6 second take: Getting a new car is an important decision — make sure you take the steps to make this choice a financially responsible one.
After a house and a college education, a new car is one of the largest expenses for most people. Some people choose to buy a car outright and borrow money (use a car loan) to pay for it, while others “rent” a car by leasing it for a specific length of time. For each method, there are ways to lower the cost:
Car Loans
- Save up a large down payment, so you’ll need to borrow less money.
- Shop around for the lowest interest rate; compare at least three lenders.
- Improve your credit score to obtain a lower interest rate loan.
- Wait for seasonal sales to buy a car for a lower price.
Car Leases
- Try to negotiate seemingly fixed fees (e.g., acquisition and disposition fees) and the money factor (interest).
- Limit miles driven to stay under the mileage cap.
- Take good care of the car to avoid “wear and tear” fees.
- Do not terminate the lease early.
People who lease cars and car buyers who are “upside down” and owe more than their car is worth should also consider gap insurance. Gap insurance covers the difference (gap) between the amount owed on a car loan or lease and the amount that insurance will cover if a car is totaled or stolen.
