Ultimate Guide to Car Buying: Save Big with Expert Tips

Buying a car is an exciting milestone, but it can also be financially overwhelming if you don’t plan ahead.

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Whether you’re considering a new or used car, our comprehensive guide helps you navigate budgeting, financing, leasing, and more to make informed decisions that save you money in the long run.

The 20/4/10 Rule of Car Buying

One effective way to determine how much you should spend on a car is the 20/4/10 rule. Here’s what it entails:

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• 20%: Put down at least 20% of the vehicle’s total cost as a down payment.
• 4 years: Opt for a loan term of four years or less to minimize interest payments.
• 10%: Ensure your total car expenses (loan payment, insurance, fuel, etc.) do not exceed 10% of your monthly income.

This rule offers a baseline for budgeting and helps prevent financial strain, though it’s not a one-size-fits-all approach. Adjust it based on your individual circumstances while keeping long-term affordability in mind.

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How to Set a Realistic Budget

Start by assessing your financial situation. Calculate the total cost of the vehicle, including the loan principal, interest, insurance, and maintenance. Remember, a longer loan term often means higher interest payments. Opt for shorter loan durations if possible to save money in the long run.

Factor in ongoing costs like fuel and repairs. According to AAA, the average annual cost of owning a vehicle was $10,728 in 2022. Use this as a guideline to estimate expenses beyond the monthly payment.

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Buying vs. Leasing: Which is Better?

Buying: If you plan to keep your car for over five years or drive more than 15,000 miles annually, purchasing might be your best option. Ownership allows you to build equity and eliminate monthly payments once the loan is paid off.

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Leasing: Leasing can be advantageous for those who prefer switching cars every few years. It typically involves lower monthly payments and includes warranty coverage, reducing maintenance costs. However, be mindful of mileage limits and end-of-lease fees.

New vs. Used: Making the Right Choice

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Buying used can save you money upfront and allow you to afford a higher trim or luxury model. Certified pre-owned (CPO) vehicles strike a balance between cost savings and reliability, offering extended warranties and thorough inspections. Meanwhile, new cars come with the latest features but depreciate faster.

Getting the Best Financing

Shop around for financing options to secure the best interest rates. Consider getting pre-approved through a bank or credit union to have leverage during dealership negotiations. Keep an eye out for manufacturer incentives like promotional rates or cashback offers, especially during holiday sales events.

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Preparing Your Trade-In

Maximize your trade-in value by cleaning your car thoroughly and addressing minor repairs. Avoid costly mechanical fixes, as dealerships handle repairs more economically. Use MotorVero’s trade-in tools to get an accurate value for your vehicle and streamline the process.

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FAQs About Car Buying

What is the average car loan length?

The average loan term is about 72 months, but shorter terms are recommended to save on interest.

What does it mean to be upside down on a car loan?

It means you owe more on your loan than the car’s current market value. Options include refinancing or paying down the balance.

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Is it better to lease or buy?

Leasing is ideal for low-mileage drivers who prefer new cars every few years. Buying suits those who value long-term ownership and equity.