October 2008: Saving on Car Purchases
This month’s e-Wealth Coach is Suzanne Mayo Theus. Suzanne directs Black America Saves and in 2007 worked as the graduate coordinator of Kansas State University Saves. Suzanne is also completing her Ph.D. in Family Studies.
With economic markets in turmoil, I’m fielding a lot of questions about whether and how to buy a car. People are wondering if it’s a good time to buy, whether they can get a good deal, and if they should take the plunge even as we hear more and more about the troubled financial industry.
- Carefully consider whether you need that new car. If you already own a serviceable vehicle, continuing to drive it for another year or two will probably save you money – even when factoring in maintenance and repair costs. Do the math and compare what you’d spend on a new car to the cost of maintaining your current one. Then, ask yourself if that new vehicle is really worth it, or whether you'd be better off saving and investing the money you would otherwise spend.
- Start saving for your down payment as early as possible. The more you can put down, the less you’ll borrow and repay in interest. If you are planning to borrow money, check your credit report for free at www.annualcreditreport.com and work to fix any errors or improve the report before you apply for loans.
- Do your homework before you start shopping. Research standard prices on new and used cars at Kelley Blue Book, Edmunds.com and at the National Automobile Dealers Association website. Factor in costs like insurance, gas, maintenance and taxes. Think about how you will use a new car, and make sure you’re not buying ‘more car’ than you need.
- Shop around for a loan before you start visiting dealerships. Call your bank or local credit union, and see who can offer you the best loan. Look for loans with the lowest possible interest rate (under 7% is best, avoid higher than 10%), and arrange to repay your loan over the shortest period possible.
- Look for special deals when you begin shopping. Dealerships and manufacturers are likely to be offering rebates or sales right now, as auto sales are slumping. However, be wary of any special deal that requires you to get a high-interest loan through the dealership finance office.
- If you’re buying a used car, it’s very important to have a mechanic look at the vehicle before you make an offer. Also ask the owner or dealer to provide maintenance and repair receipts, so you can see how recently and frequently the vehicle was serviced.
- Negotiate with dealers, and remember to stick to your bottom line of what you can afford. Take time to think about any offers, and don’t be pressured into spending more than you planned.
Follow these tips, and you’ll be well on your way to making a smart car purchase. My final piece of advice is to make sure to save and invest the money left over in your budget after this purchase, if you spent less than planned. Buying a car is one of the largest consumer purchases for most families (second only to buying a home), and if you’ve made smart choices about this purchase you’ll have more money available for long term savings and asset-building.
Director, Black America Saves
