Next to buying a house, a car is probably the most expensive item you will purchase.
Here are 9 recommended steps to take when buying your next car:
1. If you have any other outstanding loans (credit cards, school loans) those should be your focus. Don’t let yourself get overwhelmed with another monthly payment for a car loan.
2. Review your budget to see how much you can honestly afford to pay each month. If you are coming up short in cash at the end of the month, get a part-time job or a roommate before buying a car.
3. Remember, cars are not investments and lose their value very quickly. If you have a high interest loan over many years, you will end up owing more than your car is worth. If you get into financial difficulties and have to sell your car, you will not make enough to pay off the loan.
4. Look up your credit score. If it is under 650, expect to pay between 6 – 10% interest on your car loan. If you can wait, try to increase your credit score by paying off other loans and never miss a payment.
5. Shop around for a car loan. Many banks and credit unions offer better rates than the dealer. At least you will know what other rates are available to you before you negotiate.
6. Don’t be fooled by 1.5% or 0% interest loans. As the fine print says, these rates are reserved for buyers with the best credit scores (above 750).
7. Finance only the “car” and pay cash for the extras. Pay cash for sales tax, processing fees, extended warranties and all the “extras” the salesman will throw out you. You are trying to keep the loan amount as small as possible. If you ever need to sale your car, all those extras could have you owing more than what the car is worth.
8. Save for a down payment. This gives you equity in the car and if you have to sell it, changes are you would be able to pay off the loan.
9. Take the shortest loan with the highest payments you can afford. You not only pay the car off quicker, you end up paying less interest over the life of the loan.
Capital Budget Strategies, LLC, Austin’s best Financial Coach, can help you determine how much car you can afford.
For $149, we will also help you organize your finances, create a livable budget, build an Emergency Fund and set up a debt repayment plan.
Give Capital Budget Strategies, LLC approximately four hours of your time and we’ll change the way you think about your finances and car buying!
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