Buying a car can be a lot of fun. But it can also be an easy way to lose money fast. Making sure you know exactly what to avoid can help you learn how to save money when buying a car and not get trapped into something you may regret later.
New VS Used Cars
Buying a brand new car is a sure way to lose 10% of your money within a couple of minutes. The reason for this is that as soon as you drive the car out of the dealership the resale value on that car is usually 10% less than you paid. New cars also come with a regimented servicing regime if you want to ensure that you keep your new car warranty intact.
The main benefit to buying a new car is that you should get less problems with a new car and if a problem does occur you will have a new car warranty. The warranty will enable you to have the car fixed at no cost to your bank balance.
If you really want a new car but don’t want to end up losing a tonne of money, the best thing you can do to save money when buying a car is to purchase a 2-3 year old car. This will normally save you 20%-30% off what a brand new car would have cost, and it is unlikely to depreciate in value by such a large percentage over the next 2-3 years. The downside to this type of purchase is that the car will be coming out of its warranty period, which means that if something breaks you will be out of pocket to fix it
Buying an used car more than 6 years old is one of the best ways to save money when buying a car. As a car ages its value decreases (with the exception of classics). In the first few years of a cars life it will depreciate in value quite quickly. But as a car gets to be more than 6 years old its resale value stays fairly constant with only minor losses over the next couple of years. If you can handle driving a car which is 6 – 10 years old this is where you will likely find the best value for money.
Private VS Dealer
The two main ways people buy cars is through a private sale or via a dealer.
Normally it is more expensive to buy a car through a dealer, however there can be advantages over selling it privately – like being able to trade in your old car without needing to get a road worthy or safety certificate.
Buying a car privately can save you a couple of thousand dollars if you are prepared to shop around. This is my preferred method of buying a used car as these days there are many websites which list private car sales (which include photos) all in one spot. This makes searching for a car relatively easy and means you don’t need to drive around all day to various sellers houses just to take a look at the vehicle.
Making the correct car selection can save you a lot of money over the life of your car. Some of the things to consider are
- Carrying capacity (Will this car be able to handle your current and future requirements? Are you planning on starting a family? Do you need to carry large items?)
- Cost of refuelling (A car with a V8 engine will obviously cost you more than a car with a V4 engine. Be sure you can afford the extra fuel expense that comes with a larger car)
- Car registration (The type of car can have an impact on the amount of registration that you have to pay each year. Its worthwhile checking this out)
- Car insurance (Some cars are significantly more expensive to insurer than others. And some insurers will charge you more than others for the exact same car – Shop around for the best deal!)
- Check the internet for details on the car and see what commonly goes wrong with that make of car. If it is something really expensive, then you need to be aware of that prior to making the purchase.
Car Finance – The best way to save money when buying a car
If you can avoid getting finance on a car then this will almost certainly be the biggest saving you will make. Most dealer finance options will set you back up to 15% interest per year. If you enter into a loan over 10 years for a $30,000 car, then you will end up paying a whopping $28,000 in interest plus the original $30,000 – that’s $58,000 for a car which is 10 years old and will likely only fetch $10,000 – $15,000 if you wanted to sell it. As you can see, this is a fast way to the poor house.
If you do require finance then the best way to save money when buying a car is to head over to your local bank or credit union prior to going to the car dealership and speak to them about getting a personal loan to be used for a car. 9 times out of 10 this will be a far cheaper option than that of the dealership finance, with interest rates normally being significantly lower.
If you are able to wait until you have enough cash to buy a car, then this is by far the least expensive option. Obviously this all depends on your own situation (like ability to get to work) but it is something worth considering.
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