Owning a car can be expensive. If you’re on the fence about a new purchase, here are some things to consider.
How Much Do You Owe On Your Current Vehicle?
If you’re upside down on your vehicle, you’re going to find it difficult to trade in. First of all, you must pay off the vehicle loan, or at least pay it down so that the loan is equal to the trade-in value, before a dealership will consider the trade-in.
You could conceivably come to the table with more money if you have no equity in the vehicle. But, this is not always the best idea if you’re concerned about maintaining a cash reserve or keeping your other debts paid down.
A long time ago (it seems), car loans were only 36 months. Gradually, banks began allowing longer and longer terms because people couldn’t afford the more expensive vehicles coming onto market.
The longer the term, however, the more you pay in interest. If this sounds familiar, it’s because the mortgage industry works the same way. It used to be that a house could be purchased with 20 percent down and a 15 year mortgage note. Today, there are 30 year mortgages, and even interest-only mortgages.
If you go trying to sell your vehicle before the loan term is up, you’re going to find that it’s much more difficult.
If you do have equity in your vehicle, you could take a look at GMT Auto Sales West vehicles and trade-in on whatever the cash value of your current vehicle is.
A used vehicle will be cheaper than a new one, and most of the time used vehicles come with warranties.
What’s The Trade-In Value?
Look on the Kelly Blue Book website for trade-in values. Keep in mind that a dealer always pays less for your trade-in than a private party. That’s because the dealer is an assumed buyer – a “market maker.” They will almost always buy your vehicle from you as long as it’s in good condition.
They will, of course, clean it up and sell it for a profit. If you want the most amount of money from your vehicle, consider a private sale. It’s a bit more complicated, but you can almost always get more money that way.
Then, you can walk onto the dealer’s lot with cash-in-hand, which is a good way to start negotiations.
What Interest Rates Do You Qualify For?
Research going rates for auto loans. One thing you can do before shopping is to check with your bank or credit union. They will almost always give you a better deal than a third-party lender, the dealer’s lender, or anyone else.
Would A Used Car Be Better Than A New One?
Most people are fascinated by new cars. It’s in our nature to seek out novel (new) things. Cars and trucks are no exception. But, what is the extra cost for that new vehicle? As soon as you drive it off the lot, the vehicle is worth less than what you just paid for it.
At the end of the first year, it has lost almost 20 percent of its value.
By the end of 5 years, you’ve taken a 60 percent loss, at least. And, that’s if the vehicle is kept in good condition, with no serious scratches, dings, dents, or broken parts or maintenance issues.
What’s The True Cost Of Ownership?
Cars are more than just a monthly payment and a few oil changes a year. Most people know that they need to do basic maintenance on their vehicle, but they often seriously underestimate the amount of work that goes into a vehicle to keep it in top shape.
Operating expenses also depend on how much you drive the vehicle, the type of vehicle you own, and how hard you are on it (e.g. Do you do any towing? Do you drive mostly highway miles, or is it mostly harsh stop and go traffic? etc.).
There’s also the fact that finances vehicles are always more expensive than vehicles purchased with cash. Why? Because there are finance charges.
And, there is more maintenance than oil changes – radiator flushes, brake changes, brake rotor resurfacing or replacement, spark plug replacement, windshield wiper replacement, regular cleaning (interior and exterior), tire replacement and maintenance (i.e. checking the air regularly), gasoline, light bulb replacement, headlight replacement, inspection, and registration fees. In some states, there’s also property tax due each year based on the value of the vehicle.
Add up all those costs. Compare them to the costs of a new or used vehicle you’re thinking of buying. Are you saving money? Is it worth it?
In many cases, you’ll find that there are tradeoffs. What you have to determine is whether the tradeoffs are worth it.
John Warman started of his financial career working in government positions. He is now a contractor and consultant and enjoys sharing his insights through blogging. His articles mainly appear on business and finance blogs.