Monday, 22 April 2019

Buying a car can represent freedom. Picture yourself speeding along on the open road, but there's nothing freeing about being tied to a car payment you can't afford.

There's also nothing freeing about a car that constantly needs repairs.

Before you purchase a car, take the necessary steps to educate yourself on the buying process, and be sure you make a wise decision that works for your transportation needs as well as your wallet. The steps in this guide can help you.

Determine how much you can afford.

Most car buyers finance their car purchases rather than paying in cash. That means you'll need a down payment and the regular income to afford a monthly car payment. It's ideal to make a down payment of at least 20 percent of the purchase price, which will help lower your monthly payments and make your car more affordable.

Based on your income and credit score, you may qualify to purchase a car that is much more expensive than your budget can actually afford. So don't go buy a car based on the amount for which you qualify; instead, take time to examine your own budget, your other monthly expenses and determine the amount you can afford.

Maintaining a car payment that is no more than 10 percent of your monthly take-home pay is smart, especially if you also have rent or mortgage payments, student loan payments or other large monthly expenses. Some financial consultants say it's ok to get a monthly car payment equal to 35 percent of your monthly take-home pay, but the right decision will depend on your income and your other financial commitments. You can also use an auto affordability calculator to help you determine the right car price for your budget.

Keep in mind that the final purchase price of the car will be higher than the amount you and your salesperson agree upon. That's because you'll also have to pay sales tax, registration fees and documentation fees. These extra costs depend on your state's regulations but can add up to an additional 10 percent of the purchase price.

Choose a term that suits your budget.

Making a down payment can reduce your monthly car payment amount, and so can choosing the right loan term. Most lenders offer a variety of car loan terms, including 24 months, 36 months, 48 months, 60 months, 72 months and 84 months. However, your term options will vary based on the age and cost of the car; if you're buying a less expensive car, your term options will probably be shorter, such as 36 months or less.

For instance, if it's important for you to get your car paid off quickly and be rid of a car payment, you can choose a shorter-term loan. But if you want to lower monthly expenses by lowering your car payment, choose a longer-term loan.

Find a car that meets your needs.

When you have a basic budget in mind, you can start looking for a car that fits your budget, as well as your other needs. Make a list of must-have features that are important to you: Do you want leather seats, a backup camera or a certain amount of storage?

Think about how you'll need to use the car: Driving back and forth to work, carrying a number of passengers, driving off-road, towing or hauling? For example, you may love the look of a four-wheel drive, full-size pickup truck or SUV, but if you'll never drive off-road and will only use it to get to work and back home, it's probably not worth paying the price for such a vehicle.

Also, it's important to make sure you'll have space for your new car. Think about how much garage or parking space you have available, or how much you'll have to pay to park your new vehicle.

When you have an idea of the type of car that will meet your needs as well as your budget, start doing some research online to get a good idea of the price you can expect to pay. Find local dealers who have the type of car you want, and take time to test-drive a few vehicles before making a decision. Even if you find the car you want, it's a good idea to have a backup option or two in mind, just in case you and the dealer aren't able to negotiate a deal that works for you.

Negotiate wisely.

Most people don't pay the sticker price for an automobile. Just because the dealer has a car priced at a certain level doesn't mean they're expecting to receive that amount: Buyers just have to be willing and able to negotiate. When you're ready to make an offer on a car, make sure you've done enough research to understand the factory invoice price as well as the sticker price. Your goal should be to not only get a good deal for yourself, but also allow the dealer to make some money on your purchase. A few hundred dollars above the factory invoice price on a new car is fair for the dealer.

If you're purchasing directly from a private seller, negotiation is still important—but because the individual isn't running a car dealership, he or she probably doesn't have a lot of extra overhead costs built into the price. Research the car's make and model on Kelly Blue Book, which will provide you the car's retail and wholesale (trade-in) value. Aim for a price somewhere between these two figures; that way, the seller is getting more than he would get on trade-in, and you're getting a better deal than you'd get from a dealership.

At any time during the negotiation process with either a dealer or an individual, you should be willing to walk away from the deal. If you think you'll feel resentment about the price you paid for your car, it's better to leave before you make the purchase. There are other cars and other dealers who may be a better fit for you.

Get rid of your current car.

To sell your current car, you'll need to get your hands on the title and other documents required by your state's Department of Motor Vehicles. If you still owe money on the car, check with your lender to find out how to handle a sale.

If you're planning to trade in your current ride, treat the trade-in as a separate transaction when you talk to the dealer. It may be a good idea to negotiate the price of the new car before even mentioning the car you'd like to trade. Do some research in advance to understand what a fair trade-in price would be, so you'll be able to negotiate wisely when the salesperson makes an offer for your trade-in. Again, the dealer needs to be able to resell your trade-in vehicle at a profit, but it should also be a fair price for you.

You may be able to earn more by selling your car yourself rather than trading it in, but it will take more legwork. You'll still need to research prices on Kelly Blue Book or a similar site, and set your price. Post information and photos of the car on social media or online classified advertising sites such as Craigslist. Be prepared to answer questions and meet potential buyers to allow them to inspect and test-drive your car. When a buyer makes an offer, be ready to negotiate—remember to look for a win-win situation, so that neither you or the buyer feels burned after the transaction.

Prepare for additional car costs.

Remember that when you purchase a car, you're not just signing up for monthly car payments. You'll also be responsible for paying car insurance and regular car maintenance. For maintenance, which includes oil changes and tire rotation and balancing, you can assume you'll be paying at least a few hundred dollars per year, but the price may go up as your car ages.

Before pulling the trigger on a car purchase, contact your insurance agent or go online to get auto insurance quotes. That way you can determine the total amount you'll be paying for your car each month. (You can usually opt to pay for car insurance monthly, twice-yearly or annually.)

Pay attention to the calendar.

Because most car salespeople are required to hit monthly and yearly sales targets, the end of the month or the end of the year can be a good time to shop for a car. A salesperson who hasn't yet reached his or her sales goal may be more likely to make a good deal.

Generally, the best times to buy a car are the days when salespeople are running out of time to meet their sales targets, or when they have extra time on their hands and plenty of time to negotiate. Research shows that while December is the best time overall to get a good deal on a car, throughout the year, the less-busy days of Mondays and Wednesdays are also good days to get good deals.

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.