Before you begin car buying research, a good rule of thumb is to spend no more than 20 percent of your monthly income on a car loan payment. People buying a car often forget to consider many of the hidden costs involved in purchasing a vehicle. Some of these hidden costs include depreciation rate, insurance and average miles per gallon. The true cost of a vehicle goes well beyond the advertised MSRP.
“Look into what fees the actual dealerships will charge to do business. There are documentation fees; there are banking fees; there are different levels of charges,” explained Kevin Schechterle, a director at Gary Rome Hyundai. Along with these items, Schechterle encouraged interested car buyers to research how their own credit rates, as well as down payments, affect their monthly payment, and what APR rates are available and whether it will be better to get preapproved. Extra research is worthwhile because a car purchase frequently means borrowing a lot of money.
When it comes to hidden costs, the easiest thing to overlook is simply the sales tax, followed by dealership fees. Documentation fees can actually range from a couple hundred dollars to as much as 700 dollars.
The benefit of a trade-in car buying situation is that this offers the opportunity for a tax write-off or tax benefit. If you decide to sell your car personally, taxes will have to be paid upfront. To start, do some research online to find out just how much your car is worth in a resale versus a trade.
Next to finances, it is also important to consider features you need in comparison to features you want in a vehicle. At this time, the items you list as “needed features” should be confirmed first and foremost, such as those pertaining to safety and reliability.
As for smart investments to make when purchasing your vehicle, “Hands-free technology is important to safety,” said Schechterle. Another smart investment is using what you would have spent on “flashy items such as bigger, better-looking wheels” on an extended warranty, which will ensure your safety in your vehicle as it ages.
Along with extended warranties, options such as peace-of-mind warranties and certain accessories can be beneficial for some buyers, which are sometimes included.
If you wish to obtain a preapproved loan, look to credit unions and local banks first. While many car dealerships prefer to do the majority of work with a certain bank, going to a local bank yourself may result in a better rate. It’s also possible to simply ask a salesperson or their manager about the types of financial options that are available before you buy a car.
“Local banks tend to want to do business with local people,” said Schechterle. “Being preapproved gives the buyer a little more of a point of leverage.”
Researching beforehand can potentially save you time and money.