What You Need to Know if You are Buying a Car

After a home mortgage, car loans are the largest debts most people have. More than 70 percent of all the cars on the road are financed. Car debt is one of the biggest roadblocks for people on their journey to true financial freedom.

It’s especially dangerous because most people never get out of car debt. Just when they get to the point of paying off a car, they trade it in and purchase a newer one with credit.

Unlike a home, which usually appreciates in value, the moment you drive a car off the lot it depreciates in value. It’s worth less than you paid for it by the time you hit the first intersection. If you had to sell it, you couldn’t get enough to pay off the loan.

The average price of a new car, considering all models, is about $33,000 and the typical monthly car payment is just over $500. In our Navigating Your Finances God’s Way Bible study we advise that the average expenditures for ALL transportation costs should be between 10%-15% of your net spendable income (salary, minus payroll deductions, minus giving = net spendable income).

Transportation costs include the car payment as well as insurance, gas, maintenance, tolls, parking, etc. If the total of all transportation costs should not exceed 15%, the car payment should not exceed half of that or 7% of your net spendable income, which means your net spendable income needs to be $86,000 in order to properly budget for a car payment of $500/month. And that’s only for one car. If a family is making two car payments the salary needs to be higher.

In our opinion, the most reasonable financial position is to buy a certified used car. If the average price for a new car is $33,000 and a 3 year old used car is worth only 50% of the new price, then it stands to reason a used car average price should be about $16,000.

The upside is that you’ll have lower monthly payments or maybe no payments at all. You can probably afford a better model at a lower price than if you were buying new. And those first few dents and dings won’t be as painful with a used car.

You always run the risk of buying someone else’s lemon, but that can be mitigated by buying a certified used car. These are usually 2-3 years old with low mileage. Some certified used cars may still have some of the original factory warranty left. Plus, these used cars come with certifications from factory trained mechanics covering from 150 to 180 point inspections. The cost is higher than a non-certified used car, but it is definitely lower than what you would pay for a new car. Be sure to read the fine print to understand what you are getting.

As you begin to contemplate purchasing a car, you’ll need to consider the purpose of the vehicle. If your family has outgrown the sedan, you may want to consider a minivan. If your job, or choice of recreation dictates off road capabilities, you may want to consider a truck or SUV. In addition to deciding which type of vehicle you need, you should also write up a list of car options you simply can’t live without, such as automatic transmission; power steering and brakes; good gas mileage; or adjustable seats.

It will also be helpful to write up a second list of options that would be nice to have if you happen to run into a vehicle that comes equipped with those features, but lack of those features would not be a deal breaker. Some of those features could include: bluetooth, body style, color preference, air conditioning, cruise control, and sound systems.

You also need to be aware of how much car you can afford based on your finances. Some people purchase a used car outright; others plan to finance. Either way you’ll need to determine how much you can afford to spend. In addition to the cost of the car, be sure to factor in the expenses that you may not have considered yet such as title transfer and registration fees, and in some states, smog or emissions certification.

In addition, your insurance rates may be affected with a newer car, so check with your current agent or go online to get a quote. If you plan to buy an older car, or are willing to buy a car that may need maintenance or repairs right away, set up a special fund for those probable expenses.

Once you determine how much money you can spend on purchasing a used vehicle, it is time to start the next step to car ownership which is to do some research.

We always recommend seeking counsel before making any financial decision. Proverbs 20:18 says “Plans made with advice succeed; with wise direction wage your war.”  Buying a car and haggling over the price can sometimes feel like waging war!! 

Talk to family, friends and co-workers to see which vehicles they have been happy with. Their experiences (good and bad) are purely anecdotal, but they may help you decide which make or model might work best for you.

Take a look at the general types of vehicles currently for sale, what features are available on what makes and models, and what kinds of vehicles you can afford. Spending some serious time at this stage of the process is important to making an informed decision on what type of car you’ll be narrowing your search for, so don’t skimp on the time you dedicate toward your future vehicle.

There is certainly no shortage of used cars being offered for sale by individuals, especially in larger cities and through the car selling websites and auctions online.

A major difference between buying a used car from a dealer and a private party is the degree of warranty available. Few, if any, individual sellers offer any type of after sale warranty, while dealers cars range from “as is” to limited warranties to certified vehicles that come with extended warranties.

There are many websites that provide great resources by year, make and model on such things as safety records, frequency of car repair, maintenance costs, comparison reports, and gas mileage figures. Here are some of the best places to get car info on the Web: Edmunds.com; Cars.com; U.S. News Best Cars; Kelley Blue Book, and TrueCar.

When you find a car you are interested in, be sure to request that the seller provide you with the Vehicle Registration Number (VIN) for that car. Each car manufactured is issued its unique VIN and the records of that vehicle follow it throughout its lifetime. For a minimal fee, online services can locate the records for that particular car and send its vehicle history report to you, including: if the car has a clear title; if the car has been salvaged; if the car has been involved in a serious accident; how many times the car has been sold; the original sale date; and if there have been any recalls for that car. Investing in a VIN search can save you a lot of headaches (and money) down the road.

When you are car shopping, spend some time considering your options, discuss the idea with your family and friends, do some window shopping and PRAY for God to help you make a wise decision.

Lots of people get confused between the function of a car, which is to take you from Point A to Point B and the status of driving a new car. In 1 John 2:15, we read “Do not love the world, nor the things in the world.” So make a car buying decision based on your need for safe reliable transportation and nothing else.