The Best Advice on Paying for a New or Used Car

2011 Mercedes-Benz

Purchasing a new or used car is always an exciting thing. Paying for a new or used car can be a difficult thing, unless you have the right advice before making the transaction.

The first thing you need to do is figure out how much car you can afford. That’s different from how much of a monthly payment you can manage. Most financial experts agree: except under extremely rare circumstances, you should never buy a car based on monthly payments.

Why? It enables dealers to sell you more car than you can afford. Financing a new car for more than 60 months—or a used car for more than 48 months—indicates you can’t afford the car.

How do you determine how much you can afford? Karl Brauer, Senior Director of Insights and Senior Editor for Kelley Blue Book, offered this advice at U.S. News & World Report: no more than 20 percent of your take-home income should be spent on a car.

That figure isn’t just what your car payment is going to be. As Brauer points out, this number includes things like maintenance, taxes, and fuel. Not factoring those in can put your budget way out of whack, especially if you have a long commute, for example, and have big monthly fuel bills.

The next thing to do is arrange financing before you get to the dealership. That doesn’t mean you shouldn’t use a dealership for financing. In fact, a dealership can be a great source for financing, but we’ll explain why in a minute.

Pre-arranging financing is going to help you determine how much you can afford based on your income. Try reputable online financing sources, local banks, and credit unions for a loan. They are going to give you an interest rate and an amount. They’re not going to give you a monthly payment. Sure, they’ll outline the monthly payment terms, but it’s still going to come down to a total loan amount.

Then when you’re ready to go shopping you can challenge the dealer to meet or beat your financing offer. Don’t let them offer to simply beat your monthly payment, because that’s just a trap. However, you can give them a fair shot at getting your financing business. Often they can match other financing sources because of their special relationship with lending institutions. Give the dealership your financing if they can match the offer. After all, you are helping support a local business owner, which is never a bad thing.

The final step before buying a new or used car is seeing what others are paying for the same car in your area. Use the Instant Market Value tool here at CarGurus to determine what the cost of a used car should be. It’s an excellent tool that’s going to tell you based on existing listings what the car is going to cost you to buy, what you can expect for a trade-in, and how much profit you could make by selling the car yourself.

Print the information out before you head to the dealership. It will be an excellent tool in your negotiations.

-Keith Griffin

Find Certified Pre-Owned Cars and Used Cars in your area at CarGurus.

Shopping for a new or used car this weekend?
Bring along CarGurus’ mobile app to help check prices, find good deals, and research cars on your smartphone.

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