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What to Know When Buying a Car On a Budget

Written by Steve Repak on May 20, 2013 in Family Money  |   27 comments

If you are in the market for a new car, keep in mind the many costs, including lease or loan payments, insurance, gas, and maintenance, that can quickly eat away at your monthly budget. Make sure you factor these into your financial calculations. Having said…

budget, saving moneyIf you are in the market for a new car, keep in mind the many costs, including lease or loan payments, insurance, gas, and maintenance, that can quickly eat away at your monthly budget. Make sure you factor these into your financial calculations.

Having said that, it is most important to get a good deal on your new car in the first place. All it takes is a little research and know-how. Before you set foot in a dealership, head to the Internet (or your local library) and check out Kelley Blue Book or NADA Pocket Guides to get an idea of what your potential new car is worth; you can use this information to negotiate the best price.

Once you have that information in hand, you can use these tips to save money:

Time it right. Dealers and salespeople have quotas to make. Try to make this work for you by going car shopping at the end of the month. Salespeople may be more willing to negotiate with you if they really need you to buy a car so they can make their numbers that month.

You may also want to consider car shopping during unexpected bad weather. Those cold, snowy days or miserable rainy evenings mean nobody wants to set foot outside—much less walk around a car lot. That’s good news for you because salespeople might be nervous about the lack of customers and more willing to negotiate.

Quick tip: Going car shopping during the middle of the week is better than the weekend because fewer customers will be in the dealership. You may also want to think about car shopping in the summer; deals can be found in abundance as the weather gets warmer and dealerships slash prices on the previous year’s inventory.

Don’t assume you need upgrades. Vehicle improvements, like power windows or a sunroof, aren’t the only upgrades a dealer may try to sell you. In many cases, dealers will also try to sell customers car protection packages that may not be worth the money. Often, these packages aren’t worth the cash you spend on them—either you’ll never use them or the repair won’t cost as much as the protection package—and are pure profit for the dealership.

Quick tip: Items such as VIN etching, fabric protection, and extended warranties are often not worth the money you pay for them. There are always exceptions to the rule, but in most cases if you do feel you need one of these items, you can usually find it much more cheaply through third-party vendors if you do a bit of research.

Pay some fees up front. You’ll be faced with a lot of fees when you buy a car: taxes, license, registration, title, and processing fees, to name a few. Try to pay as many of these up front as possible to avoid having to pay interest on them if they are included in the financing.

Quick tip: Ensure that the fees are itemized so you can identify which of them are truly government fees and which are processing fees (and pure profit for the dealer).

Be aware that the Truth In Lending Act (Regulation Z) requires the dealer to disclose the cash price or the principal loan amount, the total sales price, the finance charge, the annual percentage rate, and the terms of repayment.

Read the contract thoroughly. This is a no-brainer, but it’s something many people take for granted. Before you sign on the dotted line, try to take a night to sleep on it. As Fulton J. Sheen once said, “The big print giveth, and the fine print taketh away.” Make sure you really understand what you are signing.

Quick tip: Do not let the dealership pressure you into signing something until you have had time to logically process all of the information. Don’t let your emotions get the best of you.

And finally, never tell salespeople how much you can afford to pay. They will get you to spend that and much, much more.

Steve Repak, CFP®, is a professional speaker and the author of Dollars & Uncommon Sense: Basic Training for Your Money.

27 comments

  1. Beverly says:

    i am in the process of going to CARMAX to get a used car with low mileage…i do not want them to overcharge me high interest rates for the loan of a car….i will need to pay monthly payments on the car…so how much should my interest be? according to my credit score? i don’t want them to take advantage of me again….

    • EFX Moderator, EM says:

      Beverly, great question. Lenders can consider a variety of factors when determining whether or not to issue a loan and what rate to use. Your credit score may be one of them. Have you pulled your credit report yet? That could give you a better idea of what your lender will see if they do look at your credit report. I hope this helps.

  2. lisa says:

    Would I possibly be able to purchase a second hand car with a 597 credit score?

    • joe says:

      Yes, with a very high interest rate.

    • hank says:

      yup.. just expect to pay about $4k OR MORE in interest alone on top of the cars asking price.. .. and interest is paid before the principle (the amount your actually purchasing the car for) the Principle is never forgiven so if you owe $3k on your car and decide it isnt worth paying off the rest of the loan.. that Repo will make it impossible for any type of loan regardless of how much you would say your willing to pay in interest since you defaulted on the $3k..

      your better off saving up $ for a car and drive around on 3 wheels (so to speak.. meaning a car nearly ready for the heap) and have friends and family knowledgeable in repairing auto’s help with repairs (labor) to off set the cost a Garage would charge you for doing the same thing and just focus on paying off what ever is costing you the MOST in interest thats on your credit file and work hard to pay it off..

      the payments you make every month will start to bring your score up slowly..

      there are other factors that you can search online for or speak to someone knowledgeable on the Laws in the State you live on how long Negative information ie, Charge Off’s remain on your credit Report..

      the key here is, learn how to use credit Wisely rather then use Credit to get things you cant Afford thinking you’ll eventually pay it off..

      imm not sure what your age is, how ever, as people grow older, their priorities shift.. the LAST thing you want to have when and IF that ever occures with you and you wanna buy a house is to have a bunch of acounts that are Negative on your Credit report that will make Serious house buying a No Go for several years (when the Negative Accounts are removed from your Credit Report) whether you paid them in FULL or Settled or what have you..

      btw, Settling a Balance for a lower amount is never a good idea.. it shows anyone you seek Credit from that they can anticipate you defaulting on the amount you borrowed in Credit and that they will NEVER recoop the amount from you in full..

      anywhoz, thats how FICA works.. and the Score is used to rate a persons Credit worthiness..

      best of wishes..

      h

  3. S.deier says:

    will I be able to get a new car with a credit score of 535

  4. JAMES C. says:

    Yes I think you are very capable of getting with a credit score of 535 but not less than 510. Last year I bought a brand new 2013 Dodge Avenger fully loaded with 8 miles on it, I was in love, I was also upside-down on my last car. But I walked in refused to speak with a salesman I wanted to speak with someone in Finance. I told him I didn’t want to spend two hours looking at cars then pull my credit just to find out I couldn’t by anything, without putting a large payment down. So I asked him to run my credit and see what he could get me sold in. and he did. Honestly, it wasn’t what I went there for but ended up being the best car I ever owned.

  5. Renee says:

    What is the best way to get the largest increase in your credit score in one month? Get out of default on a credit card account, pay a settlement, or continue to pay every account as scheduled and decrease your debt ratio?

  6. Mississippi girl77 says:

    My score is very ridiculously low, I rescently went to a dealership with a cosigner and got approved. The only thing is he’s gave me advice on how to rebuild my credit and its up to me if I want the car. I really need a reliable vehicle at this point. I got the car at a great deal originally 19000 was marked down to 16000 Toyota with23,000 miles. He said this would make my score go up and advised me on other things. I’m only going yo receive 1566.00 for my car, it has way over 200,000 miles. My ? Is should I take the car to keep from hopping from dealer to dealer getting dead ends when they are promising me a car, this is making my score go lower and lower which is not helping. Needing input please!!!

  7. PortlandGirl says:

    My credit score is 535 but later this Fall I want to buy a brand new 2014 KIA. Is that possible? What do I have to do to make this happen before Fall comes?

  8. Dean says:

    If your score is very low and you have a co-signer with you it sounds like your getting one of the best deals your going to get!!!

  9. Sherryl says:

    Thanks for the additional tips.

  10. 100% military vet says:

    If you are or were in the military during a conflict try Capital One. Even with low scores in the low to mid 500syou will get a car at around 15-18%. Credit card through them is the same. $500.00 limit @18-25%. Then call them and ask for the military discount program. I was told this, had a truck financed at 18% from 2006-2011, credit card as above.I recieved
    a letter welcoming me to the program and thanking me for my military service. My 2006 had 6 months to go, new Kia was at 15% and CC was at 23%. I recieved a check for the 2006 truck for $7200.00 Kia dropped to 4 % and Credit card dropped to 4%. Try it.I never would have known if thI had not made a comment about vets getting the wrong end of stick, then was informed by customer service @ Cap 1. Good Luck

  11. 100% military vet says:

    BTW, my Kia payment down monthly from 380.00 to $274.00 and Credit card dropped to $25.00 minimum payment and after 5 payments on time of minimum doubles your available credit limit. This is most cases thru Capital One. Get pre approved before you go shopping and you’ll know what car you can get. APPLY AFTER you get financed. Just ask if they still offer the military program first.

  12. Cyn says:

    My score is really high, but I’m wondering if I can get a car loan from a credit union or even my bank that would be better than anything the dealer would offer. Would I do that in advance, or take the dealer’s offer and then find another lower rate loan?

  13. kyle says:

    I have a score of 561 and I am looking to get a new car and its around $30000 and I still have a car loan to pay off as well and no down payment. Would I get approved for a loan? If so where would I go to get approved?

    • EFX Moderator, KB says:

      Kyle, good question. Some good news is that more loans are being made to higher-risk consumers. Click here for information on how auto loans are climbing and lending standards are loosening.

  14. S>smith says:

    I have a 689 scor what are some things i can do to get a higher score?

  15. Anonymous says:

    I have a low credit score. I was going to call one of the companies that can get things taken off of your credit report but someone told me those were scams. Whats the catch?

  16. Joe says:

    I have checked my credit scores and they are 697-Eq. 730-Trans. 717-Ex. How close do they check your credit? Do they just look at the scores or check anything and everything you might have on there for the past several years? I’m looking to make a purchase of around $12,000 or so (outboard motor) and maybe a used truck later on. For the past 5 years or so, everything looks pretty good, just a few minor medical bills. I recently paid off a boat that I had in full that still had two more years left of payments but not sure how long that will take to show up on my credit.

  17. Airborne all the way! says:

    I am going to be deployed to Germany in a few months. I have been saving up for a car. Should I purchase one there or wait until I get back to the states?


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