How to be a careful car buyer
December is always a big month for auto sales, especially for luxury cars. But before you park a new vehicle by the Christmas tree, USAA Savings Bank, the San Antonio financial institution that provides services to U.S. military personnel and their families, offers the following tips.
Want versus need: The bank says a car should have a useful life of about eight years. Where are you in that cycle? If it is time to purchase a new vehicle, be practical and think about what you need now and in the future to handle such things as such as a growing family, safety and fuel efficiency.
What can you afford: The bank recommends not to spend more than 12% of your net income -- the amount deposited into your checking account each month -- to all car payments combined. For example, if you bring home $4,000 per month, you should not be spend more than $480 per month on car payments.
How's your credit?: Your credit score will affect interest rates and ultimately your monthly payment. Prepare for financing a car in advance by cleaning up any mistakes in credit reports at least six months prior to making a big purchase.
Cars cost more than the monthly payment: Insurance rates for new cars are generally more than the car they replace. Sports cars cost more to insure than sedans. Figure out what the insurance costs will be for the cars you are interested in before you buy. Don't forget that more reliable brands cost less to maintain and that gas mileage affects what you will spend on fuel annually.
Your new car might be used: The bank says that a new car's value drops at least 20% when you drive it off the dealer's lot. You might consider buying a pre-owned vehicle from a recent model year and avoid that hit.
Limit the loan term: Most cars depreciate on a daily basis, so don't drag it out. Limit your loan to 48 months or less. You can do that by saving up and making a larger down payment. This will also help reduce what you spend on interest. If you have to stretch the loan out to afford the monthly payment, you are probably spending too much on the vehicle.
Do your homework: Be armed with information before you agree to a deal. Not surprisingly, USAA pitches its own buying service, but two websites, Truecar.com and Edmunds.com, provide a wealth of information that can help you negotiate the best deal.
Friends are friends, not auto dealers: Friends may offer up their used car for sale, but the bank says to be careful about entering into such a transaction. Do the same research you would do if you were buying from a dealership. Nothing can ruin a friendship more quickly than feeling you got a bum deal.
-- Jerry Hirsch