- New-car buyers should ask themselves some basic questions.
- You'll want to consider the value of your trade-in, your financing options, and the way a new vehicle with fit into your life.
- The process might seem intimidating, but it's actually quite straightforward.
It's easy to overthink buying a new car, particularly if you spent your life buying used cars. It isn't like buying an iPhone. But it isn't like buying a house, either.
In fact, buying a new car can take as little as a few hours.
You want to arm yourself with knowledge, however. And take advantage of things like a good credit score, a trade-in on your old car, and an existing relationship with a dealer.
The key is to ask some simple questions. I've listed eleven, and I think that's about right for most new-car buyers.
Read on to see what questions make the most sense for the majority of new-car buyers.
1. Do you really need a new car?
Back in the good old days, people bought new cars every few years because cars were far less reliable than they are today. The arrival of long-lasting Japanese-made cars in the 1970s and 1980s changed that. Cars can now hang in there quite well for a decade or more, no matter who's building them.
In many ways, having bought a new even moderately used car in the 2010s was a decent investment. The car will still depreciate to being with zero dollars at some point, but older cars tend to perform their basic tasks far, far better than they did 30 years ago. So the investment is in peace-of-mind.
I'd say that the majority of car owners, hanging onto a car that has modern safety features and that's all or nearly paid off is a better deal than taking the plunge on a new car. But sometimes you want a fresh set of wheels, or state-of-the-art infotainment technology, or a life event means you need a larger vehicle.
Then a new car might be the ticket. But make sure you think this one through. One key decision point: If your old car is costing you more than it's worth annually to repair and keep running, a new car is definitely worth it.
2. What's your new-car budget?
This is a somewhat more complicated question to answer than it looks. Over the past five years, vehicles have been getting more expensive. Manufacturers and dealers have offset this by developing longer-term new-car loans that allow pricier models to fit into consumers' monthly budgets. For example, you can finance close to $30,000 on a new car to be a sub-$400-per-month payment if you structure the loan to seven years rather than the traditional five.
There are two ways to approach this. The first is to set a total budget for a new car, based on the purchase price, with extras such as taxes baked in.
I find that to be sort of vague, so I recommend focusing on the monthly cost. Financial advisors disapprove of this because you can wind up "buying more car than you can afford" if you stretch out the loan, and you also end up paying more in interest.
The counterargument is that buying a new car is ALWAYS a disadvantaged financial decision because cars depreciate in value. Unless you're buying Ferraris, you lose money when you buy a car - 15% as soon as you drive it off the lot!
But lots of people need cars to get to work or drive kids around, or simply deal with life in places where there's no mass transit and it's difficult to walk or ride a bike. So you have to accept the irrational bargain. Once you do that, the next step is to determine what you want to shell out every month.
A good rule is to come up with a number and then knock about $50 off. That way you can always add $50 (or more) to your monthly payment if you like and pay off a longer-term loan faster. I did this with two cars on five-year loans and paid both off in about three years.