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Features, Budgets and Car Loans - What to do Before Buying a Car

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Lots of people feel overwhelmed when it comes to car shopping. Deciding your price range, new or used, brand preferences, car loans, financial calculations – it can get confusing. What’s the best course of action? Learn about anxiety-free car buying from the ground up, starting with what you need to do before even looking at all the vehicle options on the market.

What kind of car do you need?
Identifying exactly what you need out of a car, versus what you want out of it, is a key consideration to make on your car-buying journey. Making the separation helps you pinpoint the vehicle that will actually be of most value to you, rather than one that distracts you with shiny add-on features.

Most people need a reliable mode of transportation to commute daily or for occasional travel.

If you're a daily commuter, a compact car with good mileage and high fuel efficiency may be what you need. On the other hand, if your job entails long hauls and heavy loads, then a larger diesel truck equipped to handle the job may fit you perfectly.

Think about your personal and family life as well. What car features are a necessity? You may need a vehicle with safety and theft protection features, all-wheel drive, or a collapsible third row of seats to haul extra baggage or have room for your kids' friends.

But do you really need add-on features? Things like a built-in navigation system, heated seats or a sunroof? For some, the answer is "yes," but for others, those add-ons may be an easy sacrifice to make.

Understanding your individual situation helps you learn to separate what you really need out of a vehicle from what you would just like to have.

Deciding on a car budget
Before buying a car, look over your budget to determine what kind of car loans would work for your situation. You can find worksheets to help you create your budget to stay organized and aware of what you can realistically purchase.

You should take a look at how much free cash flow you currently have available and how much you are willing to set aside for added car expenses. If you want to know what payment amount you are comfortable with, you can easily calculate it with a purchase price, interest rate and payment term.

Armed with the knowledge of your comfortable price range, you can begin to narrow down vehicles by price. You can incorporate some figures into your budget to get a better idea of how your monthly cash flow will be impacted.

Some basic numbers to work into your budget are:
  • Sales price.
  • Interest rates.
  • Repayment terms.
  • Monthly payment amount.
Working estimated numbers into your current budget can often paint you a clearer picture of how different prices, rates and terms may affect you in the long run.

You should also consider getting pre-approved for a car loan. This can help you establish your budget, as you'll figure out the loan amount and rate that you'd probably get. With this knowledge, you can adjust your budget or reconsider the type of car to buy based on what you'd realistically be able to purchase.

Car loans and financing options
You now know the type of car you want and the price you can afford. The next step is to figure out how you want to pay for your vehicle.

There are different loan and financing options to consider. Knowing which option is best suited for your needs and financial situation simplifies the car-buying process. However, before going through loan and financing options, you should also review your credit score and history. That way, it will be easy to shop around for lenders to see who offers low interest rates and ask for pre-approvals.

In a pre-approval, you submit an application to a lender. They run your credit to determine a loan amount, interest rate and payment term. With a high credit score and stable credit history, you can take advantage of lower interest rates and flexible payment terms.

An important note on pre-approvals: Getting a pre-approval before heading to the dealership has a few benefits. By understanding the loan you can get, you can be more in control of the negotiation process, especially if the dealership tries to offer you a loan on worse terms. Additionally, the pre-approval can keep you from going over your budget - it'll help you avoid getting distracted by expensive vehicles out of your range.

In general, credit scores, down payments and collateral affect interest rates and payment terms. Lenders often provide several types of car loans and financing options, such as:
  • Secured loans.
  • Unsecured loans.
  • Auto title loans.
  • Lease buyouts.
When shopping for rates and terms, remember a few key items:
  • A low interest rate means you will pay less interest over the life of the loan.
  • The monthly payment amount will be higher the shorter the payment term you decide on.
  • The down payment towards the sales price, as well as any features or packages you add to the vehicle, will affect your monthly loan payment.
What now?
After all the research you have done before you buy a car, it’s time to finalize your purchase. And knowing where to find the best car loans is the last stop.

Power Financial Credit Union is here to guide you through your car-buying decision process. You can find great tips and resources - our members can take advantage of personalized services, promotions, offers and exclusive discounts. We also offer a free car-buying service to our members through Auto Advisors, which takes the hassle out of finding a car and negotiating the best price. So, contact us or stop by any of our locations to get pre-approved for your next car purchase. We've been proudly serving the South Florida community for 70 years.