Creating a budget before you shop for a car can save you thousands of dollars. Consider vehicle costs beyond the car's purchase price so you can comfortably afford your vehicle. Also avoid ownership issues by having your used vehicle inspected by a mechanic to avoid paying for repairs shortly after your purchase.
Financing
Rather than set out to purchase a vehicle and apply for financing afterward, obtain a preapproval before shopping. Doing so allows you to set your budget based upon your loan approval terms, such as interest rate, term and down payment requirements, if any apply. If you intend to purchase a vehicle privately, a loan approval can take up to a week. With a preapproval, you can return to your lender with your vehicle information and obtain your check quickly. If purchasing from a dealer, many provide financing but may also increase your interest rate to make a profit. A preapproval secures your interest rate.
Vehicle Repairs
Purchasing a vehicle only to find out it needs repairs afterward is disappointing, especially if you've already spent most or all of your money on the car's purchase. Avoid having to pay for vehicle repairs by having the car properly inspected before you purchase it. Vehicle history reports aren't always accurate. Make arrangements to have a certified mechanic inspect a car before you agree to purchase it. A mechanic can identify previous body work, determine whether the car has been properly maintained or if it needs immediate repairs.
Pricing
Research vehicle pricing before you pay a seller. Paying too much money for a car creates a negative equity situation. Ensure you're paying a fair price by checking the vehicle's private sale or retail value at Edmunds.com, the Kelley Blue Book or NADA Guides website. Also contact your state motor vehicle office to determine the cost of taxes and fees so you can budget appropriately. Some areas can add thousands in tax charges. Prepare to provide the extra cash or determine how adding the fees to an auto loan affects your monthly payment.
Insurance
Even if you have overcome other car purchase issues and find a great buy, you may still face cost problems when you add your car to your insurance policy. If you purchase a relatively new car or borrow a loan, you'll likely need a full-coverage insurance policy. A full coverage policy is the most expensive you can purchase; your monthly insurance payment can easily exceed your car payment. Check prices with your insurance agent. If the cost of insurance is high, you may have to adjust the price of your vehicle to afford a lower auto loan payment or lower cash price.
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