Oct. 21, 2024
Your car likely plays a big role in most parts of your life (your commute to work, picking up kids from school, weekend getaways, etc.) and your budget is no exception (especially if you're taking on a car loan). To help you find a vehicle that fits your finances, CNBC Select breaks down the process of buying a car and offers tips on how to save on this important purchase.
First, you want to know how much you can spend on your next ride. Generally, it's recommended to keep your auto expenses under 20% of your take-home pay, including insurance, gas and maintenance. But you also need to consider more than the monthly cost. According to Brian Moody, executive editor for Autotrader and Kelley Blue Book and auto-buying expert, you should also think about the length of the loan, depreciation and the interest rate you can expect to get.
"And key to all of that is for people to know their credit score," he says. "If you know your credit score... it's going to help you know what kind of a loan you can get because even when interest rates are high, the person with the better credit score is going to qualify for a better interest rate."
You can check your credit score for free with credit monitoring services like Experian free credit monitoring and CreditWise from Capital One.
On Experian's secure site
Free
Experian
FICO®
Yes, one-time only
No
Terms apply.
Information about CreditWise has been collected independently by Select and has not been reviewed or provided by Capital One prior to publication.
Free
TransUnion and Experian
VantageScore
Yes
No
Terms apply.
As for the length of the loan, the shorter you can make it, the better. While the most common auto loan term is 72 months (or six years), according to the online automotive resource Edmunds, you should keep the repayment term under 60 months (five years). A longer term means paying more in interest since you have more monthly payments to make.
Why longer car loans are more expensive: An example
If you take out a $30,000 auto loan at a 5% interest rate for four years, you'll pay $3,162 in total interest. On the other hand, if you take out the same loan but extend the term to five years, you'll pay $3,968 in total interest &#; that's a difference of more than $800.
To add to that, if you opt for a longer term length, the lender might give you a higher interest rate, resulting in an even higher interest total.
Depreciation is also essential to keep in mind when you're thinking about the term. Depreciation is the decrease in a car's value over time. With a long car loan, you risk going "underwater", meaning your car will be worth less than what you still owe.
When you figure out the purchase price you can afford, start researching available vehicles in that price range.
Moody suggests avoiding popular models that "everybody else wants".
"The best way to spend money wisely is to look for something that you know isn't super popular," he explains. "I would instead look for a sedan or hatchback."
Test drive as a part of your research
You'll want to test drive a vehicle you're about to buy. But it can also be helpful to test drive a few cars when you're still researching a few vehicles. Actually driving the contenders can help you understand which one fits your driving habits best and feels most comfortable.
You can also search for vehicles based on the features you care about most. For instance, CarMax lets you look up cars based on just about anything, from body and fuel type, to transmission, drivetrain and more. Just plug in the desired price range and see what fits your parameters.
Not disclosed
Used vehicles
Starting at $500
36 to 72 months
Not specified
None
Varies by state and contract
Terms apply.
Generally, buying a used car makes more financial sense than buying a new one, as new cars lose a lot of their value in the first few years. According to Edmunds, new cars lose 23.5% of their manufacturer's suggested retail price (MSRP) after a year and about 60% of their MSRP in the first five years. After that, the depreciation rate tends to slow down.
That said, do the math before deciding to go for a used vehicle. "The interest rate [on loans] for used cars is higher than the interest rate for a new car," Moody notes. "If you're looking for a lightly-used car, there's a good chance that buying a new one may save you money in the end because of a lower interest rate."
You can estimate the terms you're likely to get on different cars using prequalification tools offered by some lenders. For example, Auto Navigator by Capital One allows you to browse used and new cars from participating dealers. You can prequalify with a soft credit check and see monthly payments and rates as you look at car offers.
Depends on credit profile
New vehicles, used vehicles, refinancing
Starting at $4,000
36 to 72 months
Not specified
None
Depends on the lender
Terms apply.
It always pays to shop around and negotiate with your lender and dealer &#; not just when it comes to the purchase price, but the interest rate as well.
Moody recommends getting preapproved by your bank or credit union before heading to the dealership. Compared to prequalification, preapproval is a more formal offer from a lender and typically requires a hard credit check.
"When you correspond with a dealership, they have levers they can pull," Moody says. "They have access to a broad network of lenders, [so] there's a good chance they can beat the rate that your bank or credit union gave you."
You can also get preapproved by several lenders to see which one offers the best rate. When you rate-shop for a loan this way, multiple hard inquiries made within a short period will be counted as one by credit scoring models.
You will get efficient and thoughtful service from HUAXUN.
CNBC Select recommends PenFed Auto Loans as the best car loan provider and myAutoloan for easy rate shopping.
Starting at 4.44%
New vehicles, used vehicles, refinancing
Starting at $500
36 to 84 months
Not specified
None
20% of the overdue amount, up to $25
Terms apply.
Starting at 7.24%
New vehicles, used vehicles, refinancing, private party and lease buyout
Starting at $8,000 (or $5,000 for refinancing)
24 to 72 months
FICO score of 575 or greater
None
Varies by lender
Terms apply.
You've determined your budget and spent time researching cars. You've test driven a few and picked one finalist. You've gotten preapproved and spent hours at the dealership getting your monthly payment and interest rate where you want them.
You're very much ready to sign the contract and drive off into the sunset in your new shiny (or used but still somewhat shiny) car.
But before you sign that contract, make sure you read it carefully. Car dealers can sometimes include fees and products that you may not have agreed to (or had forgotten about). According to Consumer Reports, a Nissan dealership in New York charged consumers who shopped there from May to September as much as $5,000 for service contracts without their authorization.
So take your time with the contract and watch out for charges for anything you didn't request, such as a service contract or undercoating and paint sealant. Make sure that all the numbers and terms are correct and ask questions about anything unclear.
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Your monthly car payment isn't your only ongoing auto expense. Car insurance can get expensive and it's not something you can avoid.
But you can determine how much coverage you need and get quotes from multiple insurance companies. Your car dealer might offer you a referral but don't just trust them when they say you'll get an excellent deal from the provider they're working with. Call several reputable companies and see which can offer you the lowest premiums.
At CNBC Select, we recommend Geico as the overall best auto insurance company and Farmers Insurance if you're looking to take advantage of discounts.
The best way to estimate your costs is to request a quote
Yes
Geico coverage and services are available in all 50 states and the District of Columbia and there are 16 different types of discounts available. In addition to the standard coverage options, Geico offers various optional add-ons, such as emergency roadside assistance, rental car reimbursement and mechanical breakdown insurance.
Terms apply.
Read our Geico Auto Insurance review.
The best way to estimate your costs is to request a quote
Yes
Farmers Insurance offers 23 discounts for auto insurance and issues policies in every state except Alaska, Delaware, Hawaii, Maine, New Hampshire, Rhode Island, Vermont, West Virginia and Washington, D.C.
Terms apply.
Read our review of Farmers car insurance
Shopping for a car shouldn't feel like a race. Take your time with your research to find a car that meets your needs at the price you can comfortably afford. Comparison-shop and negotiate to get the best deal you can &#; and double-check everything your dealership wants you to sign before you take your new ride home.
Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff&#;s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
The sticker price on a new and used car continues to climb, making saving money on transportation increasingly important. The average price of a used car reportedly spiked by more than 16 percent, year-over-year, and working families are paying above Kelly Blue Book value in too many cases. We all need to get to work, run family errands, and enjoy a lifestyle that includes transportation freedom. The following 8 ways to save money on your next new or used car could help you achieve those goals.
Buying when the new and used car markets are seemingly overpriced might not be the most cost-effective decision. It may be worthwhile to refinance your existing car loan and reinvest some cash into your current ride.
Start by bringing the vehicle to a reputable mechanic or dealership and get an estimate that includes necessary and cosmetic repairs. Ask an experienced auto mechanic to discuss the potential life expectancy of the car. Then speak with a MPCU auto loan professional about refinancing. If the numbers work, you could be driving a used car that looks and runs like new.
Haggling is similar to the gentle art of persuasion and being nice can prove very effective. Remember to come to the dealership having done your homework about the Blue Book values of new and used cars that fit your price range and lifestyle.
New and pre-owned car sellers typically have plenty of final price flexibility. Nudge the salesperson gently and politely toward the number you believe is fair. Don&#;t hesitate to walk away, try another car lot, throw out the lowest number you&#;ve achieved and ask if they can do better. You may have to spend a day haggling until you get to the true low watermark. But that&#;s money saved.
New and used car dealerships like nothing more than someone with a reasonable sound credit score. That&#;s largely because many extend financing with higher interest rates and terms that favor their organization.
One of the best ways to save money on a new or used car is to get pre-approved before walking the automobile lots. Credit unions traditionally offer among the lending industry&#;s lowest automobile loan interest rates, reduced fees, and repayment terms that favor borrowers. Even if you see fantastic financing deals advertised, getting pre-approved does not result in a hard pull on your credit score. However, it gives you tremendous bargaining power and a money-saving option.
Automobile manufacturers work with data that indicates consumers are inclined to stick with a brand they know and trust. That&#;s why car-makers and financial institutions offer first-time buyer programs designed to help build credit and help car buyers with the loan process.
In fact, manufacturers feel so confident that consumers will remain loyal to brands that incentives and rebates are sometimes extended to their used car inventory. No one says your next car has to be made by the same company. You&#;re free to take the discount and select any make or model you desire next time around.
When shopping for your next new or used car, it&#;s important to differentiate between lenders and what they bring to the table. Credit unions are non-for-profit organizations that strive to increase opportunities for low-cost lending to their members. Because of their community-oriented business model, credit unions often have flexible repayment options.
One such program allows borrowers to skip a payment when monthly budgets are tight. Not having to worry about a car payment during the holiday season or when you want to take a family vacation saves money and makes life a little less stressful.
Drivers are required to purchase automobile insurance to cover the cost of losses. The state mandate is not lost on insurance companies, and some provide significantly lower rates than others. That&#;s why it makes good financial sense to shop around when purchasing a new or used car. And when your auto insurance agreement nears its expiration, consider fielding quotes to ensure you get the best deal possible.
Not every maintenance plan from a dealership is created equal. While automobile sellers tout their maintenance plans, it&#;s crucial to do a deep dive into the costs. Some plans do not cover the parts most likely to falter with a particular make and model. Others offer free oil changes and maintenance for only a set period.
It&#;s important to know the real maintenance costs associated with a new or used car and the research can generally be conducted online. In terms of saving money on your next vehicle, those are hard numbers that need to be factored into the overall cost.
Prices at the pump set new records in the spring of and energy costs remain unpredictable. The miles per gallon of new and used cars rank among the driving reasons to select one vehicle over another. One of the best ways to save money is to purchase the most fuel-efficient vehicle that serves your needs.
These tips will help you save money on your next used car or new car purchase. If you still encounter uncertainties throughout the process of shopping for your car, choosing your financing, or looking for a car loan, contact us!
For more New And Used RRUinformation, please contact us. We will provide professional answers.
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