Tips to Keep in Mind when Shopping for a New Car
Large purchases are often the cause of digression for personal financial plans. Individuals tend to believe they have the ability to afford what they want, especially when it comes to larger purchases. What tends to happen, especially without a financial plan, is the lack of finances people actually have to support the financing of large purchases.
They usually don’t have money saved or a financing budget in place, but continue to buy the large purchase anyway. Why? Our wants often overtake our needs and unbiased judgment. This is quite evident when it comes to purchasing cars. With leasing options, it seems possible to finance a car without a plan. This is far from the truth. When shopping for a car, it’s important you plan ahead to lower the risk of raising your overhead debt or digging yourself into a financial hole. Take the following steps to safely navigate the financial journey of purchasing a car.
Know What You Want
This is one of the more important tasks to master prior to shopping for a car. When you have a clear, defined idea of what you want, you’re less likely to go astray, buy a car you never wanted – or worse – buy one you can’t afford. The best starting point is research. Take the time to learn about different vehicles (and prices), visit various dealers or companies websites and read consumer reports or reviews.
Set a Spending Limit
Setting your spending limit, based on what you can actually afford, is a deciding factor before defining what car you want. Having a specific number in mind will ensure you aren’t sold on additional services or an over-the-budget vehicle. Your spending limit will also come in handy when negotiating price. When determining a spending limit, it’s recommended that your total monthly car payments shouldn’t exceed 20 percent of your take-home pay(1).
Finance Early
If you’re planning to buy a new car, it’s important you factor a financing budget into your plan and savings goals. Start to set aside money at least 4 months prior to purchasing a car. The earlier you start saving, the better off you’ll be. Compare financing options offered by your financial institution with those offered by the dealer.
Learn the Language
When it comes to buying a car, there are words you should familiarize yourself with. Aside from understanding different parts of a car, technical aspects of a car and the many car add-ons, you need to learn the pricing language used in new-car purchases. Invoice price is the price that the manufacturer charges the dealer for the vehicle; it’s often higher than what the dealer charges the buyer. Base price is the cost of the vehicle without any options or add-ons. MSRP, the manufacturer’s suggested retail price, also referred to as the Monroney sticker price, is the price that the manufacturer suggests the car be sold. The dealer sticker price is the MSRP plus the add-on details or any prices of dealer-installed options.
Buying a car is similar to buying groceries. If you go into the store hungry and without a plan, you tend to overspend and buy more items than you want or need(1). That’s why it’s important to take these crucial steps to plan, and fully understand your financing options.
Ready to finance a large purchase?
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