Buying a New Car: What to Know before Getting to the Lot

Before beginning your search, it is important to understand your budget for a new car, especially if you plan to finance or lease. For many, a car can be their second largest expense of the month, following rent or a mortgage. You should also check your credit score, which can have a significant impact on your interest rate and, thus, your monthly payment. An online calculator can help gauge the potential costs of a loan. Running the numbers can serve as a reality check on what’s within your budget, and how the payments change with different interest rates.

After you know the monthly payments you can afford, remember to factor in extra costs, as well. What kind of down payment can you afford? More money down means a smaller loan. How much are the fees and extra costs? Taxes, dealership fees, documentation fees and more can impact the down payment or financing. What will a new vehicle do to your insurance premium?  Normally, new cars are more expensive to insure than used ones, but not always.

Another important note when considering what you can afford: a new car only has to be new to you. Purchasing a used vehicle is a perfectly reasonable tactic to potentially save thousands of dollars on a vehicle. It adds some new considerations, of course — mileage, expired warranties, accident history, age, and overall wear and tear — but plenty of used vehicles operate as good as new. Consider reviewing the pros and cons of buying a used car before your purchase.

Financing

Most major dealerships aligned with a specific automaker will be able to provide financing through a proprietary financial services company. Some buyers may find better rates by getting pre-approval for a loan from an outside bank, such as FNB. For many buyers, new car financing comes in the form of an installment loan ranging from two to seven years. Not unlike a mortgage, the affordability of a vehicle loan can vary based on current interest rates, credit history and score, and how much you are able to contribute for a down payment.

Lease

Signing a lease can be a great option for those with less room in their budget. Monthly payments may be significantly cheaper than the financing route, and there is typically less money down required — although taxes and dealer fees can be larger than a buyer realizes at first. There can be caveats, including annual mileage limits and the simple fact that the lease agreement will end in a set period of time. If you like your leased vehicle, however, you can switch to financing or pay cash when time is up on the agreement. If you go for the lease-to-own route, you may not get the best deal if the amount to be financed is greater than the original price of the vehicle minus the lease payments you already made, so some negotiation may be necessary.

Cash

Paying for a vehicle outright is a great option, in that you’ll avoid monthly payments, interest payments and credit concerns, but it can be a very costly decision. If paying for the vehicle requires wiping out the majority of a savings account or pulling substantial money from other lines of credit, it may be worth looking into another option for payment or another vehicle altogether.

Buyers should carefully weigh their options before visiting a dealership. Equipped with knowledge and, even better, pre-approved financing, you will have the keys in hand and be ready to roll in no time.