase, chances are interest rates will be lower than for a used model.
||New cars typically have higher insurance rates and higher motor vehicle registration fees.
|The car most likely will come with a manufacturer’s warranty to cover any problems that may occur.
||The newer the car, the higher the price.
|Buying a used car will cost you less upfront than with a new car.
||If you buy a lemon—a car that looks fine but turns out to be a constant problem—you can run up repair bills quickly.
|Used cars can be bought through a manufacturer's certified pre-owned program. They’re subject to inspection, making the manufacturer responsible for certain repairs.
||Buying a used car from a private party will not include warranties or service programs
|Insurance premiums will be lower than those for a new car.
||There are a lot of unknowns in buying used.
Evaluating used cars
When purchasing a used car, avoid buying a “lemon” by getting as much information as possible.
• Request ownership history. Note the mileage on the odometer and review the maintenance record (if available).
• Check for body damage. Inspect the car closely for dents, dings, chipped paint, scratches on the body, and obvious repairs.
• Test drive it carefully. How does the car drive? Do the brakes work well? Does the car pull in any direction? Are there any unusual noises? Pay close attention and make note of any questions you have.
• Consider having the car inspected by a qualified mechanic. When buying any used vehicle, the best investment you can make is $75 to $150 for an independent mechanical inspection by a qualified mechanic.
• Request a vehicle history report. Request a vehicle history report from an independent reporting service. A report can be ordered online for a small fee from CARFAX, AutoCheck, or other provider. Using the vehicle identification number (VIN), the company researches the car’s title history to determine if the car has been salvaged, flooded, or rebuilt. It also will report on odometer fraud and major problems in the past.
• Request a copy of the car's service record. Most used-car dealers can provide this to you. If you're buying from a private party, ask if the owner has kept maintenance records that you can review.
• Read the fine print. Be sure you know what's covered in the warranty and for how long. The warranty may mean you won't have to pay for specific repairs for the life of the warranty, so reviewing the terms is worth the effort.
Your cost is a combination of the negotiated price of the car and your financing agreement (if you don't pay cash).
The best way to make sure you get a good deal is to do your research, be prepared to negotiate, and get quotes from at least three different dealers. In addition, become familiar with these key dealer terms before starting the negotiating process:
• Invoice price: This is the price the manufacturer charged the dealer for the car. In most cases, any price you negotiate at or near the invoice price is a good deal.
• Manufacturer's suggested retail price (MSRP): This is the price manufacturers recommend that their dealers charge for a particular car. The MSRP is usually thousands of dollars above the invoice price. Popular models that are in tight supply will sell for close to the MSRP; lower-demand generally can be purchased for less.
• Market value: When looking at the market value of a car, focus on your particular geographic area and look at the prices people have actually paid for cars in the area.
You can find invoice prices, MSRP, and market value at websites like Kelley Blue Book or Edmunds.
Loaning money is big business. Again, do your research on loan options and get quotes from at least three different lenders. Here are a few details of car loan financing that you need to know:
1. Car loans are available through banks, credit unions, online resources and dealers. Dealers may be able to offer interest rates as low as zero percent as part of a manufacturer’s promotion.
2. An auto loan will be arranged based on the negotiated price of the car and related expenses (sales tax, title, and licensing fees), your credit rating, the amount of your down payment, and the interest rate.
3. Most auto loans have a duration of from three to five years—36 to 60 monthly payments. The longer you take to pay off the loan, the lower the payments will be but the more interest you will pay.
4. While you are paying off the balance you owe on your car, the lending institution holds the car's title. Once all the payments are made, the car's title is sent to you and you become the official owner.
Using one of the many available online calculators, you can estimate monthly car payments, loans, interest rates, and more. Visit websites like bankrate.com and Edmunds for more information.
[Any reference to a specific company, commercial product, process, or service does not constitute or imply an endorsement or recommendation by CashCourse.]