into other investments. In fact, she owns a couple of investment properties in the Pocono Mountains. It also got her into a higher-end car, specifically a Mercedes. She doesn’t have to worry about repairs and enjoys having a new car every few years.
BUYING THE CAR
On a purely mathematical basis, buying has traditionally been proven to be the best choice. Most car loans are five years, and then you’ll be payment-free for as long as you keep your vehicle. Loans are getting longer in order to lower the monthly payments. Doing that will ultimately make the car more expensive because you’ll pay more in interest, but your lower monthly payments will help you meet other financial obligations such as paying down your student debt or having more money to invest. As of now, the average car on the road is more than 11 years old. So even if you stretch your car loan out a little longer, you’ll have a nice stretch of years with no payments. And while cars do depreciate in value, when you do finally move on to your next car you’ll likely get something for your old car, even if you give it to charity and get a nice tax deduction.
THE USED CAR OPTION
As I mention above, cars now last a really long time. And with all the leasing going on, there are going to be a lot more used cars available that are in great shape. So if you’re looking for value, this may be an option. Don’t be a snob.
Karl Brauer, senior director of insights and senior editor for Kelley Blue Book, points out that because car companies are going to have so many used cars to sell, they are improving their certified pre-owned programs. Warranties on used cars are as good as if not better than those on new cars. And he reminds buyers to always spend time researching before heading to the dealer. Given how much information is now available about the value of both new and used cars, there’s no excuse to not be prepared and know what you should be paying.
GO FOR THE INTERNET SALESPERSON
The salespeople who work the floor of the dealership get paid on a traditional commission structure. They will assume that you haven’t done extensive research online and will offer you a higher price from the start, according to TrueCar’s Vice President of Industry Insights Eric Lyman. He says a little-known secret is that if you come in through the Internet sales team, they will often offer you a lower opening price because they know that you’ve done your homework. While it varies at different companies, Lyman says that in most cases the Internet sales team is paid differently and has more wiggle room when it comes to price negotiation.
GETTING THE BEST FINANCING
Here’s a case where that good credit really hits home. Buyers with fair credit will end up spending about six times more to finance a vehicle – equal to about $6,100 in additional interest payments over the life of a $20,000, five-year loan – than consumers with excellent credit, according to WalletHub.
For all the effort car buyers make negotiating a price, they often let the financing slip through the cracks. Brauer says that the most important thing is to do your research before you even get to the dealer.
Local credit unions often have the best deals. Banks can also have better rates than dealers.
Make sure you know your credit score. Brauer says buyers are often surprised that their score isn’t as high as they had thought and are left scrambling at the last minute at the dealer, figuring out if they can still afford the vehicle at a higher rate.
Ask the dealer to beat, or at least match, the best rate. If they do, go with the dealer. They can make the whole process run more smoothly, without you having to go back and forth while the paperwork is being done. But if they don’t, you will be prepared to take your business elsewhere.
Don’t relax. Watch all the numbers until the entire transaction is complete. Just because you negotiated a price for the car doesn’t mean that you can put down your guard. Pay attention to everything. If you’re trading in a car as well, fight for the best price. As it is you bought at retail and are selling at wholesale.
BEWARE THE UPSELL
If you’re adding on extras, be careful that you really want them and that you aren’t just becoming passive because you’re excited to get your new car. Make sure that what’s on the contract is what you agreed to. Read everything.
Brauer also says to really look carefully at the extras that dealers present. Take your time and do the math. In most cases paying ahead of time for things such as maintenance and extended warranties is not the best financial deal.
THE ULTIMATE GROWNUP DEBT: MORTGAGES
Taking out a mortgage is a really grownup thing to do. In many cases you’re committing to payments that could last as long as 30 years. The amount of the mortgage is probably daunting. But take a deep breath. In general, mortgages are good debt. They allow you to invest in a home, which will likely be your biggest asset. We’ll talk more about what to look for when it comes to deciding what to buy in Chapter 7 on real estate. But first, let’s go over the key things to think about.
Choosing a Lender
The good news is that because of the Internet there are countless resources available. Try to choose a lender before you shop for a home so you’re pre-approved. Get referrals from friends, and ask those friends why they had a good experience. Also ask them if there were things that they felt could have been done better. If you have a trusted real estate broker, that person can also make recommendations.
Ask a lot of questions before you sign on. Assuming you have good credit, lenders want your business. This is the time to negotiate, not when you’re under pressure to get a loan to lock in a home you fell in love with.
Some good things to ask:
What are the terms of the available loans and their interest rates?
What are the title insurance fees?
What are the fees for services you’ll need such as help from an attorney and document preparation?
Get Pre-Approved
It may sound obvious but it needs to be said. Getting approved in advance can often mean the difference between getting the home of your dreams or watching someone better prepared snag it right out from under you. Get your paperwork in order. That will include pay stubs, W-2s, bank statements, tax returns, and relevant loan documents. It will help a lot to have locked in a lender you’re happy with before going through the pre-approval process. If you want to switch lenders after pre-approval, you may have to go through the whole process again, which will involve another hard credit check. And as we know, that could hurt your credit score.
Do the Math and be Conservative
Don’t take on a mortgage you aren’t sure you can afford. There are a lot of adjustable rate loan products out there that can make your monthly mortgage payments lower. But beware. Taking on a complicated loan that changes rates after a few years is risky. If you have the capital saved to provide a cushion, it may work. If you know that you’ll be moving before the rates adjust it could be a great option. But for most first-time home owners a conservative 15-or 30-year standard mortgage is a safe bet. Add up your housing costs. It should be no more than 30 percent of your income. Don’t forget that housing costs include more than your mortgage. Factor in taxes, insurance, maintenance, and unexpected expenses, such as a large repair or a tree falling.
Read the Paperwork and Ask Questions
Taking out the biggest loan of your
