New Car Purchase

With winter over some, Canadians are starting to shop around for a new or used car. Are you ready for the joys and headaches that come along with it? Buying a car is most likely second to buying a house, as the most expensive purchase you will make. This comes with big responsibilities, and another reason to create a budget! Budgeting is important because there are a lot of expenses that come with a car. For instance: gas, insurance, routine checkups, and unexpected repairs. All these costs can add up quickly and usually come at the most inconvenient times. Be prepared!

Before looking for a car, it is best to decide what makes sense for you, whether it be buying new, used, or taking on a lease. They all come with pros and cons. If you’re the type of person who needs a new set of wheels every year or two, leasing may be the way to go. You pay less while financing and can lease your car for a year or two and then move onto a new one. Once you get into a lease, you are usually stuck in it unless you find a buyer to take over your lease (usually have to put in some incentive for the buyer: rebate, pay a couple months extra. So lease smart!). Some negatives that come with leasing are there are fees for going over the millage or any damage to the car, plus at the end of your contract you don’t leave with an asset.

When buying new, you are usually covered under a full bumper-to-bumper warranty (though it usually covers the period where you are in need of very little maintenance). Along with that, you get the perks of cheaper financing options (2% on average). Depending on the price, this can become cheaper in the long run. The negative to buying new is the depreciation of the car. On average, a car depreciates roughly 27% as soon as you leave the lot! Within the first three years of a cars life, it depreciates roughly 50%. After the first three years, the depreciation of a car will slow right down.

Although you miss out on the “new car smell”, buying used is always an option. When buying used, it is important to get the history of the car (https://www.carproof.com/), so you know exactly how it has been driven and the problems which may have occurred. Before making the purchase, it is important to have your mechanic look at the car to see if there are any problems with it. Buying used will be cheaper because the depreciation has already occurred. Not only is it cheaper but it doesn’t depreciate in value as quickly, so you will get your money’s worth out of it. With cheaper prices come higher financing rates. On average, the dealership will offer you a 6-7% financing option on a used car. Also, all or most of the warranty will be used and as it gets older the car will start having more problems that require fixing.

Before you start looking for a car, it is best to decide your price range and budget. A general rule of thumb is to buy a car that is roughly 20% of your net income before taxes. On top of that try and put a substantial down payment to reduce the price you will pay on interest. With all of this in mind here’s a 10 step process to follow for buying a car:

  1. Know your credit score- This is a recurring theme when looking for a loan. Once you know your score, ask around for financing rate estimates. http://www.consumer.equifax.ca/home/en_ca.
  2. Do your research- Don’t arrive at the dealership and let them pressure you into choosing your car. You should look up cars online, find ones with features that are important to you (safety, fuel efficiency), and in your price range. You should go with a good idea of what you are looking for.
  3. Insurance and maintenance- Call your insurance provider and get a quote on the car to make sure you can afford it. You would be surprised at the amount of people who do this step after the car has been purchased, only to find out its way more that they estimated. Also, see how expensive new parts and maintenance fees will be, as it could change your decision about your purchase. Talk to your mechanic to discuss maintenance on the vehicle.
  4. Find the best price- Don’t just go to one dealership, look at many and make them compete for your business. This can be done online so you can bypass all the sales pressure, and receive a better rate. Also by making them compete, you won’t make a huge mistake in buying on the first day. First day buyers usually pay a lot more for the car then buyers taking their time.
  5. Test drive- A test drive should take between 20-30 min and not just on side streets. You should take it on the roads you drive often and on the highway to see how it feels. You want to make sure you feel comfortable behind the wheel, so take your time!
  6. Try to find invoice pricing- Invoice pricing is the price the dealership paid for the car. It is better to negotiate invoice price up, compared to sticker price down. To find out the invoice price, here are some sites to look at http://www.unhaggle.com/ or http://www.canadianblackbook.com/. Do not mention anything about trading in a car until the deal is done, tell them that you aren’t sure yet. That way they don’t try and hike up your prices.
  7. Watch out for add on prices- Make sure to read over the contract carefully, read the fine print, and make sure there are no extras that will cost you.
  8. Negotiate the financing of the car– Don’t hurt your credit score, finance smartly. Match dealer financing with your money lender of choice (get a copy of their finance contract to make sure you get the best rate).
  9. Car appearance- Make sure you check the car for scratches and dents, even on a new car. Also get them to show you how to work all your cool features.
  10. Enjoy your new ride!!!!

Now that you have your new car, go out hit the road, and enjoy your freedom and summer!


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