3 Common Car Buying Tips that are Completely False
Whether you’re buying a car for the first time, or you want to undo the terrible experience you had the first time, these are vital things you should know when buying a car. These three ‘tips’ are commonly heard but are definitely false. Read on to separate the bad advice from the true facts for prospective car buyers.
1. It’s always better to get your financing through the car dealership.
If your goal is to get the best price on your car as well as the best loan, it’s not that straightforward. There are certainly times that dealerships offer deals that cannot be beat. But you need to be prepared to be able to take advantage of those deals. The two best ways you can prepare yourself is to –
1) Find out your credit score and raise it as high as you can.
2) Get pre-approved from a financial institution before negotiating price with a dealership.
Your credit score will have the biggest impact on your loan. High credit scores are the ones that get access to those incredible 0% financing offers from the dealership and the lowest interest rates at financial institutions.
This chart from ValuePenguin shows how dramatically your interest rate can change based on your credit score.
If you want to pay less money over the life of your loan, focus on raising your credit score first! Read ‘Use These 7 Hacks to Repair and Raise Your Credit Score’ now!
Getting pre-approved is another vital step to get the best deal. Go to a lender of your choice and fill out a pre-approval application. The lender will tell you the maximum amount of money you could loan from them and the interest rate you qualify for. Keep in mind that you don’t have to use the full pre-approved amount!
Some more benefits to pre-approval include –
- It gives you negotiation power at the dealership. The sales team will treat you like a cash buyer. They know you have access to funds and can walk away at any time.
- You won’t waste time looking at vehicles above your price range. You know exactly how much you can spend, which means the sales team can’t talk you into a higher-priced vehicle.
- You will get the best interest rate possible. Your pre-approval will show you the lowest interest rate you qualify for at that financial institution. Once you’re at a dealership, you can always see if they can beat the interest rate of your current offer or if your lender can update their terms to match the dealer’s best offer. Either way, you win.
It’s always worth considering your local credit union when searching for a financial institution. This graph from WalletHub shows that credit unions offer some of the lowest average interest rates in the auto lending market.
2. You have to wait a certain amount of time before refinancing your car loan.
If you have bought a car and are paying for it through an auto loan, you can apply to refinance that loan at any time. There is no minimum waiting period! If you think you could qualify for a better rate than what you got, start applying to refinance right away even if you’ve only made one payment.
Common reasons to refinance include –
- Interest rates have dropped across the entire auto loan market
- Your credit score increased, and you qualify for lower interest rates
- You never got pre-approved and your original interest rate is higher than average
Read ‘Would You Save Money by Refinancing Your Auto Loan?’ to see if you should be applying to refinance your loan.
3. It’s always better to buy a new vehicle than a used vehicle.
Brand new vehicles have plenty of pros. They have the latest safety features, the latest technology, and are only getting better with fuel efficiency. You can customize your order to pick the exact features you want. Upfront maintenance costs will be lower, the warranties will be solid, and dealers are more apt to give out rebates and perks like free inspections.
But buying new has its downsides. Cars are not great investments. New cars lose, on average, 20% of their value in the first year of ownership! One tactic to avoid this is to find makes and models that retain their value better than average
Kelley Blue Book’s 2018 top ten list of cars with great resale value include –
1) Toyota Tacoma
2) Toyota Tundra
3) Toyota 4Runner
4) Jeep Wrangler
5) GMC Sierra
6) Chevrolet Silverado
7) Ford F-Series
8) Chevrolet Colorado
9) Honda Ridgeline
10) Subaru WRX
Buying new isn’t the best decision for everyone. Used vehicles help you avoid that depreciation hit, their purchase price is cheaper than the new model, they come with lower insurance costs, and they put luxury brands in reach for many consumers. You’ll need to make sure you properly research the vehicle to know what maintenance and repairs are in store for you. Not to mention you’ll need to confirm it has a clean history with help from sites like CarFax.