The real budget
The price of the car is perhaps two thirds of what it costs. Sales tax, title and registration are due at purchase, and together they can add close to a tenth of the price, depending on your state. Insurance for a driver under twenty-five can run to a couple of hundred dollars a month, and it varies widely by model, so get quotes on the specific cars you are considering before you fall for one. Add fuel and a maintenance allowance of fifty to a hundred dollars a month for an older car. If the sum breaks the ten percent guideline, the answer is a cheaper car and not a longer loan.
Arrange the money first
Apply for preapproval at a credit union or your own bank before you visit a seller. A short credit history means a high interest rate, and knowing your rate in advance lets you refuse a worse one in the dealer's finance office. A six- or seven-year loan on a used car can leave you owing more than the car is worth for most of its life. Think hard before you ask for a cosigner, who is fully liable for the debt and whose credit suffers from any payment you miss.
Buying the car
- You shortlist models with strong reliability records, and you check each candidate's vehicle identification number for open recalls on the federal highway safety agency's site.
- You buy a vehicle history report and walk away from a salvage or rebuilt title.
- You pay an independent mechanic for a pre-purchase inspection, which usually costs one to two hundred dollars.
- You negotiate the out-the-door price, with every tax and fee included, and you never negotiate the monthly payment.
- You read every line of the contract before signing, and you decline add-ons such as paint protection and etched windows.
In a private sale, meet at your bank, confirm that the name on the title matches the seller's identification, and leave with a signed title and a bill of sale.
Before you drive away
Insurance must be active before the car moves. Title and register the car in your own name within your state's deadline, which is often thirty days or less. If your down payment was small, ask your own insurer about gap coverage, which usually costs far less there than at a dealership.
Tip Start a car fund the week you buy. Fifty dollars a month set aside turns the first four-hundred-dollar repair into an irritation instead of a crisis.
