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Car Buying 101: Financial Steps to Purchase a New Vehicle
- 2. This course provides an overview of financial steps needed to purchase a new car. Before you begin the car buying process it is helpful to know what to expect. Duration: 30 Minutes Car Buying: 101
- 3. Learning Objectives Upon completion of this course, you will be able to: Create a budget Learn how to research a vehicle Learn how to identify your car needs & wants Learn about credit and how to maintain a good credit score Learn how to get financing; and Learn some helpful financial tips.
- 5. Create a budget Create a Budget
- 6. Creating a Budget Make two columns Income Expenses Line 1 – Paycheck #1 Line 1 – Rent / Mortgage Line 2 – Paycheck #2 Line 2 – Electricity Line 3 – Other income Line 3 – Cell Phone Bill Line 4 – Total Income Line 4 – Cable Line 5 – Water Line 6 – Miscellaneous Line 7 – Total Expenses (Total Income) – (Total Expenses) = Income left over Creating a Budget 1.Make two columns 2.Left side write Income 3.Right side write Expenses 4.Subtract total expenses from total Income
- 8. Searching for the car of your dreams Research online: i.e., Edmunds (www.Edmunds.com) KellyBlueBook (www.KBB.com) CarFax (www.Carfax.com)
- 9. Searching for the car of your dreams When searching online look for these items: Estimated monthly payments Estimated monthly or yearly gas costs Insurance cost Maintenance cost
- 10. What Are Your Car Needs? (And what are your automotive desires?) Price Fuel Efficiency Features & Options Size of the vehicle Safety
- 11. What is your car style? Coupe Sedan Hatchback SUV Truck Station Wagon Convertible Van Our choice of vehicle says something about us. Don’t let your dreams override your reality.
- 12. Know your credit score
- 13. Understanding your credit score
- 14. How to maintain a good credit? Make Payments On Time Keep Credit Card Utilization Low Avoid Applying for Multiple Credit Accounts Keep Credit Accounts Open
- 15. How to build your credit?
- 16. Get Financing
- 17. How to get financing? You can get financing from almost anywhere:
- 18. Purchase the vehicle After you get financing its time to Purchase the vehicle: The financial institution, dealer or private lender will cut a cashiers check or submit electronic payment. Reminder – submit VIN to your insurance company.
- 19. Financing Tips
- 20. Set up Automatic Payments Set up automatic payments with your finance and insurance company. Check your budget Apply additional funds to principal
- 21. Establish an Emergency Account A vehicle can breakdown at anytime. Prepare for the unexpected. Establish an Emergency Fund Check your budget
- 22. Summary How to create a budget How to identify your car needs vs your wants What a credit score is and how to maintain good credit How to get financing Why its important to establish an emergency account After taking this course, you learned:
Editor's Notes
- Before you begin the car buying process, it’s helpful to know what to expect. We have broken down these steps, so you can be well informed when purchasing your vehicle. This course provides an overview of financial steps needed to purchase a new car. This course duration is approximately 30 minutes.
- Thinking about a new car? Before you buy, know the pitfalls to avoid and the strategies for making a smart purchase. Don’t be taken advantage of by unscrupulous dealers or high-flying lenders. Know what you can afford to keep yourself financially sound. Your rating may depend on it!
- Buying a new car is expensive, especially when you consider how quickly the little things add up. On top of monthly car payments, fuel, insurance, and standard maintenance all contribute to the total cost of ownership. That’s why it’s important to have a realistic, working budget going in. If you don’t have one, we’ll help you create a basic overall budget before moving ahead with a new car purchase. Because there’s nothing more heartbreaking than to find that you can’t afford to maintain the model you had your heart set on—after you’ve bought it.
- You do not want to purchase a new car only to discover you barely have enough money for rent, food or entertainment. Therefore, by creating a budget you can see up front how much money you have left after paying all your expenses. Creating a basic budget is easy: Make two columns – on the left-hand side label income on the right-hand side label expenses. On the income side write: Paycheck #1, Paycheck #2, Other Income Total Income On the expenses side write: Rent /Mortgage Electricity Cell Phone Cable Water Miscellaneous Total expenses Now subtract Total income minus Total Expenses. This will give you the income you have left over from all your expenses. When budgeting also make room for emergencies (we all have them) and savings (we all need them.)
- Before heading down to the dealership to purchase the car of your dreams, you need to know how much the car will cost. Next, we will discuss where to go to find out how much the car of your dreams will cost.
- The internet is a good place to conduct research on the car you want to purchase. Online websites like Edmunds, & Kelly Blue Book (KBB) are great starting points to see how much the car will cost you. You also want to conduct research on how much the car insurance will cost. You can call a local insurance company for a quote or go online. When searching online look for these items: Estimated monthly payments – This will give you an idea of how much the car will cost, and to see if you have enough room in your budget to afford the vehicle. Estimated monthly or yearly gas costs – Understanding what type of gas and how much the gas will cost you each month helps determine if you have enough money in your budget to afford the fuels costs. Insurance cost – This is another key factor you need to know. Besides the vehicle cost you need to include how much the insurance will cost. Maintenance cost – Unexpected repairs for a car or truck can happen, getting an estimate of the maintenance of the vehicle will help you prepare for unexpected expenses and emergencies.
- When searching online look for these items: Estimated monthly payments – This will give you an idea of how much the car will cost, and to see if you have enough room in your budget to afford the vehicle. Estimated monthly or yearly gas costs – Understanding what type of gas and how much the gas will cost you each month helps determine if you have enough money in your budget to afford the fuels costs. Insurance cost – This is another key factor you need to know. Besides the vehicle cost you need to include how much the insurance will cost. Maintenance cost – Unexpected repairs for a car or truck can happen, getting an estimate of the maintenance of the vehicle will help you prepare for unexpected expenses and emergencies.
- Before heading down to the dealership to purchase a car, you should research the car to ensure you are getting the best deal for the car. Here are a few questions to ask yourself to determine if the car fits your needs. Price – Price will shape many of the decision related to choosing what kind of car you will purchase. Keep in mind that you will have to factor in the price of auto insurance, fuel, and maintenance cost to get the true price of driving a certain car. Get an estimate on car insurance for the kind of car you’re interested in. Don’t guesstimate! Depending on your age, driving record, and where you live insurance costs can very widely. Fuel Efficiency - With rising fuel prices, gas mileage has become an increasingly important factor in choosing a new car. If you must have a larger vehicle because of the number of passengers you transport, you will want to carefully compare mileage among available models in your size and price range. Note the fuel mileage and the size of the gas tank. Is this going to be a painful experience at the pump every time? Features and options – Is there a particular feature that your new car must have such as GPS, or anti-lock brakes, or an entertainment package? Keep in mind these are additional costs to the vehicle. Size – How many passengers need to ride in this car on a regular basis? Safety – What safety features are a must have for you. i.e. Airbags, car safety sensors? Style – Let’s face it. Our choice of vehicles says something about us. It’s okay to check in with your dreams when it comes to choosing a new vehicle. But don’t let your dreams override your reality.
- Style – Let’s face it. Our choice of vehicles says something about us. It’s okay to check in with your dreams when it comes to choosing a new vehicle. But don’t let your dreams override your reality.
- Depending on what stage you are in life you may or may not have a credit score. Your credit score is an important part of your financial health. In this next session, we will discuss: Why knowing your credit is key in buying a new car. How to get your credit score. What does your credit score mean? Ways to build your credit.
- WHAT IS A CREDIT SCORE? A credit score is a number from 300 to 850 that depicts a consumer's creditworthiness. Factors considered in credit scoring include repayment history, types of loans, length of credit history, and an individual's total debt. There are different scoring models, and some use other data, such as your income, when calculating credit scores. Credit scores are used by potential lenders and creditors, such as banks, credit card companies or car dealerships, as one factor when deciding whether to offer you credit. The credit score gives the lender an idea of the risk they will take if they lend to you. The higher the number the better. Typically, a low credit score means a high interest rate, while a high credit score gives you a lower interest rate. Credit scores may vary according to the scoring model used and may vary based on which credit bureau furnishes the credit report used for the data. That's because not all creditors report to all three nationwide credit bureaus – Equifax, Experian and TransUnion. These days you can usually find your credit score on your credit card or bank statement. Or try credit sites such as nerdwallet.com and creditkarma.com. Even if you do not have a credit score, you can get your free credit report, which is a comprehensive history of your credit use, at www.AnnualCreditReport.com. This is your time to look for any discrepancies appearing on your credit report and file a dispute to get them removed or updated. You can also purchase your credit report and score at one of the three major credit bureaus: Transunion Experian Equifax
- How to maintain your credit score Make payments on time - This is the most important thing you can do to maintain your credit score. Try to pay at least the minimum payment, and if you can pay more than the minimum, it will be helpful for your score. Setting up automatic payments through online banking and bill pay makes this simple. Keep credit card utilization low - A good rule of thumb is to keep your card usage under 30 percent when possible and avoid charging anything you don’t have the money to pay for when the bill arrives. Avoid applying for multiple credit accounts - With each application comes a small, temporary drop in your score. Multiple applications in a short time can cause more significant damage. Try to space them out by at least six months if you can. Keep credit accounts open - Unless you have a compelling reason to close an account, like a high annual fee or poor customer service, consider keeping it open. Closing one can reduce your average account age, which can have a big impact on your score.
- How to build credit Get a secured credit card - If you are building credit from scratch, this is a good first option. A secured card is backed by a cash deposit you make upfront, which is usually the same as your credit limit. It functions like any other credit card and you will receive your deposit back when you close the account. This is an option to help build credit, but these cards are not meant to be used long-term. Get a standard credit card and pay it off regularly – one of the best ways to show you are creditworthy is to use your credit responsibly. Start with a low limit credit card, use it monthly, even for one item such as a gym membership or subscription (Netflix, Amazon, etc.) and pay off the balance every month. You’ll see your credit score increase, along with your limit. Get a credit-builder loan - With these loans, the money you borrow is held by the lender in an account and not released to you until the loan is repaid. Essentially a forced savings plan, these repayments are reported to credit bureaus and can help build your score. Become an authorized user - A family member or significant other could add you as an authorized user to their credit card. This adds the card’s payment history to your credit files, so be sure it is an account in good standing. Use a co-signer - It is possible to get a loan or credit card if someone with a solid credit score co-signs with you. This requires a lot of trust because if you don’t pay back the loan, the person who co-signed with you is on the hook for what you owe.
- Financing is another important factor in purchasing the car of your dreams. Who will finance you? Where to go to get financing? Does it matter who you finance with? In this next lesson, we will discuss how to get financing
- You can get financing from almost anywhere: You could ask a family member to loan the money. You can get financing from a bank or credit union. You can get financing from the car dealer. Or get financing from a Private Lender (Fintech) When getting financing for a vehicle its best to shop around for the best rate and term before having the representative run your credit. Too many inquires can impact your credit score. You also want to look at the total cost of the vehicle, the company who is financing may have fees that you may be unaware of. Be aware, car dealers will ask how much you
- After you get financing its time to purchase the vehicle. The financial institution, dealer on private lender will cut a cashiers check or submit electronic payment to the party who owns the vehicle. Make sure you have submitted the Vehicle Identification number to your insurance company, so your car is insured when driving off the lot.
- To continue building and maintaining your credit, it is recommended to set up and establish automatic payments to the company financing you and your insurance company. This will help ensure your payments are sent on time, so you do not incur a late fee and derogatory on your credit report. Best Practice: Check you budget to see if you can add additional funds to the car’s principal. This will help you pay down your car faster thus savings money in interest.
- A vehicle in general can break down at anytime without any warning or notice. To prepare for the unexpected, its recommended to start an Emergency Fund for those instances. Check your budget to see how much you can put towards your savings. Accidents will happen, and unfortunately, they can’t be accounted for when it comes to owning a car. That’s why savvy consumers should always set aside a few extra dollars per month for unanticipated repairs. Repairs can range from relatively minor (and inexpensive) fixes—light bulb replacements, for instance—to an entire transmission overhaul, which will set you back several thousands of dollars. Before moving ahead with a new car purchase, you’d be wise to look into the vehicle’s reliability ratings or consider purchasing an extended warranty to give you peace of mind. That said, extended warranties can be pricy and thereby need to be factored into the total cost of car ownership as well.