Things to Know when Buying a Car
So, you’re ready to purchase a new car. What does this mean for you and your finances? There are many aspects that go into the car buying process. From looking for an auto loan lender, to finding the perfect car, to getting ready to ride. Guardian Credit Union is ready to help you through the process to help make it as smooth as possible.
Important Auto Buying Terms
When starting the car buying process, it is important to understand the ideas and concepts that you may come across and to expect during the process.
One important term that you should know when shopping for a car is downpayment. A down payment is an amount of money that you put down for the purchase of the vehicle. Depending on the lender, a minimum down payment may be required. Even though lenders set a minimum, you’re able to put down more. The more of a down payment that you are able to put down, the lower your monthly payments and interest will be. In addition to being the first payment on your vehicle, a down payment shows the lender that you can pay off the loan.
Another important term when searching for a new car and auto loan is Annual Percentage Rate or APR. You may have seen the abbreviation for APR behind a percentage when reviewing auto loan rates. This is the interest rate on your loan. Different lenders will offer their own rates and stipulations. Interest rates are constantly changing, and can differ depending on your credit score, length of the loan, and other factors when the lender determines if they will approve you.
Understanding your term options and what they mean for you is important when buying a vehicle. A term is how long it takes for the loan to be paid off completely. There are usually multiple different terms available for you to choose from. It is important to remember that the shorter the term, the higher your monthly payment will be. If you have the means to choose a shorter term, you pay less in interest over the life of the loan, but your monthly payment will be higher.
Car Ownership Fees
Even though you may be able to afford your car payment, there are other fees that should be considered when it comes to car ownership. Being aware of these will help to ensure that you are not stretching your finances too thin. One cost to consider is gas. Depending on where you live, the cost of gas changes, but it is important to budget this when deciding to purchase a car. It is also important to factor in how much you drive and how much you will be filling up the tank.
Another additional cost to factor in is car insurance. Auto insurance is required in nearly every state, including Wisconsin, so this is a required cost. An additional cost to car ownership is car repairs. Whether regular maintenance costs or repairs in the case of something unexpected, these costs should be considered when budgeting for a car. If you purchase a newer car there will generally be fewer immediate repair costs. If you decide to purchase an older car, those repairs might pop up more frequently. It is often recommended that your car budget doesn’t reach above 10 percent of your monthly income. This includes your car payment, gas, car repairs, car insurance, and any other expenses related to your car.
Car Depreciation
When buying a car, it is important to keep in mind depreciation. Car depreciation is the reduction of the value of your car from wear and tear, mileage, and other factors. Once you drive your car off of the lot, a new car starts losing value. Typically used cars depreciate more slowly than new cars.
There are many things to consider when purchasing a vehicle. Taking time to think about the details can help get you ready to drive!