Car shopping. Pretty horrible, right? No one wants to deal with pushy sales people, confusing pricing, and all of the haggling. If pop culture is to be believed, there are truly few things worse than having to go buy a new car. Fortunately, it doesn’t have to be this way. Despite car shopping being the second largest decision a lot of consumers will ever make (a close second to buying a home), it doesn’t have to feel like a burden. And while there are plenty of great new cars for sale, the market for used cars has never been better. With the right preparation and mindset, you can make your next car purchase a fun, fulfilling experience.
New or Used
It’s an old stereotype, but you see it on many TV shows and movies. It’s the used car salesman, greasy and unkempt with a couple of stains on his shirt or facial hair two decades out of style. He patrols his lot like a predator, ready to trap unsuspecting prey. His tactics are simple – bombard shoppers with a pushy attitude and too-good-to-be-true deals until they run away or relent and make a purchase. He’s a swindler but he doesn’t care, all he wants is his customer’s cash. While this trope may still be true in a few dealerships, it’s not representative of the industry today.
Truth be told, the used car market has never been stronger. Television advertisements focus almost exclusively on new cars, and it may sometimes feel like everyone you see is behind the wheel of a new ride. In fact, the opposite is true. Of the 59.8 million light-duty vehicles sold in 2017, over 70% were used. To put that in real numbers, 42.7 million used cars were sold while only 17.1 million new cars left dealer lots. The present batch of used cars is safer, more technologically advanced and better performing than anything that’s come before it. The buying experience has improved with the cars – shoppers have access to troves of data at their disposal and Carfax reports highlighting areas of concern. It’s not hyperbolic to say that there has never been a better time to buy used.
There are a few good reasons to only buy new cars: warranties, low mileage and no wear and tear among them. But as cars have climbed in quality, their prices have risen too. While some models remain cheap, many grow exponentially more expensive as options and accessories are added. For many, the cost of a new car doesn’t fit into their budget. Luckily, there are some hidden advantages to buying used.
It’s an unfortunate but true adage that any new vehicle begins to lose its value as soon as it leaves the dealer lot. In fact, many vehicles experience their sharpest depreciation at the beginning of ownership. By buying used, you avoid this sudden drop in value to one of your most valuable assets. Any car will continue to depreciate throughout its lifetime, but used owners have a chance to see a better return on investment if and when they decided to sell their vehicle. The depreciation curve may also slide pricier cars into your price bracket. This can be especially helpful for those looking for the most up-to-date safety equipment or a luxury marquee. A used car doesn’t mean you have to downgrade.
The Path to Ownership
As with any product, a prepared consumer will always get the best deal and will be able to spot and avoid scams. It’s important to make and follow a plan before you get anywhere close to signing on the dotted line. Well-equipped customers will set a budget, get pre-approved or pre-qualified, and window shop before setting foot on a dealership lot.
Setting a budget
If you’re financing your purchase, which the majority of consumers will do, there are three main components to consider when setting your budget: down payment, monthly payment, and loan term. As with any type of loan, a shorter term means less time spent paying interest and a lower risk of default. While a long loan term – some loans now extend to 84 months – may seem appealing, it’s important to consider what you’re getting when to commit to a car for 7 years. By the time you pay off the loan, your new vehicle will be at least a generation old, if not more, and will be outside of many automakers’ standard warranties. Keep the loan term in mind when budgeting, as it will play a large role in how much you contribute to your down payment or monthly payments. It may be tempting to break the bank on a down payment and avoid a long loan term or expensive monthly payments – but don’t scratch that itch. The best budget keeps you financially stable throughout your loan term.
Pre-Qualification and Pre-Approval
Pre-qualification is the initial step in the car financing process, and it’s generally fairly simple. A perk of pre-qualification is that it requires very little personal information. If you’re just starting to shop, you won’t be tied to any bank or lender just because you pre-qualified. In this “soft” credit check, you’ll be asked to give the following:
- Full Name
- Email address
- Phone number
- Social security number
- Date of birth
- Your home address and length of residency
- Whether you rent or own
- Employment status and job information
- Estimated yearly income
If you’ve already been doing a lot of research, the amount you pre-qualify for might not be a surprise. However, you now have a real rate from a lender to give you a ballpark as you shop.
Pre-qualification does not check your credit score, and you can pre-qualify with as many entities as you wish. The flip-side of this is that a pre-qualification rate may be subject to change. Most pre-qualifications are based on algorithms that merely provide a quote from the limited information you provide. You need to get pre-approved and go through a more rigorous credit check before any rate can be finalized.
Pre-approval is the final step to take before securing a loan. Pre-approval does a true credit check and produces a solid number you can apply to your car search with confidence. Pre-approvals can be completed online, over the phone, or in person at the lender office. If you don’t already have a relationship with a lender, you can apply for multiple pre-approvals; if they’re completed within 14 days of each other, the multiple credit checks will only count as one. If you do get multiple pre-approvals, it’s important not to disqualify any of the financing offers you receive.
After setting your budget and getting pre-approved or pre-qualified, it’s finally time to have some fun and window shop. To get the most out of this experience, it’s important to not go in with any preconceived notions or brand snobbery. Sticking to your budget will get you much further than splurging on a luxury car out of your price range. Also, while online shopping is certainly helpful, nothing beats hitting the dealerships and conducting test drives. Any sales person worth their salt will understand if you’re not quite ready to pull the trigger and won’t pressure you into a bad decision.
At this point, what’s stopping you from getting your next used car? If you take your time, make the right financial decisions and put in the time to research, you can get a fulfilling experience from a used car. Now get shopping!