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I started my career writing about personal finance in an unlikely place: the marketing department of a car dealership.
In this job, I learned what not to do when buying a car, getting a car loan, and negotiating. I learned where the dealerships make their money and how they price their cars, and it gave me the opportunity to help people save money.
Here is the advice I would give to anyone looking for a used car for the first time.
1. Determine Your Budget Before You Even Start Looking At Cars
Just like buying a home, shopping is always the funniest part. But I strongly encourage everyone to sit down with a calculator and look at the numbers first. Decide how much you can afford before you watch.
There is a simple formula for this, according to Mark Reyes, a financial planner at Albert Finance app. “We usually say keep the total price of the car below 30% to 35% of your annual income. For someone who earns $ 50,000 a year, that total price should not exceed $ 17,500,” he said. he told Insider. “When it comes to monthly payments, try not to exceed 10% of your monthly income.”
Using these numbers as a guide, you can start shopping on a practical level, instead of focusing on a car you can’t afford.
2. Don’t get sucked into buying a new car
I am not a fan of buying new cars. They depreciate quickly and can cost more to insure. As the first car, it is not the most practical. They’re less likely to fit your budget, and while it might sound like a good idea, a new car really won’t be much better.
Used cars are absolutely fine, and often a much better deal. Chances are, you’ll find a car that’s a year or two old that is as good as new. Sometimes there is little or no difference between the last model year and the previous one. While the differences between model years really depend on the car you’re interested in, the damping factor will be consistent.
When I worked at a dealership, the best deals I often saw in the field were Certified Used Cars and Lease Swaps. Lease swaps often do a lot because the previous owner was bound by the lease to take care of them inside, out and under the hood. Often times, the result is often a well-maintained, low-mileage used car.
Even if you sometimes save on financing with a new car (used cars have interest rate a percentage point or two less than used), the amount you’ll save on a used car will likely make up for it.
3. Enter the dealership with your own financing and insurance
Financing and insurance are a great way dealers make money. Bringing your own insurance and financing can be an easy way to make sure you don’t pay more.
Car dealerships tend to add markups to financing, which increases the interest rate offered to you. Instead of relying on dealer financing, shop around with lenders, banks and
you work with. Get offers and compare them, paying attention to the interest rate and the length of the loan. Then you will have a better idea of the interest rates you are entitled to.
The same goes for car insurance – if you take out insurance from the dealership, this may incur an additional cost. Make yours shopping to see what you qualify for. Get quotes to several auto insurers in your region for the car you plan to buy and compare the types of coverage, limits and costs.
4. If this is your first car, buy auto insurance again after six months.
If you are buying your first car, you will want to buy insurance again after a few months, whether you ultimately have a new or used car.
In addition to your driving record, type of car, and where you live, among other factors, the length of your coverage is also a factor in how much you’ll pay.
After six months or more of continuous coverage, your costs could go down. Repeat the process you used to purchase your first insurance policy after a few months, and you might find a lower pricee later. This can be especially useful for new drivers who may have a high insurance price to start with.