Buying a Car Personal Finance

Why is picking the right car so important? Transportation should account for 15-20% of an average person’s budget. Purchasing a car is usually the 2nd largest purchase you will make in your life People often make mistakes because they only consider what looks good or get talked into something by the salesperson

The Process Buying a car should include six steps Step 1 - Determine your needs Step 2 - Determine how much you can afford Step 3 - Do some research Step 4 - Compare options Step 5 – Negotiate Step 6 – Purchase

Step 1 – Determine Your Needs Some questions to ask yourself? How many people will usually be in the car? Do you need a mini-van, SUV, sedan, sports car, truck, etc… How often will I use the car? Gas mileage, reliability, warranty, safety Does it need to serve a particular purpose? Haul things (truck), lots of kids (mini-van), weather conditions (4-wheel drive)

Step 2 – How much can you afford? The total cost of transportation should be between 15-20% of your monthly budget (net income) Example: A person who has a net income of $2,000 per month could afford about $400 total. Remember to include all expenses… Loan payment (use an online calculator) Insurance (get some quotes) Gasoline (average miles per month divided by MPG multiplied by average cost of gasoline) Routine maintenance (oil changes, tires, etc.)

Step 3 – Do Some Research Once you know your needs and budget the amount of vehicles that fit both will be fairly low Research vehicles by… Talking to family and friends Unbiased websites www.consumerreports.org www.kbb.com www.motortrend.com www.caranddriver.com www.pueblo.gsa.gov Magazines

Step 4 – Compare Options Determine what is most important to you Make and Model? Fuel Efficiency? Power and Performance? Comfort and Convenience? Warranty? Safety? New or Used? Lease or Buy?

New vs Used New Vehicles: Used Vehicles: Depreciation – Advantages Not Pre-Owned Manufacture’s Warranty Wide Selection Customize Options Used Vehicles: Cost Less Slower Depreciation Depreciation – The gradual loss of value as an item becomes older and is used New Vehicles depreciate at least 30% (usually higher) in the first two years Used Vehicles have usually already had their steep depreciation, therefore a better value Do all vehicles depreciate at the same rate?

Lease or Buy? Leasing – basically like renting a car for a long period of time Generally you agree to make monthly payments for 36 or 48 months, then later you give the vehicle back or have the option to buy Usually can get a more expensive car for less Good for people that want to trade cars every few years Buying Major benefit is that you will probably pay off the loan before the car stops working You can sell the car after the loan is paid Good for people that will drive the same car for several years

Step 5 - Negotiate Negotiating – the process of determining the actual terms of the purchase Many things can be negotiated, not just price!! Two tips for negotiating Be able to say “no” and walk away Know your information before walking in Research step!!!

Step 6 - Purchase Best place to make the purchase decision is not at the dealership Go home and weigh all options, then return You can even use this as a negotiating ploy by telling them that you are ready to buy, but you have to get the right terms Pay a down payment 20% of the vehicles sale price is recommended Helps keep payments low and shows dealer you are a serious buyer

Step 6 - Purchase Secure financing before making purchase Negotiate the terms of your loan with your bank before buying Once again, shows dealer you are a serious buyer What are lenders looking for? Steady income Established residence Established employment Credit Rating