A question that car buyers often ask themselves is: should I buy a new car? This is largely a personal question that incorporates many decisions. Some of the factors that are important are, how long will you keep the car, why you want a new car and what is your budget? Let’s look at each of these questions individually.

How long will you keep the new car?

This is important because cars are a depreciating asset, meaning they lose value over time. Some depreciate quicker than others. This is why the length of time you keep the vehicle is important, the longer you plan on keeping the car the less likely you are to feel the brunt of the decrease in market value. Also, in most cases you will pay taxes and fees upfront on the purchase of a new car, so you need to divide those costs over the time you plan on keeping the car to determine what your actual cost is to own and drive the car. Most people get a new car every three years, yet finance over six years. It is not a very good idea to pay a loan off over a term twice as long as the car is owned. Cars lose the most value during the first three years, whereas the loan is paid off evenly. So three years into the loan, the balance owed is higher than the value of the car, causing a negative equity situation. This can cause a vicious cycle.

Why you want a new car?

For most people a new car is a big decision not to be taken lightly. There are many reasons why people buy new cars – status, lower cost, better mileage or just want one. I recommend that if your reason is lower cost or better mileage you really put pencil to paper and make sure that you will be receiving the benefit that you hope to receive. Most of the time people get so wrapped up in the excitement of the purchase process that they tend to overlook their primary objectives. If saving money is your goal, make sure to add up all your auto expense and compare it to the cost structure of the new vehicle. Get quotes on insurance and estimate your gas expenses based on your current usage.

What is your budget for a new car?

One benefit of a new car is a factory warranty. A warranty will cover any defects in the materials or workmanship. This allows you greater certainty of your expenses. You know that besides your payment, insurance and gas, you shouldn’t have many other expenses. This is different than an older car where it could breakdown at any time and cost you thousands to get it running again. This is a big advantage of buying a new car. However, a new car can be quite a big investment. You do not want to get in over your head with a new car. Make sure you are comfortable with the payment and the associated expenses fit in your budget.

This is part three of how to buy a used car. The first post covered how to buy a used car from a private party, the second was how to buy a used car from an auction. Definitely give each of those a quick read if you have not already since they do tie together.

Buying a used car from a dealer can cause even more stress and anxiety than buying a new car. Why? Because there are no two identical used cars, so apples-to-apples comparisons are almost impossible. Research and preparation are crucial if you want the best deal. In most cases you will pay more to buy a used car from a dealer, but this is not always without benefit.

The Auto Buying Guide covers the details and steps of how to buying a used car from a dealer. This post will discuss the advantages and disadvantages. The advantages of buying a used car from a dealer are considerable. The biggest advantage is the dealer is required by the local and Federal Government to stand behind the car they sell. The guaranty is limited, but it does cover you for enough time to identify any serious underlying problems. Another advantage is that you can drive your old car in and drive a new car out the same day. Financing is also much simpler when buying a used car from a dealer. You can still finance on your own, but just about any lender or auto finance company will grant a loan on a used car that is at a dealership.

The disadvantage of buying a used car from a dealer is that there is likely going to be some haggling, so you need to know what you are willing to pay. Do some research on Auto Trader to see what your chosen model is selling for on the open market. When you are at the dealership ask for the “Book Sheet”. This is the list of equipment, number of miles and approximate wholesale value. They don’t have to show it to you. But the better deal you are getting the more likely you are to see the Book Sheet, since they will use it to show you what a “great deal” you have. The important thing to know is what is available on the market at other dealers. All of them think they have the best selection at the best price. It is up to you to determine if that is true. You will also be paying sales tax and fees when buying a used car from a dealer, so include that in your budget.

If you want to learn everything you need to know about how to buy a used car at a dealer, check out the Auto Buying Guide.