By LOUIS DENICOLA
If you're about to graduate from college, you may be ready to ditch your bike and take the leap to car ownership. Along with a new job and place to live, it's a significant stepping stone into the "real world."
But before rushing to make such a major purchase, consider the cost, financing options and whether a new or used car makes the most sense for you.
Buying a new car
There are several benefits to buying a brand-new vehicle. You may be able to order a particular color, trim package or set of extras, and you'll know the car has never been in an accident or mishandled by a previous owner.
You may also be able to get the latest technological features, and newer vehicles may be safer and more fuel-efficient than previous models.
However, new cars can be expensive compared to their used counterparts. You may be able to negotiate the price by getting quotes from several nearby dealerships and going back and forth asking the dealers to beat the current best offer, but the process can be lengthy.
If you prefer not to negotiate, you may be able to get prearranged prices on new vehicles with an auto-buying program, such as the Costco Auto Program.
You could also look into special college-grad financing offers. For example, the Nissan College Grad Program is available to qualifying students who graduated within the last two years, will graduate in the next six months or are currently enrolled in a graduate program. It gives a $500 to $1,000 discount on select models.
Buying a used car
Max Cron, a marketing assistant at Superior Honda, a new and used dealership in the New Orleans area, says buying used may make the most sense for some recent grads because of the savings.
Not only is the sticker price lower, but "depreciation is also highest in the first few years of ownership, so buying a used car often provides the most value," Cron says.
To decrease your chance of purchasing a car that will need expensive repairs soon, consider paying a mechanic to do a prepurchase inspection of the vehicle. The process takes about an hour and may cost around $100.
If there's a minor problem, such as unbalanced tires or worn-down brakes, you may be able to ask the seller for a lower price and use the savings to pay for repairs.
But if there's a major problem such as a transmission that's failing, you may want to walk away from the deal.
Financing the purchase
Unless you're able to pay for a car in full, you may need to take out an auto loan to finance the purchase. You can shop for a loan at banks, credit unions, dealers and online lenders to try and find the best rate.
Applying multiple times in a short period of time is generally counted as one hard inquiry. However, applying for multiple loans more than a few weeks apart can hurt your credit.
The loan's terms and your approval may depend on a number of factors, including your credit history, income, debt-to-income ratio and the stability of your job.
If you have little or no credit history, and you're unable to get approved -- or want better terms -- you could ask someone, such as a parent who has established credit and is in a more stable financial situation, to co-sign the loan.
However, the co-signer needs to be aware that he'll be liable for the payments if you're unable to make them. Also, these financial ties may strain your personal relationship.
If none of these options work for you, an alternative may be to wait to buy a vehicle until you've built your credit and can qualify on your own.
Budgeting for your new car
The monthly payment on an auto loan is just one of a handful of expenses you'll need to cover as a car owner. Before making the purchase, consider the following in estimating your total monthly cost:
- Loan payments. You may be able to get an estimate for your monthly loan payment from loan providers or with a free online car payment calculator.
- Insurance. Insurance providers can quote you a rate based on your information and the type of vehicle you're considering. A new, sporty car may be more expensive to insure than an old sedan. Look for potential ways to save money, such as asking for a discount when you install an alarm system or steering-wheel lock.
- Gas. Calculate the miles you'll typically drive for your work commute, and add additional miles for trips to the store, friend's houses and weekend getaways. Consider the current price of gas and the vehicle's fuel efficiency to estimate your monthly fuel cost.
- Maintenance. New tires, windshield wipers and oil changes all come with a price and are essential to maintaining your new car and making sure it's safe to drive.
- Repairs. It may make sense to put money aside each month to help pay for unexpected deductibles, or for the entire cost of repairs if you don't have a warranty.
- Additional expenses. Remember to factor in less-frequent expenses, such as your annual registration fee (divide the fee by 12 to calculate your monthly cost).
You can use several tools to help estimate the long-term cost of the purchase. Edmunds.com has the True Cost to Own® pricing system that works with 2010 models and later, and Kelley Blue Book's 5-Year Cost to Own tool works with 2015 and 2016 models. Both estimate the total cost of ownership after the purchase is made, plus depreciation.
Think carefully before stretching beyond the bounds of your budget. In a worst-case scenario, if you fall behind on payments, the lender may repossess your vehicle. Not only will you be car-less, but the late payments and repossession could also significantly hurt your credit.
As a new graduate, you may want to buy a car as you step into the next stage of your life. But take a moment to consider the financial implications of buying new versus "new to you," and the impact the total monthly cost of owning a car will have on your budget.
If you're taking out an auto loan, you may want to shop around to find the best rate. You could ask a parent to co-sign if you're unhappy with the terms.
You could also try to build your credit and reapply later, but find a way to track your credit in the meantime, as multiple loan applications made more than a few weeks apart can hurt your credit.
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