As much as we are told a new Lexus SUV or convertible BMW will give us the status, freedom and respect we deserve, purchasing a new high dollar vehicle is not a smart purchase for those of us on a budget. Vehicles are not an investment; they lose value the minute you drive them off the lot. Regardless of the care you give the car, you are at the mercy of other drivers who could cause an accident or carelessly park too close and scratch the paint. Status aside, the smart shopper will search for a good used car.
If possible, pay cash for your next car. Since autos immediately begin to lose value, you will lose money by paying interest on an item that depreciates. If you can’t pay cash, pay at least 20% for a down payment to get a lower interest rate. Choose a shorter-term loan that is no more than 48 months (36 months is better).
Here is an example of how the length of the loan affects the total amount paid for the car.
36 month loan
|$522 monthly payment||Pay $18,792 for the loan|
60 month loan
|$332 monthly payment||Pay $19,980 for the loan.|
You will save $1,188.00 in interest with the 36-month loan.
If you are getting a loan, get approved beforehand so that you will know how much car you can afford. This will put you in control of your loan and help you evaluate the financing deal offered by the dealer.