Finances First

By Chelle Cordero

August 21, 2009 5 min read

Believe it or not, buying a car in today's very tough economy can be a good deal. Auto dealerships are anxious to move both new and used cars off of their lots. Banks, though wary about lending, need to loan money to earn interest. Meanwhile, consumers just like you are eager to sell their bigger, more expensive vehicles in order to downgrade and cut costs. There are a lot of deals out there, so look carefully.

Consider your income level and credit history, since they will factor in strongly when it comes time to finance a new or used vehicle. Many car buyers will find it easier to obtain loans for used cars simply because the cost is so much less. There are even a growing number of dealers and finance agencies that are willing to "roll over" your last car's loan into this new one -- but beware, as these deals are usually offered with higher interest rates because of unsecured collateral. Finding a great deal within your price range and financing it through the bank is also a terrific way to build your credit.

Before you go to the dealer, make sure that you understand what your needs are, your ability to pay and the total cost of buying a vehicle -- whether old or new. Research cars by checking out newspaper ads and scanning the Internet. Armed with knowledge of the market, you will be better equipped to negotiate a fair price.

Mark Scott, senior manager for media relations at AutoTrader.com, offered the following advice when shopping:

* Make a list of the things you want and then compare that list against the variety of models you're considering.

* Determine the things you must have with this car. Do you have a big family and need a lot of room? Do you tow a boat or trailer so you need lots of power? Do you love the fast lane so you need something sporty? "The worst thing you can do is get a great deal on a car that's missing one of the main things you need or want," he said.

*Once you've made a list of the things you need and the models that might meet those needs, do some research online and compare those cars against each other on specs, features and prices.

* Once you've narrowed your choice to a specific model or two, compare those cars at different dealerships.

Dave Girolamo, general manager of Curry Honda in Yorktown Heights, N.Y., said deals vary throughout the country. "The used car market is strong, but there are regional differences. The new car market is holding up well in the northeast."

However, "the used car market offers a wide choice with less outlay," he added.

Economy-minded consumers may want to consider a certified used car from a dealer, which has undergone rigorous testing and often comes with short-term warranties. Maintenance packages and extended warranties may be available for them at a reasonable cost.

For privately purchased used cars, ask if any manufacturer warranties are transferable -- manufacturer warranties are often in place with cars under five years and 50,000 miles.

Still, financing a used car is easier than financing a new car. "New cars depreciate very quickly, so if you've bought a car for $20,000, financing most of it, that car may only be worth $15,000 after a year or so on the road," explained Scott. "If the bank is forced to repossess that car, suddenly the bank is holding an asset that is worth less than the loan they have on it, which means they'll take a loss when they go to resell that car to recoup their loan."

Most recently, lenders were only making new car loans to people with top-notch credit or making very large down payments so they wouldn't get stuck with cars that were worth less than what they'd loaned out on them. "However, if you've bought, say, a five-year-old used car for $12,000 and financed much of that purchase, the car is still going to be worth close to that for some time because depreciation slows down dramatically as a car gets older," Scott added.

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