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7 ways to save money on your next car

Is leasing or buying the best option for your next vehicle purchase?

If you’re considering buying or leasing your next car, you may not know exactly where to start. Instead of heading straight for a dealership, use these tips to understand the pros and cons of buying versus leasing, how to get the best deal possible and ways to pay for your new ride for less.

1. Know what you can afford

Before you start car shopping, it’s critical to decide how much you can and want to pay for it. A good rule of thumb is to keep your car payment at no more than 10% of your net pay. So, if your take-home pay is $5,000 per month, your car payment shouldn’t exceed about $500.

You can get help crunching the numbers using a car loan payment calculator. Input different terms and loan amounts to see how it affects your payment. But remember that you’ll also have other expenses to cover, such as fuel, power, insurance and maintenance not covered by a warranty.

2. Build your credit

Once you have a price range in mind for your vehicle, check your credit. Auto lenders rely on credit scores to set your loan’s interest rate. The better your credit, the lower your interest rate will be.

If you have no or poor credit, you may get turned down for a loan or get quoted a relatively high interest rate. With a higher interest rate, you’ll have higher monthly payments. That means you may need to buy or lease a less expensive vehicle or save enough cash to avoid taking out a loan altogether.

So, if your credit isn’t in good shape right now, it’s worth waiting to get a car loan or lease until you build or rebuild it.

3. Research auto loans

To get the best auto loan, you need to do your homework. While you can apply for dealership financing, compare the best auto lenders online. To save the most money on finance charges, shop for the shortest loan term you can afford, which reduces the amount of time you pay interest.

Once you’re ready to buy a car, get a loan pre-approval. You must submit personal information such as your Social Security number and salary so the lender can review your credit and financial history. If you get preapproved, you’ll know the maximum amount you could borrow and your interest rate.

4. Don’t get upside down

Within the first year of ownership, the average new car depreciates about 20%. If you take out a loan and end up owing more than the car is worth, that’s called being “upside down.”

Consequently, if you sell a car before paying it off, you’ll have to make up any difference between the sales price and the remaining loan balance. To avoid getting upside down, you can pay a larger auto loan down payment, such as 20% or more.

For instance, if a car costs $40,000, try to put down $8,000. In addition to giving you more vehicle equity, it reduces your monthly payments or allows you to shorten the repayment period.

5. Compare buying and leasing

When you lease a car, you sign a contract allowing you to drive it for a period, such as three or four years. It’s less common than buying but has become more popular with the rising cost of vehicles.

Instead of paying a retail price, you only pay for the estimated depreciation of a car during a lease. That’s why it costs less to lease a vehicle than to buy it. Like with a car loan, the better your credit, the better your terms. If you have poor credit, you may have to pay a larger down payment and monthly lease payments.

Here are the pros of leasing a vehicle:

  • You typically pay less than buying
  • You don’t have to pay for significant repairs (unless your lease exceeds the warranty)
  • You can drive a new car with the latest safety features every few years
  • You avoid the hassle of trading in or selling a vehicle

But consider the following cons of leasing:

  • You don’t build equity
  • You must pay for damages or excessive wear and tear when the lease ends
  • You must pay for mileage overages, such as driving more than 10,000 to 12,000 annually
  • You must pay hefty fees if you break a lease

Here are some pros of buying a car:

  • You can customize it
  • You can trade it for another vehicle
  • You can sell it
  • You can drive it as much as you like
  • You can pay it off and continue driving it

Some cons of owning a car include:

  • You typically must make a down payment
  • You pay higher monthly payments compared to leasing
  • You could get upside down on a loan
  • You must pay significant repair costs after a warranty expires

6. Negotiate your purchase or lease

Whether you lease or purchase a vehicle, you should expect to negotiate the deal. Remember that just because you got preapproved for a specific loan amount doesn’t mean you should spend the maximum.

If you buy a vehicle, always focus on its price, not the payment — and show the salesperson the best price you found doing your research. Plus, if you have a vehicle to trade in for a purchase, know a reasonable trade-in value.

If you lease a vehicle, focus on the total cost of the lease, not the payment. The gross capitalized cost is the amount you pay for a lease. Remember that if you exceed a lease’s mileage, you’ll have to pay an overage fee. So, try to negotiate extra miles for free.

And if you’re considering buying a vehicle at the end of a lease, let the salesperson know. It’s possible to negotiate a lower price than the anticipated market value of the car.

7. Shop for car insurance

If you already have car insurance, update the coverage immediately after buying or leasing a car. Most policies include a grace period, such as 30 days, when any new, used or leased car is covered automatically. Since your vehicle makes and model affect your auto insurance premium, your rate could go up or down.

However, when buying or leasing your first car, you must purchase auto insurance before driving your new car home. Since you don’t have a retroactive grace period, driving without insurance would put you at financial risk.

If you buy or lease a car from a dealership, it may offer guaranteed asset protection (GAP) insurance. It pays the difference between the amount you owe on your loan or lease and the value the insurance company places on your car. In other words, it protects you from the financial risk of being upside down on a vehicle.

In some cases, a vehicle with a higher purchase price, such as an electric vehicle (EV), may cost less over time than a gas-powered car. So, consider a car’s total cost of ownership — including the down payment, monthly payment, fuel or charging, insurance and maintenance — to save as much money as possible.

About the Author

Laura Adams is a money expert and spokesperson for Finder. She’s one of the nation’s leading personal finance and business authorities. As an award-winning author and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners, and loyal fans benefit from her practical advice. Laura is a trusted source for media and has been featured on most major news outlets, including ABC, Bloomberg, CBS, Consumer Reports, Forbes, Fortune, FOX, Money, MSN, NBC, NPR, NY Times, USA Today, US News, Wall Street Journal, Washington Post, and more. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Her mission is to empower consumers to live healthy and rich lives by making the most of what they have, planning for the future, and making smart money decisions every day.

This article originally appeared on and was syndicated by

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