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Imagine expert advice, instant insurance quotes and all your policies, all in one place.
Buying a new car should be an exciting experience. You get to test a lot of cars and choose the one that's right for who you are – or who you want to be. The best way to keep your car-buying experience fun and stress-free is a little advance planning. Our guide to buying a car will walk you through everything you need to consider and anticipate so that you can strike a balance between the fun parts and the responsible parts.
Most people can think of something they enjoy more than budgeting. While it’s not always fun, it’s a necessary first step for buying a car. Taking the time to plan for the costs associated with your new car means that you’ll be able to really enjoy the buying process and won’t have to wonder if you really can afford the car that the dealer is trying to talk you into.
A general rule of thumb is that your transportation expenses should be about 10-15% of your net income. That includes car payments, insurance, gas and money for your deductible and any repairs.
You should also consider the following:
While all of the above is important to consider, there is a difference between how much you can afford and how much you should spend. Once you have calculated how much the experts say that you can afford, determine if you’re comfortable spending that amount. Don’t spend more than you’re comfortable with, even if your salary and budget say it’s possible.
Seeing a car listed for $20,000 doesn’t mean that the car is worth $20,000. Look at the Kelley Blue Book value and comparable cars for sale when looking at used cars rather than taking the word of the seller. There’s also such a thing as too good of a deal. If it sounds too good to be true, it likely is. Anything with a significantly higher or lower price than similar vehicles should be looked at with suspicion. It’s certainly possible to get a great deal but be sure that you’re actually getting a great deal and not getting taken advantage of.
If you’re planning to replace a vehicle you currently own, you’ll also want to research the value of your current car. Whether you’re selling it or trading it in, knowing the value will help you to price it properly and determine the minimum that you’re willing to accept. You can go into negotiations in a strong position if you do your research ahead of time.
Car dealers want to know that you can afford the cars they’re selling. A pre-approval shows sellers that you’re a serious buyer. You’re interested and, more importantly to them, you can pay them.
Note that a preapproval and a prequalification are not the same thing. You want a preapproval when you’re seriously looking. You also want to wait to get your preapproval until you’re ready to buy. They usually expire after 90 days so if you haven’t purchased in that time, you’ll need to get another one. It’s best to limit the number of times your credit score is pulled. Too many checks might hurt your score and that’s the last thing you want when you’re looking for a loan.
You know what you can afford, what you want to pay and you have a preapproval. You’ve researched a good price for your trade-in and the vehicle you want to buy. What’s next?
You’ve done the hard work of budgeting. Now comes the slightly more enjoyable work of figuring out what to do with the money you’ve decided that you can spend. At this stage, you’re going to look into what kind of car you want and how you want to buy it.
If you’re going to buy one car, you’re probably going to have to consider a lot of them. Let’s get started narrowing that list down.
Build your dream car
One of the most fun steps for buying a car is making a list of your dream cars. Not by make and model, but by feature. If you could build a dream car with any feature from any brand, what would it have? Be free, not realistic. Some things to consider:
And so on. Again, be free here. This is just a wish list.
Once you have a list of features you want, look closer. You want a blue car. Is that more important than the acceleration? Would you sacrifice heated seats for a better safety rating? Now is the time to rank your wish list. There’s no wrong answer here. It’s not about what you should want. It’s about what you do want.
As an insurance brokerage, we should really mention that some of these features can cause you to have a higher premium. That’s something to consider when you’re completing your ranking. There’s still no wrong answers, but there are cheaper answers. There are also things that you can do to lower your auto insurance premium if you really want the more expensive features.
Take your wish list shopping. Ask Google or a dealer what vehicles have the most features you care about and are available in the price range you can afford. You’ll get a short list of what cars are best for you and can focus your efforts on looking for one of them without the analysis paralysis that comes from unlimited options.
Leasing vs. buying
After you’ve decided what cars you’re interested in, think about how you want to take possession. Do you want to own this car, or do you want to lease it? You’ve spent a lot of time saving to buy a car, make sure that you’re spending your money wisely. Because of the difference in price between leasing and buying, deciding what you want to do here will help you narrow down your wish list.
You should buy your car if:
You should lease your car if:
People usually feel strongly that new or used is vastly superior to the other option. You may leave this section with a renewed love for your preferred type of car or you may walk away with a changed perspective. Either way, it’s good to challenge those beliefs sometimes.
New cars
Pros
Cons
Used cars
Pros
Cons
Warranty – You may not be covered by a warranty, leaving you vulnerable to high maintenance or repair costs.
Appearance – A used car likely won’t have the curb appeal of a new car. It may not be as flashy or impressive of a purchase.
Options – There are a limited number of used cars. You’ll probably have to make more compromises to your wish list than if you bought new.
You’ve set aside savings to buy a car, but that doesn’t mean you need to use that entire amount just because it’s there. You also don’t want to buy a car for more money than it’s worth just because you have the money set aside.
Research invoice and MSRP prices – Cars have multiple prices. The invoice price is what the dealership pays to the manufacturer. The MSRP is what the manufacturer suggests the dealership charge. There is also the price that you pay. It might be higher or lower than the MSRP but it will be higher than the invoice price. Dealerships aren’t in the business of losing money on sales.
Decide on a fair purchase price – Using your new knowledge about the prices above, you can decide what you think is fair to pay for the vehicle. Think of a few numbers here. Your dream price would be invoice or below, but that’s not realistic. Your upper-limit price is possible to afford, but it’s not ideal. A fair price is somewhere in the middle and leaves you and the seller both feeling good about the transaction. It’s a good idea to have a range for what you feel is a fair price instead of a set number. That makes negotiations easier.
Negotiate with the seller – Negotiating can be uncomfortable and difficult. That doesn’t mean you shouldn’t try. The goal is for both the buyer and the seller to feel like they are within their fair price range.
Now that your pre-work is done, it’s time to make the purchase with the confidence that you’re making the right choice.
Chances are, you’re replacing a current vehicle, not keeping it. You’ll need to figure out what to do with it. Your options are to sell or trade. Here are the pros and cons of selling and trading your current car.
The case for selling
Selling your car is going to get you more money than trading it in. It requires more effort, but there is a financial benefit to it. You can apply that extra money to your new car savings fund. If you live in a city with good public transportation or are willing to make some sacrifices, you could even sell your car before buying a new one and save some of those fuel and maintenance costs for some time and add those savings to your new car fund as well.
The case for trading
It’s so much easier to do this. You won’t have to worry about timing the sale. You arrive at the dealership with one and leave with the other so there’s no vehicle overlap or time spent without a car. You won’t make as much as you would by selling but you’ll have a lower tax bill from it, and you won’t have to pay for any ads to sell. The step from trading to buying a car is much shorter and more direct than the step from selling to buying.
You have a few options for where to buy your car.
Traditional car dealership
You’ll find sellers who have a vested interest in keeping you happy and making sure that you purchase the right car for you. They’re available to help with any questions you have and will work with you to negotiate a fair purchase price. If you’re not happy with the sales staff at one dealership, try another. Most cities will have multiple car dealerships, so you’re not tied to one where you’re having a bad experience. A good portion of your purchase price will likely go into your salesperson’s pocket so make sure it goes to someone you like and want to reward for the work they put in to help you with your purchase.
Online dealership
This is a newer option, but these dealerships have been around long enough that it’s not as much of a risk to buy this way as it may have seemed in the past. The convenience factor here is huge. You can buy on your own time without needing to negotiate or work with a salesperson who is working toward a commission or quota. The prices are set, you can buy at any time and you can take delivery anywhere and any time you want.
Private seller
This type of purchase definitely has the price advantage. There’s no overhead like at traditional or online dealerships, so the seller is able to charge less money. You both get a better deal financially. You will have to put in a bit more legwork though. When buying this way, be sure that you:
You’ve done your homework and know that the cars you’re test driving fit your requirements, your wish list and your lifestyle. Here’s how you can maximize the time you spend on your test drives.
Before you go
On the lot
On the road
You made it to purchase day! Before you can jump in your new car and ride off to the sunset, you’ll need to complete the purchase. Your seller will walk you through the procedure, but these are the things you’ll need.
Congratulations on your new vehicle. The time you spent and sacrifices you made while saving to buy a car have finally paid off. You followed the steps to buy a car and now you have it. Enjoy it. We hope you have a long time together.
The VIU Point is here to help you make sense of it all, so you can confidently compare auto insurance quotes and make the best policy decisions.
