I find it amazing how we pay attention to saving nickels and dimes on small purchases, but we’re almost completely oblivious when it comes to the big purchases in our lives. Let’s face it, you won’t win the financial game by saving a few dollars on a loaf of bread or buying your favorite outfit on sale. The money game is won by playing it smart with the major purchases in our lives.
But too few of us do.
Take automobiles for instance. According to Edmunds, the typical average monthly payment for a new vehicle loan reached an all-time high of $503 a month, with the average new vehicle loan hitting a record $30,032.
The money game is won by playing it smart with the major purchases in our lives.
A record 32% of used car shoppers and 25% of new car shoppers had negative equity on their trade-ins, meaning they owed more on the car they were trading in than that car was worth.
Clearly, automobiles are decimating our finances. But if we’re smart, we can make sure our automobile dreams don’t run over our chances for financial independence.
1. Always consider a used car.
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I doubt that I’ll ever buy a new car for the rest of my life. That’s because the depreciation hit is too much for me to stomach. The typical mid-size sedan selling for $27,660 loses a whopping $7419 of it’s value in the first year of ownership. Smart buyers know that they can save a ton of money by purchasing a car that is one or two years old.
2. Know the value of the car you’re about to purchase.
We get into trouble when we pay $30,000 for a car that’s only worth $25,000. We lose money right from the start. That’s why when I purchased my last car I used websites like CarGurus.com. By entering the VIN number of the used car I was interested in, I was able to find out a realistic estimate of how much the car was worth. Car Gurus then told me what prices constituted a good, fair, or bad deal on the vehicle. When you come to the dealership with this type of information, you’re less likely to get taken for a ride.
3. Shop for your loan before you shop for your car.
Did you know that the dealership is that last place you should consider when obtaining a car loan Auto dealers receive a “kick-back” from the the bank or finance company when they find a loan for you. Let’s say, for example, that your credit history qualifies you for a 3% interest rate. Your friendly finance manager is allowed to add as much as 2% to the loan cost. You get a 5% interest rate, when in reality you could have paid only 3%. The dealer pockets the difference.
That’s why it pays to shop for an auto loan at your credit union or bank before setting one foot in a dealer’s showroom. Online lenders like CapitalOne are also great places to find good deals on auto loans.
4. Look for the safest, most reliable car possible.
Your best money move is to purchase a car and keep for at least 7 to 10 years. But, you have to make sure that you buy a reliable model so that repair costs later in the car’s life won’t eat you alive. A great resource is Consumer Reports Car Buying Guide which lists the reliability records of hundreds of cars. Purchase a car with a great reliability record and save money for years.
5. Understand the additional costs that come with car ownership.
Too often we simply pay attention to the purchase price of our vehicle without considering other expenses. If your new car only takes premium gas, for instance, you could be paying 20% more in gas for as long as you own your car. Make sure to check with your insurance company to see how your new car’s insurance premiums compare to the average as well. In addition, find out the average repair costs for the vehicle you intend to purchase.
By being smarter when making your large purchases – home, education, automobiles – you’ll set yourself up over the long haul to win the money game.
BMWK, what advice do you have for saving money when making major purchases in life?