Understanding Your Options

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Finding and buying the right car isn’t hard if you go about it the right way, but you should have a plan as you begin the car buying journey. Factors like lifestyle, budget, new vs used, manufacturer, and cost all have to be balanced against each other as you narrow your search. There will be trade-offs for sure, because we can’t always get what we want, but if you are disciplined and thoughtful, you’ll get what you need. These are what we tell our members are the essential factors as they evaluate their options:

Understand The Cost/Earnings Ratio  – The ratio between annual income and vehicle cost is probably the most important thing that most car buyers have never heard of. All of the evidence, and there’s lots of it, points to the fact that people who buy a used car that costs more than 25% of their annual income get into trouble far more frequently than people who stay below that threshold. The same holds true for the length of the loan – people who buy used cars and finance them for more than 36 months fall behind in their payments over the length of the loan much more frequently.

The simple truth is that people get in trouble when they buy vehicles they want but can’t afford. The car you buy should fit your budget. Obvious right, but a lot of people buy cars they want and can’t afford. 

You’ll find detailed guidelines and tools to help you understand about budgeting for your car in the Financing Your Vehicle section, but the most important suggestion is to stick to the ratio between vehicle cost and loan term when you buy a used vehicle. If you stick to the ratio, you’ll almost always be OK. If you are buying a new car you can usually get away with payments of 30% of your annual income and a loan term of 48 months.

Understanding Your Lifestyle Needs – The vehicle you buy should match your lifestyle, how you use it and what you do in it every day. It’s a simple idea, but lots of people buy vehicles they really shouldn’t because they don’t think this critical step through. They get carried away with the idea that they have to have this or that feature when the simple truth is that they’ll use it infrequently if ever. You’ll find detailed suggestions about lifestyles and cars in the next section, Choosing Your Vehicle. Choosing between new and used is complicated for a lot of people. Longer lasting used cars and attractive financing for new cars makes the decision harder. You’ll find detailed suggestions about the pros and cons of used vs new cars in the next section, Choosing Your Vehicle.

Understanding Your Financing Options –  Getting the right financing is critical and it’s not simple.  We go into financing in detail later, but the bottom line is if you can arrange to finance through a bank or credit union before you begin negotiating with the dealer, you should. Similarly if you can hold off buying a car and use the time to improve your credit score and save for a bigger down payment you’ll get much better terms when you finance your car.

All of these things may sound obvious, but as you will see in the following sections taken together they represent the difference between getting the right car for the right price or making what could possibly be a serious mistake. The next section explains how to go about figuring out what kind of vehicle you need and can afford.