The car buying marketing is changing. According to reports from Cox Automotive, 2024 pricing for a new car in the U.S. is hovering around $50,000, while used car prices are fluctuating but seeing a decrease from peak pandemic pricing. This dynamic hints at a potential buyer’s market for those seeking to purchase another vehicle in the coming year. While the Fed is expected to cut interest rates in 2024, they have not yet dropped at the time of publishing, meaning dealer financing or taking out a personal loan to buy a car can be expensive. Here are five ways you can avoid overpaying for your next vehicle.
1. Research car prices and interest rates before shopping
Arm yourself with information. The days of going to your “trusted” car salesperson to buy a new vehicle every four years are over. There’s more competition in the auto industry now. Research pricing online before you go car shopping. You’ll also want to check on interest rates and annual percentage rates (APRs). Some dealerships offer better deals than others.
2. Consider the short-term loan over the long-term loan
The 20/4/10 rule is a financially responsible guideline to follow when buying a car. It suggests that you put 20% down, take out a four-year loan, and keep your monthly payment under 10% of your total income. Longer-term loans cost more. Your monthly payments might be lower, but the extra interest you pay on a 72-month loan will cause you to pay more for the car.
3. Shop the sale price, not the monthly payment
Lower monthly payments can be deceiving. It might feel like you’re saving money, but you could end up paying more for the vehicle in the long run. Shop for a better sale price, not a lower monthly payment. A buyer is better off not mentioning the payment while negotiating the purchase. Save that until the final stages of the conversation.
4. Check the APR, not just the interest rate
The Annual Percentage Rate (APR) is the total cost of borrowing; it includes costs like points, daily interest accrual, loan origination fees, and more. The interest rate is just the percentage paid per year on the outstanding balance of the loan. It may be helpful to think of APR as the “total borrowing cost” while the interest rate simply states what fraction of that amount will be paid in interest each year. Be sure to review both figures before committing to any auto loan.
5. Read the contract carefully before signing
Auto sales contracts can be long and wordy. It’s easy to just skip reading all the legal speak and sign on the dotted line , but that could end up costing you later. Look for clauses preventing you from refinancing or requiring early repayment fees, and add-on options like warranties and service contracts you might not need. It’s okay to ask questions. This is your investment, and you want to make sure it’s a good one.
The Bottom Line
Buying a car is an expensive undertaking under any circumstances. That’s just the reality of this market. You can avoid overpaying by researching car prices and interest rates, choosing shorter-term loans, shopping the sale price instead of the monthly payment, comparing APRs, and reading the contract carefully before you sign it. Do all this, and you can avoid buyer’s remorse and regrets after you drive the car off the lot.
Sources:
https://www.nerdwallet.com/article/loans/auto-loans/5-ways-avoid-overpaying-car-loan
https://theautowarehouse.com/overpaying-car-loan/
https://www.kbb.com/car-advice/is-now-the-time-to-buy-sell-or-trade-in-a-used-car/
https://www.cnbc.com/2024/01/08/used-car-prices-high-but-expected-to-be-stable-in-2024.html
https://caredge.com/guides/new-car-price-trends-in-2024
https://caredge.com/guides/used-car-price-trends-for-2024#Used_Car_Prices_-_January_2024_Update
https://www.cbsnews.com/news/federal-reserve-interest-rate-cut-meetings-2024/
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