FeaturesAboutBlog
LoginOpen Account
Open Account
FeaturesAboutBlogLoginApply Now
car buying tips

Life Events

6 Tips for Purchasing a New Car

2022-05-23

Car prices are at an all-time high.

Thanks to the global pandemic, disruption in supply chains, and a shortage of computer chips, the demand for cars is far outpacing the available supply.

According to PBS, the average price of a new car totals $44,000, up $10,000 since March 2020. Worse yet, the average asking price of used cars sits at a shocking $30,000.

As a result of these exorbitant prices, consumers desperate for a car are now paying thousands of dollars above the sticker price. In fact, a recent study found that 40% of car shoppers are willing to pay $5,000 over MSRP.

Times are tough, and most people don’t have the luxury of paying extra. So how can you get the most bang for your buck in this difficult market?

Check out these six tips to help you purchase a new car:

1. List Your Non-Negotiables (& Do Your Research!)

Welcome to the easiest part of the car-buying process.

In order to be a savvy shopper, you first need to know exactly what you’re looking for. And in order to know what you’re looking for, you need to list your non-negotiables.

These are the dealbreakers of the car shopping journey.

Do you need room for a family of five? Do you want a hybrid or electric vehicle? Do you need all-wheel drive (AWD)? Heated seats? A 5.1 sound system?

Be very specific with the items and features your car absolutely needs to have.

Such discipline will help in two regards: it will not only help you narrow down your search and save time, but it will also shield you from alluring sales tactics designed to push a product you don’t really want.

As you conduct your research, be sure to use sites like Edmunds, Consumer Reports, and Kelley Blue Book to get all the information you need.

2. Know How Much You Can Afford

How much car can you afford?

While it sounds like an arbitrary question, there are a few formulas to help us out.

With the 20/4/10 rule, experts advise spending 20% on the down payment of a four-year car loan, with no more than 10% of your monthly take-home pay spent on recurring transportation expenses. That 10% includes your monthly auto loan payment, car insurance, gas expenses, maintenance costs, and other incidentals.

For example, let’s say your salary is $50,000. After taxes (currently at 22%), you average about $3,250 in monthly income. If we follow the 20/4/10 rule, your monthly transportation expenses should hover around $325 or less.

While this is merely a guideline, it helps provide a structure to determine how much car you can afford.

Click here to use the *Edmunds Car Affordability Calculator* and zero in on your ideal budget.

As you shop around, remind yourself that your car is a vehicle to get you from Point A to Point B. You don’t need the fanciest car on the lot.

If the cost of one car prevents you from saving money, establishing an emergency fund, or paying down other debts, you may want to consider finding a cheaper alternative.

3. Know Your Financing Options

There are two ways to finance a car: buying or leasing.

When you buy a car — typically through obtaining a loan — you’ll need to make a substantial down payment. Over time, however, you’ll build equity in the vehicle until it becomes an asset.

In other words, when you buy a car, you put yourself on a trajectory to owning it.

Conversely, leasing a vehicle is essentially an extended rental. You won’t own the car at the end of your lease term and will instead be expected to return it.

Leases are popular because they feature lower monthly payments and reduced up-front costs. While mileage limits were previously seen as a drawback to leasing, our newly-remote economy makes leasing even more appealing.

In the long run, however, leasing may cost more than buying. When you buy a car, you’ll eventually own it. When you lease, you’ll always need to make monthly payments, especially if you lease one car after another.

4. Clean Up Your Credit Report

Before you shop for a car loan, make sure your credit report is as clean as possible.

After all, the better your credit score, the better your loan terms could be.

Start here: request a free copy of your credit report. Then, carefully comb through it to identify any errors. If you find any flaws, be sure to follow the Federal Trade Commission’s reporting procedure to clean up your credit.

As you shop around for a car (and a loan), be very careful not to get overextended on your credit cards. Aim to borrow less than 30% of your available credit, and as a result, you may boost your FICO® score.

Finally, be sure to pay your bills on time. Payment history accounts for 35% of your FICO® score, so the more you pay on time the better your loan terms might be.

Practice each of these habits in the weeks and months leading up to your purchase.

5. Consider Pre-Approval for an Auto Loan

Knowledge is power, especially when it comes to obtaining car loans.

While it might seem logical (and convenient) to enter an auto dealership and inquire about a loan, that’s a recipe for overspending. Dealership interest rates could be higher than most a bank or credit unions.

By seeking pre-approval, however, a bank will tell you your exact loan amount, rate, and terms before you go to the dealership. And while the pre-approval itself isn’t a guarantee of a loan approval, it may help you find the very best deal on the market.

6. Have Money Left Over for Extra Fees

There’s one more thing we need to mention: get ready for fees.

When you buy a car, you could get hit with a handful of unexpected dealer fees.

These extra expenses often include:

  • Title and registration fees
  • Destination fees
  • Documentation fees
  • Extended warranty fees
  • And many more

Fortunately, some fees can be negotiated.

Whichever path you choose to follow, be sure to have extra money available to absorb these closing costs.

Want to read more financial tips? Learn how you can start building credit!

Welcome to First Phase: where less-than-perfect is more than enough.

Apply

Sign up to receive the latest from our blog and card updates.

Great news! Your email has been successfully submitted!

Explore

FeaturesAbout

© 2022 by CURO Credit, LLC. All Rights Reserved.

First Phase Visa® is issued by The Bank of Missouri pursuant to a license from Visa U.S.A. Inc.

First Phase reports payment history to the three major credit bureaus so it can help build your credit if used responsibly. Building credit is accomplished by keeping your balance low and paying all your bills on time every month. Late payments, missed payments, or other defaults on your account may be reflected in your credit report and may impact your ability to build credit. First Phase begins credit reporting following your first purchase or cash advance using your card.

Visa Zero Liability policy does not apply to transactions not processed by Visa. Cardholders must use care in protecting their card and notify First Phase immediately of any unauthorized use.

First Phase may make phone calls to your phone number based on your account settings. To view details, please refer to the Phone Terms of Use.

Pay Near Me money transmission services are provided by PayNearMe MT, Inc, a wholly owned subsidiary of Handle Financial, Inc.

This information is presented for educational purposes only. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.