Purchasing a new car is rarely an enjoyable experience. Just choosing which car you want is hard enough, let alone dealing with car salesmen, financing companies, and calculating how much you can actually afford to spend.
As of December 2018, the average loan on a new vehicle is approximately $32,000, an increase of $6,000 when compared to the average loan amount in 2010 at $26,000. The higher the loan amount, the higher the interest paid, which almost doubled from 2010 to 2018, from $2852 to $5,555.
Before you rush out to purchase that new vehicle, keep the following in mind:
Consider Buying A Used Car
Everyone has heard that the value of a car depreciates the minute it is driven off the lot, and while this fact is true, the depreciation is probably not as extreme as most have heard. While estimates differ, on average the value of a vehicle depreciates by around 11% once driven off the lot, and around 20% after the first year.
After the first year, the value will drop about 10% per year until it essentially bottoms out at ten years. The sweet spot for buying used is around 3-5 years, which allows you to purchase a vehicle that isn’t generally old enough to require any major repairs at a decent price.
Buying used can reduce your monthly payments by quite a bit, averaging $558 for new vehicles, and $413 for used vehicles in 2018.
Know Your Budget Before Going to The Dealership
Unless you are going to the dealership to simply test drive a vehicle, there is no reason you should show up without knowing exactly how much you are willing to pay for a vehicle, including both the monthly payment and the total price. The worst thing you can do is let a car salesman determine your budget.
Buyers are typically manipulated into paying thousands of dollars more on a vehicle through the use of higher interest rates and longer loan terms. The average loan term in 2010 was 61 months, where today it has increased to 68 months.
Salesmen typically entice buyers into less favorable long-term loans under the guise of lower monthly payments. While lower monthly payments may be more manageable, the tradeoff includes paying thousands more in interest and still paying on your car after six years or more.
Keep an Eye Out for Deals
While most car-buying incentives, such as zero-percent interest loans, are going to require higher credit scores, there’s no real downside to looking into them. Some dealerships will have trade-in or cash-back specials for certain vehicles depending on what is in their current inventory. If you happen to be interested in one of these vehicles, you could potentially get a great deal.
On the flip side, be wary of “deals” that are not what they appear to be. Avoid “no-haggle” dealerships as they are generally cost a few thousand dollars more than a typical dealership and the inability to haggle has no benefit to the buyer. Technically, every dealership is no-haggle, as you can always choose to simply pay the sticker price of a vehicle.
Contact a Bankruptcy Attorney for Car Payment Help
If you are having difficulty making your monthly car payments, or if your car payments are preventing you from keeping up with other expenses, please give one of our Bond & Botes offices a call for a free consultation.
Grafton Weinacker is an Associate Attorney at the Bond & Botes Law Offices in Birmingham, Alabama. He holds a Bachelor of Science from Birmingham-Southern College, and a Juris Doctorate from Cumberland School of Law at Samford University. He joined the Bond & Botes team of bankruptcy attorneys in July of 2018. Read his full bio here.