How to Buy a Car Without Regret

Few purchases are as exciting, or as easy to regret, as a car. The new-car smell fades in a few weeks. The monthly payment can last for years. And because vehicles lose value over time, a poorly planned purchase can leave you owing more than the car is worth.

The good news is that buying a car wisely isn't complicated. It mostly comes down to deciding what you can afford before you ever set foot on a lot, and then sticking to it.

Start With the Right Question

The most common question at a dealership is, "What monthly payment are you looking for?" It sounds helpful, but it's the wrong place to start. Almost any car can be made to fit a monthly payment by stretching the loan longer, and that's exactly how people end up overpaying.

Instead, start with these questions:

• What is the total price I can afford, including taxes and fees?
• How much can I pay in cash?
• If I borrow, how can I keep the loan small and short?
• What will this car cost me to own each month, not just to buy?

Know the True Cost of Ownership

The sticker price is only part of the story. Before you choose a vehicle, estimate what it will cost to keep it on the road:

• Insurance: Get quotes before you buy. Premiums vary widely by model.
• Fuel: Consider your daily commute and the vehicle's fuel economy.
• Maintenance and repairs: Tires, brakes, oil changes and unexpected repairs add up, especially on older vehicles.
• Registration and taxes: These vary by state and can be significant.
• Depreciation: The value your car loses over time is a real cost, even though you never write a check for it.

Add these up and you'll often find that a car's ownership costs are a big part of what you'll really spend each month.

Beware the Long Loan

Car loans have grown longer over the years, and terms of six or seven years are now common. Longer terms lower the monthly payment, but they come with real downsides:

• You'll usually pay more interest over the life of the loan.
• You're more likely to owe more than the car is worth for a long stretch, which makes trading in or selling difficult.
• You may still be making payments when the car needs expensive repairs.

Here's a simple illustration. A $500 monthly payment sounds manageable. But over a 72-month loan, that's $36,000 in payments. Seen that way, the decision looks very different.

If you do borrow, aim for the shortest term you can comfortably afford and a meaningful down payment. And keep the total of all your vehicle payments a modest share of your take-home pay, so a car doesn't crowd out savings and other goals.

New or Used?

New cars come with the latest features, a full warranty and no unknown history. But new vehicles typically lose value fastest in their first few years. A well-maintained used car that's a few years old can offer much of the same reliability at a substantially lower price, because someone else absorbed that early loss in value.

If you buy used:

• Get a vehicle history report.
• Have an independent mechanic inspect it before you buy. The small fee can save you from a very expensive mistake.
• Check reliability ratings and common problems for the specific model and year.
• Review maintenance records when available.

The Power of Paying Cash

Paying cash for a car may sound out of reach, but it's more doable than many people think, especially if you're willing to drive a modest vehicle for a while.

Imagine a family that finishes paying off a car loan and keeps "making the payment," say $400 a month, into a savings account instead. In two years, they've saved $9,600. Add the trade-in value of their current car, and they can buy their next vehicle outright, or at least borrow far less. Repeat the cycle, and they may never need a car loan again.

Driving a paid-off car brings a kind of freedom that's hard to describe until you have it. No payment means more room in the budget for saving, giving and the things that matter most.

Shopping and Negotiating

Do your homework

Research fair market prices for the make, model, year and mileage you want. Compare listings from several sellers. Knowledge is your best negotiating tool.

Negotiate the price, not the payment

Focus on the "out-the-door" price, which includes taxes and all fees. Negotiate your trade-in separately, and consider getting a quote from another buyer first so you know what it's worth.

Watch the add-ons

In the finance office, you may be offered extended warranties, protection packages and other extras. Some may have value for some buyers, but they can add significantly to the price, especially when rolled into a loan. Ask for each one in writing, take your time, and feel free to say no.

Be willing to walk away

There will always be another car. If the numbers don't match your plan, or you feel rushed, thank the salesperson and leave. Some of the best deals happen after you've shown you're willing to walk.

Your Next Step

Before you start browsing listings, sit down and set your total budget: the out-the-door price you can afford, how much you'll pay in cash, and the most you're willing to borrow. Get insurance quotes on a few models and a loan pre-approval if you'll need one. With those numbers in hand, you'll shop with confidence and drive away knowing the car fits your life, not the other way around. If you're planning a major purchase and want help fitting it into your budget, NavLight offers coaching for exactly that.