Buying a car can be one of the biggest purchases. Consider that the average cost of a new car in December 2021 was $47,000.
Yes, these are big changes! But there are several ways to save money on a car.
Tips for saving money on your car
If you’re worried about how to save money on a car, look no further. We have it.
Get a used car
A used car can cost a lot less than a new one. Yes, you may have figured it out. But here’s the math. Consider that the average price of a used car in December 2021 was $27,500, which is about $20,000 less than buying a new one. Used car prices have skyrocketed in recent months due to supply chain issues. Prices at the end of 2021 were a third higher than in January. However, buying a car that’s a few years old can allow you to afford features that you wouldn’t otherwise be able to afford.
Used car trade
If you have a car that you want to replace, consider trading it in with your dealer for a new car loan. Some dealers will even let you use your trade-in to cover your down payment. Keep in mind that you can make more money by selling your car yourself. Although this process involves finding buyers and will require more time and effort.
Compare funding programs
A car sticker isn’t the only cost you’ll face when buying a car. Explore financing programs through your bank and other lenders. This way you will understand who will offer you the best terms and interest rates to save you the most over the term of the loan. Generally, the lower your interest rate and the shorter the term, the less you end up paying.
Pay for your car with cash
Consider paying cash for the car if you have enough money, of course. You won’t have an automatic monthly payment or interest, which means you end up spending less money. Paying in cash can also open doors for discounts or give you some edge when negotiating a price with a car dealer. Be sure to weigh this option carefully. If you can finance a car purchase at a low interest rate for the short term, depending on your circumstances, it may be worth paying additional interest costs to keep more money in your bank account longer.
CONNECTED: 7 tips to save money at the gas station when gas prices skyrocket
How to save money on a new car
Of course, it is cheaper to buy a used car. But how to save money on buying a new car?
Negotiations with the dealer
Arm yourself with key information before you buy a car. First, know your budget and be prepared to stick to it. Then research pricing and funding in your area. Check with your bank before you go to a dealership to see what loans may be available to you. Visit websites such as Kelly Blue Book or Autotrader for suggested retail prices and dealer value, also known as invoice value. The range you can negotiate is likely to be somewhere between the invoice value and the price quoted by the dealer. With this information at hand, you’ll be in the best position to negotiate prices with the dealership and know when you need to leave. Once you’ve negotiated a deal that works for you, be sure to read everything in the fine print before you sign a contract. Make sure the dealer hasn’t added any unnecessary extras you’re not interested in, such as extended warranties.
Get an energy efficient car
Electric vehicles are slightly more expensive than their petrol counterparts. On average, you can expect $524 a month for a gas car, compared to $529 a month for hybrid cars and $689 for electric cars. However, over the life of a car, the owner of an energy-efficient car can save quite a bit of money, anywhere from $6,000 to $10,000. Combine these savings with state tax credits for certain vehicles and owners, which can save you up to $17,500.
Estimate Maintenance Costs
The cost of service depends on the brand and model of the car. So when you are researching vehicles to buy, be sure to take this into account. For example, a 2019 Ford Explorer’s estimated five-year maintenance cost is around $8,900, while a 2019 Subaru Forester’s five-year maintenance cost is nearly $1,500 less. Research these costs using online resources such as Edmunds or Consumer Reports.
Don’t focus on brands
It’s easy to get stuck on the idea that you need a certain make and model. But avoid brand awareness. Instead, focus on the features that matter most to you and prioritize and look for vehicles that meet those needs. You may find that the cheapest option is not the brand you originally planned to buy.
How to save money on a car loan
Don’t take your foot off the gas while researching ways to save money on credit.
Borrow less money than you need
The more money you can put down when buying a car, the better. More of your own money is at stake, so lenders can offer you better terms and lower interest rates.
Improve your credit
Your credit score is the first thing a lender looks at when you are looking for financing to buy a car. Generally speaking, lenders offer better interest rates and terms to individuals with higher scores. For example, the average interest rate on a new car for individuals with a super prime credit score (credit score from 781 to 850) is 2.58%, and for those with a deep subprime credit score (credit score from 300 to 500) is 12.99%. If your credit history is less than perfect, there are steps you can take to improve your situation, including making all payments to creditors on time, catching up on missed payments, paying off credit cards, and limiting the amount you apply for a new loan. This should help you save money on your car loan.
Refinance your car loan
If you’ve already blocked a loan and it’s becoming unmanageable, or if you want to save money to use for other financial purposes, consider refinancing. This is a great way to lower your car payments. When you refinance, you pay off your old loan with a loan from a new lender, preferably with better terms and lower interest rates. The time to refinance may be right if you improve your credit score or if interest rates fall. As you consider this option, take a look at the advantages and disadvantages of refinancing your car loan. On the plus side, you can lower interest rates or monthly payments, you can get more manageable terms, and you can free up cash. It can be difficult to find a lender willing to offer you a loan, you may face prepayment penalties, and your credit score may temporarily deteriorate. Consider also the cost of refinancing a car, which may include early termination fees, transaction fees, registration fees, and transfer fees.
Rent your car
If you are someone who always likes to have a new car, leasing may be a more affordable option than buying. However, buying a used car can be a lot cheaper than either option.
How can I finance a car?
When it comes to getting an auto loan, you usually have several options. Direct lending refers to loans that come from a bank, credit union, or other financial company. The lender lends you money, which you agree to repay with interest. Dealer financing refers to a loan agreement that you enter into with your car dealer. You agree to pay them the amount they finance, plus interest, over a specified period of time. Dealerships typically sell these contracts to banks and finance companies, who then service the account. Compare financial offers from different lenders to find the best deal.
Takeaway
The price on a sticker on a vehicle does not necessarily represent the amount you end up paying to take that car home. Through careful research and due diligence, you can not only keep your sticker price down, but also make sure you don’t overpay for maintenance or financing.
This article was produced by SoFi and syndicated by Wealthy Nickel.
The advice provided on this website is general in nature and does not address your specific goals, financial situation or needs. You should always consider their appropriateness given your own circumstances.
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