Congratulations, college graduate! You’ve got your diploma, and you even managed to land a job. With so many dealerships offering incentives and rebates right now, you might be tempted to put a down payment on that shiny new vehicle that symbolizes your first step into adulthood (and out of your mom’s station wagon). But before you shell out on a brand new car, do your homework and crunch some numbers. The sticker price is one thing, but hidden costs of a new car loan can throw you into shock long after the initial thrill is gone.
For example, consider your credit rating. Many dealerships will be eager to work with you to give you financing with “low monthly payments,” but keep an eye on another number that will have a much longer-term impact on your bottom line: your loan’s interest rate. As a recent college grad, you probably don’t have much of a credit history, which will affect what sort of auto loan terms you are eligible for. Dealer financing is not the best deal in town, and they may offer you terms as high as 18% or even 21%! You want to look for the lowest auto loan rates you can find, and the dealership probably can’t offer those to you. Try pre-qualifying for a car loan with your bank or credit union. If you step into a dealership with financing in place, you will not only have a much better interest rate, you have a stronger position from which to negotiate a price.
Mind the Small Things
Also, don’t forget to include taxes and fees when you are considering the cost of your car. Sales taxes, title fees, registration and license plates add up quickly and could add hundreds and even thousands of dollars to your purchase price.
Insurance on a new car is usually more expensive than on older vehicles, as well. You should check with your insurance agent before purchasing a vehicle, and also ask them about something called “gap coverage,” which would pay the difference between your car’s actual cash value and your outstanding loan amount in the event that your car is totaled or stolen.
Speaking of gap coverage, did we mention something called “depreciation?” Basically, that means as soon as you drive a new car off the lot, your car loses about 20% of its value. So be sure you know what you are getting into before you sign on the dotted line – otherwise you could find yourself stuck with a car you can’t afford.