How much can you spend?
Financing Buying your carCheck the value of your trade-in
Do you currently own a car? If you do and plan on trading it in to the dealer it is important that you know the value of your car. A convenient way to do this is to visit the Kelly Blue Book web site *. Their web site will provide 3 different estimates for your car.
The first estimate is the trade in value; this is the amount that you can expect to receive from the dealer for the trade-in vehicle. The second is a private party estimate; this is the amount that you can expect to receive if you sell the car yourself. The third estimate is the suggested retail value; this is representative of the dealer’s asking price for your car. Use the prices found on the Kelly Blue Book web site as a starting point to determine the fair value of your car.
Trade-in tips
- To get the best price for your trade-in we recommend visiting more than one dealer.
- It is ok to negotiate over the price being offered for your car
- You do not have to take an offer that you don't think is fair
The down payment is how much of the car you will pay for up front. The larger the down payment, the less money you will need to finance. The less money that you finance, the smaller your monthly payment will be for your new car. There is no correct amount for a down payment. You need to decide how much of your savings you can afford to use, and how much you are willing to pay for your car payment.
Down payment tips
- The less money that you finance also means you will pay less in interest over the life of the loan.
- When determining your available savings remember to deduct any unpaid monthly bills.
To determine how much you can afford for monthly payment on a car take your monthly income and subtract all other monthly expenses. The amount that is left over is known as disposable income which can be used to pay for your new car. Remember to factor in gas, insurance and upkeep costs when determining the monthly cost of your car.
Loan - Most people will take out a loan when purchasing a car. All loans will have an Annual Percentage Rate (APR). The APR reflects all the costs involved in a loan, interest, credit check and the processing fee. All lenders are required to quote their rates in terms of the APR.
Lease - In a lease, the car is sold to a leasing company for a profit to the dealer. The leasing company then rents the car to you for a monthly fee. The terms of the lease are generally from 2 to 5 years. Your payments are lower with a lease vs. a loan; however at the end of the lease period you must either buy the car or lease a new car. Depending on the stipulations of your lease, you may be responsible for excessive mileage. Be sure to read over all documents carefully.
Cash - You can pay for the car all at once using cash if you have enough in the bank. The benefit of paying cash is that you own the car immediately with no payment due.
Low interest rates vs. rebates
Periodically automakers will have special offers to its consumers. Usually you can choose between a lower interest rate or a cash rebate when you buy the car. Compare the savings from the lower interest rate to the amount of rebate offered to determine which offer is better.
If you plan on taking out a loan or leasing your new car, you may want to pre-qualify before shopping. By pre-qualifying you will know exactly how much you can afford to buy. This can help you shop for the right car for you and your budget.
A great way to save money is to purchase a used car. If you buy a used car make sure to check the mileage and the mechanical condition. If at all possible have a third party mechanic inspect the car for you. It may cost a little money up front but the cost of repairs on a bad car can be thousands of dollars.
Pre-owned - You can purchase pre-owned cars at car dealerships or from a private owner. The years, models and conditions of pre-owned cars can vary greatly. The more mileage a car has, or the more work it needs, the lower the cost compared to a new model. The Kelly Blue Book web site can help to determine the value of a pre-owned vehicle in your area.
Certified pre-owned - A newer option in buying used cars is certified pre-owned. Certified pre-owned cars have been inspected and repaired by the dealer before being put on the market. The biggest benefit besides price is that the car comes with a warranty from the dealer.
Program cars - Program cars are rental cars that are being sold directly by the rental company or that have been previously sold to a dealer. Program cars are usually less than two years old, have a relatively low mileage and are sold for a large discount.
When you are ready to purchase you car you should have a walk-away price in mind. The walk-away price is the amount that you will not go higher than. If you don't get this price or lower, you will walk-away from the table and look elsewhere. Make sure that your walk-away price is realistic. While the dealer wants to sell you the car, they will not accept an unrealistic offer.
Make your first offer lower than what you want to pay. If the dealer accepts your offer than you saved money. If the dealer does not accept your offer than you have some room to negotiate the price.
Negotiating tips
- Stay calm and stay focused.
- Make a realistic offer.
- Make the dealer think your offer is what you are willing to pay, not what you want to pay.
- It is ok to leave if you can't come to an agreement on price.
4 Financial Tools is not affiliated with Kelly Blue Book and can not be held responsible for content found on or information received from their web site.
