Have you decided what you're looking for in your next car? Perhaps it's the eco-friendly nature of a fuel efficient car or the power and capacity of an SUV or even the ease of parking that comes with a subcompact. One thing's for sure, no matter which direction your needs and wants point you, wise planning when making a large purchase like this will help you save as much money as possible.
While the percentage of people that drive to work--especially in urban environments where alternate methods of getting around are plentiful--has decreased over the last decade, the American Community Survey (ACS) found that in 2014 76.5 percent of people still drove to work alone and an additional 9.2 percent carpooled. For most, driving a car is part of everyday life and having access to a reliable vehicle is crucial.
For some, the best option may be to get access to a car without purchasing it. Membership services exist that let you rent cars that are conveniently parked near universities and throughout cities across the country. Individuals may even decide to lease a car rather than buy one for a variety of reasons.
People that do purchase a vehicle are holding on to them for an average of 77.8 months (about 6.5 years). That's about two years longer than they did a decade ago according to IHS Markit, a global information and analytics company. Whether you plan to keep your car for two years or ten, there's a lot to keep in mind during the buying process.
Take the time to weigh your options, do your homework before signing the final contracts and getting the keys. You can consider these six savings tips as you embark on your hunt for your next car. Whether you're concerned about upfront, monthly or long-term costs, there's something here for you.
1. Look for long-term savings with a fuel-efficient car. Once you determine what class of car fits your needs and how much car you can afford, you can compare the Environmental Protection Agency's estimated miles-per-gallon rating for each vehicle. You can use the findings to help estimate the monthly cost of ownership.
One way to save may be to buy a fuel-efficient hybrid or an all-electric vehicle. You'll lower your ongoing costs compared to driving a gas guzzler and you can get a federal tax credit worth up to $7,500 when you purchase some types of plug-in hybrids or all-electrics. Some states offer additional tax incentives or offer benefits like access--with a single occupant--to High Occupancy Vehicle (HOV) lanes or High Occupancy Toll (HOT) lanes as well.
2. Research the long-term cost to own the car. It's easy to fixate on the sticker price when shopping for a car, but keep the long-term costs in mind as well. In addition to fuel, you'll have to pay for maintenance, repairs, insurance, taxes, fees and financing if you take out an auto loan. You may also want to factor in depreciation--the loss of your car's value over time--if you plan to resell the vehicle later.
Kelly Blue Book has a 5-Year Cost to Own tool that lets you compare long-term costs for 2015 and 2016 models. Edmunds's True Cost to Own® tool does a similar thing, but includes 2010 and newer models.
3. Buy a used car. "New-to-you" cars are typically much cheaper than equivalent models right from the factory, but you might have to spend more time comparing cars when buying used. You'll want to look at each used car on an individual basis; factor in both how it feels during a test drive and its history if you can access it. One downside to buying used is that the car might not have a warranty. Look into certified pre-owned (CPO) cars if that's a deal breaker for you. CPO dealerships inspect and certify used cars before selling them with a manufacturer's warranty. Car and Driver estimates that buying a four-year-old CPO can save you 40 percent compared to buying the brand-new model of the car.
Whether you're buying directly from an individual seller or a wholesaler, it can be a good idea to hire a mechanic to perform a pre-purchase inspection. It's not a warranty, but this can ensure you won't get caught off guard by any unexpected issues.
The extra work you put in when shopping for a used car can pay off. With the right deal, you may decide to buy a used vehicle outright rather than financing the purchase. Not only will paying everything upfront help you avoid accruing interest over the lifetime of the loan, you won't have to budget for monthly payments or pay potential loan origination fees.
4. Negotiate from your home. Most don't enjoy haggling with salespeople. An Edmunds survey found that 83 percent of people would rather completely avoid negotiating while buying a car. Even so, negotiating can help you save money, and there are non-confrontational ways to go about it.
You can shop for cars from the comfort of your home and conduct your negotiation with a salesperson by email, giving you more time to think through your responses and avoid high-pressure sales tactics. After you decide on the general make and model you want, look for specific cars that fit your criteria and are available at nearby dealerships. Reach out to each dealer's internet sales team and ask for their best price on the car. Ask for the total cost, inclusive of fees, taxes and document fees, so that you can set your budget accordingly.
With the list of quotes in front of you, take the lowest offer and ask the other dealers if they can beat it. If one of them can, take your new lowest quote and again ask the rest of the dealers to go lower. Keep it up until you get a price that works best for you.
Shopping online also enables you to find the best deal no matter where it may be. A close friend of mine searched nationwide the last time he purchased a vehicle and found the year, make and model of car that he wanted for thousands less than it was available locally. After some calculations he found that, even with transactional differences between states and the cost of travel to the location and back home, he would end up with a car he wanted and still save thousands of dollars. If this is a route you decide to take, be sure you take into account the risk that you may arrive and find things other than advertised. Careful research into the seller can mitigate this risk to a certain extent.
Another helpful resource is negotiation services like Authority Auto, which negotiates competitive prices on new and pre-owned cars. For a fee, the online service negotiates each part of the process to get you a better deal and take some of the stress out of the car-buying experience and only charge a percentage of what they save you.
5. Consider leasing instead of purchasing. You'll have a lower down payment and monthly payments if you lease a car rather than buy it. Your monthly payments depend on the vehicle's price when you sign the contract, meaning that even with a lease it's worthwhile to shop around and negotiate for a better rate.
A lease is like a long-term rental agreement, and there are often stipulations to boot. For example, you might have to pay a fee if you drive too many miles during a year or damage the car. You also have to return the vehicle when the lease ends, although you may have the option to buy it if you want.
If you like to drive a new car and always want to be under warranty, leasing a vehicle every few years could make sense. On the other hand, if you tend to have a lot of wear and tear on your cars, there's more long-term value in buying.
6. Forgo the car altogether. Going carless may not be an option for everyone, but it's worth considering if you live in a city or don't regularly drive long distances. You could rely on a mix of carpooling, public transportation, walking and biking to get around. When you're in a rush or have a heavy load of groceries to bring home, you could call a car using a ride-sharing app or local taxi service.
There are over 50 U.S. cities that have bike-sharing programs, which let you borrow a bike and ride it between storage racks that are spread out across the city. You can either pay as you go or become a member. For a monthly or annual fee, members often get their first 30 minutes of each use for free. Plus, you won't need to worry about storing or maintaining a bike if you rent one.
If you want access to a car without the cost of ownership, consider joining a car-sharing program. A few programs include fuel and insurance, and charge you based on how long you use the car or how far you drive.
Bottom line: Whether you're focused on the upfront, monthly or long-term costs, there are ways to save on your next car. Before signing any dotted lines, decide what type of car or contract you want and take the time to research your options so you can make an educated choice.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.